Closing Recap

Tuesday, June 25, 2024

U.S. stocks finish mixed, with market action a reversal of recent trading days, seeing strength in technology stocks after a brief 3-day rout (Nasdaq +1.25%), which saw rotation back into Smallcaps, Financials, Energy and others. However, that rotation appears short lived, with a strong rebound in semiconductors (SOX bounces 1.5%) led by NVDA up over 6% after falling 13% the last 3-days, while META, GOOGL rise 2% and AAPL, AMZN gain 1%. Smallcaps disappointed and the Dow Industrials also lagged with tech the only true leader on the day. The Dow Jones Transport Average fell over -0.8% after recent gains with freight rail company Norfolk Southern (NSC) down the most on analyst comments and FedEx (FDX) flat into earnings tonight. It really was a quiet day, light on Fed speakers and economic data as markets await GDP on Thursday and PCE core inflation data on Friday morning. Fed stress tests tomorrow night a focus for banks and the first Presidential debate between Trump and Biden coming on Thursday night. Fed Board of Governor Michelle Bowman said earlier inflation is not at a place yet where interest rates should be lower. She said, “should the incoming data indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive.” Stock market averages just continue to remain strong/resilient, as any market dip is shallow and bought aggressively. RyanDetrick tweeted: “Today will be the 337 consecutive days without a 2% drop for the S&P 500. Yes, this is one of the longest streaks ever, but we’ve seen some streaks go much longer.”

• Richmond Fed composite manufacturing index -10 in June vs 0 in May, Richmond Fed manufacturing shipments index -9 in June vs +13 in May, Richmond Fed services revenues index -11 in June vs +3 in May.
• U.S. S&P CoreLogic home price index rose 1.4% to 329.8 in April, a fresh record high, for the 20-City index, after rising 1.6% to 325.4 in March. The 12-month pace was little changed at 7.2% y/y from 7.5% (was 7.4%) y/y previously. The 10-City index also increased 1.4 % to 346.9 in April following the 1.6% gain to 342.2 (was 341.8) previously. All 20 cities in the index saw rising prices over the past year, led by San Diego’s 10% increase.

• U.S. WTI crude oil futures settle at $80.83/bbl, down 80 cents, 0.98%.
• Brent crude futures settle at $85.01/bbl down -1.16% or down -$1.00.
• Front-month, Nymex nat gas futures fell 5.5c, or 2.0%, to settle at $2.756 per million British thermal units (mmBtu).
• Wheat prices extend decline, down a 7th consecutive red day and 17th of the last 19.
• After hitting record highs a few weeks back, cocoa prices extended declines, after falling 10% last week.
• Treasury yields end down slightly by 1.8 bps to around 4.23%.

• BIRK filed for an offering of up to 14.0M ordinary shares by the selling shareholder.
• CPRI was upgraded to Overweight from Equal Weight at Wells Fargo in handbags/accessories as sees significant upside in multiple scenarios, and at current levels it believes it is time for investors to start re-examining CPRI on the long side.
• DECK tgt from $1,120 to $1,200 at BTIG and maintains Buy saying Q1 results and QTD commentary speak to a consumer that is selective, but not significantly changed from the consumer BTIG observed in H2’23. BTIG continues to closely monitor the lower income consumer, who remains more sensitive to the impact of cumulative inflation.
• GPS was upgraded to buy from hold at TD Cowen saying the company is in the “early innings” of a transformation across all four of its brands and that the growth potential is underappreciated.
• RL positive mention by UBS as reiterate Buy and $250 tgt after mgmt meetings as views RL as a high-quality growth stock, believes the stock will outperform over the NTM due to EPS beats and P/E expansion, and thinks the market doesn’t appreciate the continued runway Ralph Lauren has to expand the transformational changes.
• TPX shares dropped amid a CTFN report of meeting with FTC on Mattress Firm; decision May come next week.
• WMT shares slipped following comments at Bank of America London Investor Conference (citing transcript) – "Not every quarter is going to be as good as the last quarter and certainly the quarter that we’re in, the second quarter, we said is our most challenging quarter from the comp perspective for the year."
• In Food & Beverage: after hitting record high prices over a month ago, cocoa prices have continued the sharp downward momentum (helping names like HSY, NSRGY); Evercore/ISI said to watch out for negative pricing saying they are relatively wary of names with YoY net pricing declines. They are already seeing this with Conagra (CAG) Frozen (~40% of company sales), BGS, KLG, K, and CPB. CMG 50 for 1 stock split takes effect tomorrow. CELH shares remain pressured as Evercore/ISI noted total energy drink category sales were up 2.7% year-over-year in the last four weeks, down 580 basis points from the 8.5% growth in Q1, with traditional sales up 0.1% and new-wave sales up 23.9%.

• Home Improvement retailers HD, LOW, TSCO seeing broad weakness, with many citing the Pool Corp. (POOL) warning overnight that discretionary pool spending continues to be hampered by the macroeconomic environment, and that “seasonally significant” second-quarter revenue trails previous expectations due to “lower new pool construction and remodel activity.” Wells Fargo noted the POOL guide was also a negative for MHK.

• In Autos: TSLA is recalling 11,383 model year 2024 Cybertruck vehicles manufactured from November 13, 2023, to May 26, 2024, the NHTSA says in documents posted to its website. XPEV was upgraded to Neutral from Sell at Citigroup saying they expect a lengthened model cycle ahead with market consolidation likely until 2031, which may lead to ROE recovery of leading auto makers from 2H25 to early 2029. RIVN was initiated Buy and $18 tgt at Guggenheim as the firm believes it uniquely positioned that can deliver a superior product compared to ICE vehicles enabled by software, technology and thoughtful design elements. In used cars, CVNA shares surged over 7% topping $128.50, up 5 of last 6 days (up 142% YTD) to best levels since April 2022.
• In Casinos & Gaming: PENN was downgraded from Outperform to Market Perform at Raymond James after recent activist pressure and M&A rumors have pushed shares up 21% since its May 20 initiation of coverage. The firm said it believes upside is capped around $20/share as the interactive and "penalty box" discounts will likely persist. In OSB, DKNG shares down 4 straight days, falling over 4% and now down -12% in the last 4 days.
• In Food/Grocery Delivery: Needham said their 2nd Grocery Tracker showed CART maintained its significant lead in the industry, while DASH remained in second place but saw the slowest growth of the three, as UBER showed the strongest growth (percent and net adds).
• In Cruise lines: CCL results beat as Q2 adj EPS $0.11 tops the consensus loss of (-$0.02) on revs rising 18% y/y to $5.78B vs. consensus $5.68B with adj net income $134M vs. loss $395M y/y, and adj EBITDA $1.20B, +76% y/y while raised full year adjusted net guidance by about $275M.

• In Transports: HUBG and ODFL downgraded to In-line from Outperform at Evercore/ISI and cut tgt to $196 from $225; CHRW was upgraded to Outperform from In Line at Evercore ISI and raised tgt to $99 from $82 in the trucking sector. In rails, Wells Fargo lowered their Q2 ests for railroad NSC saying they get the sense that the company’s 2Q OR guidance is becoming more difficult to achieve in the context of a smaller-than-expected sequential volume ramp-up.
• In Solar & Utilities: SEDG shares tumbled after announcing a proposed private offering of $300M of convertible senior notes; notes maturity set for July 1, 2029. Additionally, it noted that a customer had filed for bankruptcy, meaning it might fail to collect the $11.4 million it is owed. ES was upgraded from Underperform to Neutral at Bank America saying negative overhangs now reflected in discount valuation. The firm now sees three impediments to stock performance: a weak balance sheet, projected EPS growth at the low end of guidance and need to improve regulatory outcomes in CT.
• In Energy: XOM price tgt raised to $154 from $152 at UBS saying they view as the best stock to own across their coverage for the next 5 years; supporting UBS’s view are 5 drivers across the business units that can create value and grow earnings without a commodity tailwind.
• In Industrials/Machinery: AGCO said it is streamlining the company’s workforce with a reduction of the company’s salaried workforce by up to approximately 6%; said will incur charges for one-time termination benefits of approximately $150M to $200M. ENVX announced it has signed an agreement with a leading California-based technology company to provide silicon batteries and packs for a mixed reality headset.
• In Materials: Piper lowered price targets on lithium miner ALB to $95 from $122 and ALTM to $3.75 from $5 citing the continued deterioration in supply/demand dynamics, as seen through weakening lithium prices. Also said volumes will rise as capacity comes online to lower average selling prices. Due to the nature of their contract structures, they see realized prices moving lower in Q3 vs. Q2 and reaching lows in Q4. XOM said it has signed a non-binding memorandum of understanding with SK On, an electric vehicle battery developer.

• In Financial Services/Credit rating: RBC Capital previews quarter saying estimates TRU revenues and EPS at the higher end of the guidance range, and its estimates could also prove conservative; says EFX Q2’24 estimates are above the street and guidance range predominantly due to better than feared mortgage applications; lastly expects FICO to deliver a solid beat driven by 30%+ growth in both B2B Scores and Platform ARR growth.
• In REITs: Keybanc said they remain constructive on the Self-Store space with a view into 2H24 and 2025 and has increased conviction in its calls on OW-rated EXR and OW-rated NSA. However, says both stocks could be due for a ST pause following strong QTD performance.

• ILMN announced the successful completion of the spin-off of Grail (GRAL); milestone follows the company’s previously announced plans to divest Grail, and Grail is now a public and independent company.
• IONS said the FDA has accepted for Priority Review the New Drug Application for Olezarsen, an investigational RNA-targeted medicine for the treatment of adults with familial chylomicronemia syndrome.
• Merck KGaA (MKKGY) shares drop after the company said it discontinued a late-stage trial for a cancer drug; they canceled the Phase 3 trial of xevinapant after an independent committee found that the drug was unlikely to achieve its main goal of extending patients’ lives without the cancer worsening.
• NVO’s Wegovy has been approved for sale in China, The Financial Times reported. It is not yet known when the product will launch, the pricing of the drug, or the volume of the product that will be supplied to the region.
• WVE announced positive results from phase 1b/2a select-HD trial with first clinical demonstration of allele-selective mutant huntingtin lowering in Huntington’s Disease (shares opened higher then reversed lower).

• Goldman Sachs highlights Presidential Election Considerations heading into first debate on Thursday between Trump and Biden. Firm said Medicare Advantage Managed Care (CVS, HUM, UNH) have been discussed as potential Trump beneficiaries given greater debates about the outlook for the MA program under a second Biden term. Goldman also said ACA Beneficiaries (HCA, THC, UHS, OSCR, CNC). Rising Trump odds could be a headwind for Hospitals sentiment where the group’s YTD outperformance and elevated multiples have led to increased investor discussions that the stocks are not discounting the potential risks of the ACA "subsidy cliff" on HC procedure volumes in 2025

• In Media: Goldman Sachs initiated on U.S. media stocks with a preference for media stocks with deep competitive moats and high visibility into growth, with DIS, FOXA, CMCSA at Buy, WBD and STGW at Neutral and PARA at Sell. Firm said companies that fit this framework include names that have 1) lower exposure to general entertainment TV networks 2) higher exposure to genres like sports and news combined with long-term sports TV rights 3) a portfolio of tent pole brands that improve the success-rate of content and extend monetization opportunities and 4) near-term DTC service profitability that provides cash flow visibility into an industry where sustainability is unclear
• In Software: the European Commission has informed MSFT of its preliminary view that Microsoft has breached EU antitrust rules by tying its communication and collaboration product Teams to its popular productivity applications included in its suites for businesses Office 365 and Microsoft 365. ORCL warned that a TikTok ban could harm its revenue and profitability (Oracle provides cloud infrastructure for TikTok, which has over 120Mm users in the U.S.).
• In Software Research: DV downgraded to Equal Weight from Overweight at Morgan Stanley and cut tgt to $21 from $40 saying its Q1 guide down together with the issues at IAS causes US to ask what changed for this market in 1H:24? and where do these businesses go from here? CRDO upgraded from Hold to Buy at TD Cowen and raised tgt to $35 and named Credo its Best SMIDCap Idea as revenue accelerates and broadens across programs and products.
• In Hardware, IT Services & Consulting: NET was upgraded to Neutral from Sell at UBS and raise tgt to $82 from $76 saying following some GTM momentum, better SASE checks, the Q1 guide-down and a valuation de-rating, UBS thinks shares capture a more balanced risk/reward. SNX shares slip as Q2 results missed expectations with EPS $2.73/$13.9B revs below consensus $2.82/$14.1B and guided Q3 mid-point view below consensus as EPS $2.55-$3.05 (est. $2.93) and sees Q3 revenue $13.3B-$14.9B vs. consensus $14.51B, while net income seen $152M-$194M vs. est. $193.6M.

• WOLF shares weak initially after warned that an equipment incident will weigh on Q4 earnings & margins and Q1 revs; said expects temporary impact from equipment incident at Durham 150mm device fab; targeted Q4 revs from continuing operations is unchanged at $185M-$215M; potential negative impact to fiscal Q1 2025 rev ~$20M. On the positive, mgmt reported progress in ramping up its manufacturing facilities.