Closing Recap

Thursday, November 09, 2023

Index	Up/Down	%	Last
DJ Industrials	-220.59	0.65%	33,891
S&P 500	-35.45	0.81%	4,347
Nasdaq	-128.97	0.94%	13,520
Russell 2000	-26.95	1.57%	1,687

 

 

 

 

 

 

 

 

 

U.S. stocks slumped on Thursday, ending near the lows, and snapping their winning streaks as a spike in Treasury yields following a weak 30-year bond auction pressured rate sensitive stocks on a generally quiet news/economic data day. The Nasdaq win streak was snapped at nine-days and the S&P 500 at eight days. Smallcap stocks may have gotten a much-needed bounce last week as the Russell 2000 rose over 7% after underperforming large caps all year…but this week has been dreadful, falling all 4-days thus far and erasing much of the prior week gains, with large caps joining to the downside today. All eleven S&P sectors closed the day in the “red” led by a 2% drop in Healthcare (XLV), and more than 1% declines for REITs (XLRE), Utilities (XLU), and Consumer Discretionary (XLY). No major earnings tonight or tomorrow and light economic calendar as well on Friday. Stats of the day: With more than 80% of S&P 500 firms having reported, less than half have beaten revenue estimates for the third quarter — the lowest share since the same period in 2019, per Bloomberg. Also, the weekly bull-bear spread in the American Association of Individual Investors (AAII) weekly survey was 15.4 vs -26 last week as Bulls rise to 42.6% from 24.3% and Bears tumble to 27.2% from 50.3% – per BTIG strategist Jonathan Krinksy, the drop in AAII Bears from 50.3 to 27.2 was the largest one week drop in 20 years. In politics, a bit of a surprise as West Virginia Democratic senator Joe Manchin announced he won’t be seeking re-Election to the Senate saying both parties have come under the domination of the extremes and said he wants to find a better way.

 

Commodities

·     Oil prices bounced after hitting the lowest level since mid-July on Wednesday, as WTI crude rises $0.41 or 0.54% to settle at $75.74 per barrel, but off earlier highs of $77.16 given the broad-based risk asset pullback. Demand concerns have picked up and concerns that a widening of the Israel-Hamas conflict will curb supply have eased. China exports contracted more than anticipated in data released this week and CPI and PPI prices were also disappointing. Gold prices rose $12.00 to settle at $1,969.80 an ounce, snapping its 4-day losing streak. U.S. natural gas futures slid about 2% to a two-week low falling over 3% to $3.041 per MMBtu.

 

Currencies & Treasuries

·     Treasury yields popped mid-afternoon after the U.S. sold $24B in 30-year bonds at high yield 4.769%, well above the 4.716% when issued prior, a 5.3bps tail, the biggest on record with a weak 2.24 bid-to-cover (demand) as primary dealers take 24.73% of U.S. 30-year bond sale, direct 15.16% and indirect 60.11%. The auction was far worse than the prior 3-10yr auctions earlier this week and promptly caused a pullback in bonds as yields spiked (10-yr hit highs 4.66% off the early morning lows of 4.48% (and 4.56% prior to the auction. Yields have fallen sharply of late on signs a cooling jobs market could mean the Fed has finished hiking interest rates. The US dollar also bounced following the bond auction and pullback in stocks. Bitcoin prices hit 18-month highs just shy of $38,000 before paring gains.

 

Economic Data

·     Weekly jobless claims fell to 217K in the latest week from 220K prior and vs. est. 218K; the 4-week moving average climbed to 212,250 from 210,750 prior week; continued claims climbed to 1.834M Oct 28 week from 1.812M prior.

 

 

Macro	Up/Down	Last
WTI Crude	0.41	75.74
Brent	0.47	80.01
Gold	12.00	1,969.80
EUR/USD	-0.0011	1.0696
JPY/USD	0.11	151.08
10-Year Note	0.132	4.642%

 

 

Sector News Breakdown

Consumer

Staples & Restaurants:

·     BYND reports Q3 EPS in line with pre-announcement, while revs of $75M fell below $88M consensus, -$57M EBITDA loss fell -$13M short of consensus; reaffirmed its FY23 guidance lowered alongside the pre-announcement including sales decline of ~20%.

·     DNUT Q3 EPS and sales missed estimates as revs$407.4M misses $413.9M est. and EPS of $0.03 missed by 3c while operating margins drop 20-bps y/y; maintains FY outlook.

·     NOMD Q3 EPS EU0.43 vs. EU0.46 last year and revs EU763.5M vs. EU759.6M last year; raising FY23 adj EPS guidance to EU1.57-EU1.60 from EU1.54-EU1.57 prior and maintain full-year guidance of mid-single-digit organic revenue growth.

·     USFD Q3 profit topped expectations as EPS $0.70 beat the $0.69 est. as sales rose 2.1% to $9.1B vs. est. $9.116B as food cost deflation of 1.3% was offset by a 4.0% increase in case volume; raised FY23 EPS view to $2.60-$2.70 from $2.55-$2.65.

·     UTZ Q3 adj EPS $0.17 on revs $371.9M vs. est. $370.46M; cuts FY23 revenue growth view to 2%-3% from 3%-5%, and organic net sales growth of 3% to 4% (previously 4% to 6%).

·     Other non-earnings Consumer Staples news:

·     MNST board authorizes a new $500.0M share repurchase program.

·     BUD was upgraded from Hold to Buy at HSBC saying ABI’s valuation, its stabilizing Bud Light market share, and the strength of other key markets merit a Buy rating for the stock.

·     K was upgraded from Underweight to Equal Weight at Barclays saying with the spin of its North America cereal business (WK Kellogg, ticker KLG) now firmly in the rear view, firm is upgrading K (now known as Kellanova vs Kellogg previously) to Equal Weight from Underweight.

 

Retailers:

·     CART reported a Q3 rev beat in 1^st quarter as a public company as 3Q23 GTV was slightly ahead of consensus, while revenue and EBITDA came in 4% and 35% above consensus; Q3 revs $764M vs. est. $736.88M; said Q3 GTV grew to $7,494M, up 6% y/y and orders to 66.2M, up 4% y/y.

·     DDS Q3 EPS $9.49 vs est. $7.06 and revs $1.48B vs est. $1.52B; Q3 comps fell (-6%) vs est. (-1.9%); said the sales environment remained challenging in the third quarter with weakness beginning in September.

·     HBI Q3 EPS and sales fall just short of consensus and forecasts Q4 net sales from cont ops about $1.36B, vs. est. $1.47B and cuts year EPS and rev outlook – FY23 adj EPS view to $0.12-$0.16 from $0.16-$0.30 and revs view to $5.7B from $5.8B-$5.9B.

·     MODG shares fall in the golf sector as reported another mixed quarter (sales miss on softer SVS, adj. EBITDA beat), with forward quarter guidance below expectations; lowers FY23 EPS view to $0.39-$0.43 from $0.63-$0.69 and cuts FY23 rev view to $4.24B-$4.26B from $4.42B-$4.47B.

·     TPR Q1 profit beats estimates on lower freight costs and improved operations and said GM’s improved by 250-bps and maintains outlook, but lowered its FY rev view to about $6.7B, down from $6.9B estimated previously which followed a Q1 sales miss.

·     WWW Q3 EPS $0.07 missed est. $0.08 while revs $527.7M beat $514.2M est.; said accelerating a transformation plan that’s expected to generate $215 million in annualized savings; guides 2023 EPS $0.05-$0.10 vs. est. $0.50 and revs $2.19B-$2.2B vs. est. $2.26B.

·     YETI Q3 EPS $0.60 vs. est. $0.56 and revs $433.6M vs est. $426.9M; narrows FY EPS guide to top-end $2.32, consensus $2.29; targeting full-year adjusted sales growth of about 4%, compared with a prior outlook of 4% to 5%.

 

Leisure, Gaming & Lodging:

·     In Casinos: MGM reported a mid-single digit beat to EBITDAR with Vegas and the Regionals ahead, though it notes the quarter was noisy given the cyber impact; strip commentary was positive for both Q4 and continues to buy back shares while board authorized another 2B plan.

 

Homebuilders, Building Products, Home Furnishing:

·     In building products: both BLD and IBP were upgraded to Outperform at Evercore/ISI saying they are trading toward the low-end of their historical valuation ranges. On forward 12-month EV/EBITDA, BLD and IBP are both trading below 8x, tracking slightly above the lows seen in late-2018 when mortgage rates rose, and housing stalled. Stephens downgraded DOOR from Overweight to Equal Weight and cut tgt to $93 after Q3 results slightly missed expectations across the board and mgmt. pointed to the mid-point of the sales-guide and the low-end of the adj. EBITDA guide for CY23’ says N.A continues to see significant volume declines in both the retail and wholesale channels, and with elevated rates.

 

Energy

·     BE shares surged as reported above consensus 3Q, product margins reached 40%. Service margins improved sequentially, matching management’s guide that 2Q was a bottom. Product costs continue to ramp down, while pricing for servers remains strong.

·     HP 4Q was at the lower end of the implied guide though the Street was near the high end; Q1 guidance implies EBITDA of ~$194MM at the midpoint vs the Street’s $204MM; 4Q EBITDA of ~$186MM vs the Street’s $203MM.

 

Financials

·     In Advisors/Brokers: ENV Q3 adj EPS $0.56 vs est. $0.54, adj EBITDA $67.2Mm vs est. $65.12Mm on revs $316.8Mm vs est. $317.66Mm; cuts FY23 adj EPS view to $1.98-$2.01 from $2.09-$2.15 and lowers FY23 revenue view to $1.237B-$1.242B from $1.252B-$1.259B.

·     In Financial Services: FICO reported in-line revenues in 4Q though EPS was light mainly due to a higher tax rate while FY24 revenue guide was slightly ahead of street and the EPS guide of $22.45 was -5.6% below Street estimates.

·     In Business technology: VEEV shares slide after cutting the higher end of FY24 revs view by $15M to $2.36B and cuts FY25 outlook by $50M.

·     In Fintech: AFRM rises after Q1 revs $497M tops ests $444M amid higher gross merchandise value (GMV) and volume (produced 28% growth vs 20% estimated this quarter as per Piper) while guides Q2 revs $495-$520M vs. est. $502M. FLT Q3 EPS beat $4.49 vs est. $4.44 driven by higher other income and a lower share count, partially offset by lower revenue, higher opex, and a higher tax rate and expects 9-11% revenue growth on an organic basis vs ests 10.5%

·     In Crypto: Bitcoin prices rise around 6% at $37,650, 18-month highs on growing optimism that the launch of an ETF tracking the Cryptocurrency is imminent; shares of COIN, MARA, RIOT, MSTR and other crypto related stocks jumped in sympathy.

 

Healthcare

Biotech & Pharma:

·     AMLX shares fall as Q3 sales $102.7M miss the $113.6M; increased its research-and-development expenses to $30M from $24.9M.

·     AZN is paying $185 million upfront to license the treatment from Eccogene, plus up to $1.825 billion depending on clinical, regulatory, and commercial progress.

·     EBIX declines on delay in completing qtrly report disclosures.

·     JAZZ Q3 EPS of $4.84 on revenue of $972.1M, compared to Street estimates of $4.93 and $968.4M, respectively; Worldwide (WW) sales totaled $213.7M in 3Q23, up 9% versus $196.2M in 3Q22 and up 6% from $202.2M in 2Q23.

·     LLY said it has not yet gained approval in the UK for the injection pen it plans to use for its Mounjaro drug against obesity and diabetes, adding to uncertainty over timing of its launch.

·     NTRA posted revenue beat driven by a large increase in tests processed while gross margins were ahead of consensus meaningfully, and the company increased full year gross margin guidance.

 

Industrials & Materials

Aerospace & Defense

·     ACHR announces partnership with Interglobe Enterprises to launch all-electric air taxi service across India in 2026; collaboration also involves plans to finance purchase of up to 200 of ACHR’s Midnight Aircraft

·     SPR was upgraded from Peer Perform to Outperform at Wolfe Research noting the company has been through a lot of challenges dating back to 2019’s MAX crash and since then has burned FCF moving them from ~1x leverage to north of 10x as debt climbed and earnings.

·     SPCE Q3 net loss ($104.6M) vs. est. loss (-$137.3M) and Q3 revs $1.73M, vs. est. $1.14M; guides Q4 revs about $3M above prior view $1M and est. $2.7M and slashes 18% of workforce.

·     TDG said it agreed to buy the Electron Device Business from TJC L.P.’s Communications & Power Industries for $1.39B in cash; declares a special cash div of $35.00 per share; also reported Q3 EPS and sales that topped consensus with upbeat guidance.

·     TGI was upgraded to Outperform at TDCowen and raise tgt to $14 from $10 as the firm says they don’t see things getting worse, and there’s lots of upside if they make it to solid ground and sees ramping FY24-25 FCF with potential debt reduction initiatives.

 

Materials, Metals & Mining

·     CTVA reported 3Q23 EBITDA of $18M, compared to consensus of $48M and missed in both Seed and Crop Protection (CP); a 15% volume decline more than offset 2% overall positive pricing; Keybanc noted CTVA’s CP volumes were better than FMC’s -26% in 3Q, and price was comparable to FMC’s -3% while seed volumes fell 12% compared to their +6% forecast.

·     EVA shares tumbled after withdrawing the previous sales price per mt, net loss, adjusted ebitda, and total capital expenditures guidance and warned Q4 results could be weaker than Q3 and expecting a significantly lower sales price per mt for wood pellet in Q4.

 

Technology

Internet, Media & Telecom

·     DIS rises after Q4 adj EPS $0.82 vs. est. $0.69; Q4 revs rose 5.4% y/y to $21.24B vs. est. $21.4B; Q4 Disney+ subscribers 150.2M, vs. est. 147.07M; continue to aggressively manage cost base, increased annualized efficiency target to $7.5B vs. $5.5B prior.

·     Shares of streaming/movie companies active (DIS, PARA, WBD, CMCSA, ROKU) after Hollywood’s actors and studios reach preliminary labor agreement; strike expected to end (midnight last night) and the SAG-AFTRA board will meet this Friday to review the final deal.

·     The Wall Street Journal reported late day that Verizon is planning to offer the ad-supported versions of both Netflix and Warner Bros. Discovery’s Max streaming services for about $10 a month combined instead of about $17, according to people familiar with the situation.

 

Hardware & Software movers:

·     APP reported Q3 results that beat consensus and guidance, driven by another record quarterly revenue for Software Platform, which benefited from having a full quarter of AXON 2.0; issued Q423 guidance that was better-than-expected.

·     HUBS Q3 revs $558M (+26%/+24% CC) beat by 4% and Q4 revs guided in line at the midpoint at $557M (+19%/+17%CC), with no change in macro expected for 2H or early 2024 vs 1H.

·     IONQ reported Q3 FY23 revenues that were above estimates and mgmt raised both its FY23 revenue and bookings guide, as IonQ continues to gain traction in the market and demand for quantum computing increases.

·     RAMP Q2 results exceeded expectations across the board with notably strong bookings conversion (highest in 7 qtrs.) aided by a stronger-than-expected macro env’t and both Marketplace (+19% y/y) and Usage revenue 15% of total subscription (vs. ~12.5% guide) strong.

·     TTWO reported Q2:F24 bookings at the high end of guidance in the video game software sector, while adjusted EBIT solidly beat estimates due to lower opex. Management left FY24 bookings guidance unchanged.

·     TWLO reported Q3 beat/raise with a sizable beat/raise on the bottom line as cost optimizations in Twilio Communications (TC) business continue to reap better-than-expected profits with increased guidance in operating profit for CY23.

 

Semiconductors:

·     ARM reported its first earnings results post IPO as forecast revenue of between $720mn-$800mn for the quarter fell short of analyst expectations.

·     MTSI Q4 adj EPS and revs of $0.55/$150.3M mostly in-line with ests. while Q1 guidance missed-point of ests as EPS $0.55-$0.59 vs. est. $0.59 and revs $149M-$153M vs. est. $155.22M.

·     NVDA is planning to release three new chips for China Reuters reported citing local Chinese media, just weeks after U.S. curbs blocked it from selling to China two high-end artificial intelligence chips it created for the Chinese market and one of its top gaming chips.

·     Memory stocks rise (MU, WDC, STX) as Susquehanna said that recent checks suggest blended DRAM ASPs (excluding HBM, High Density DRAM – HDD) in Q423 is tracking to up 10-12% Q/Q, better than our industry average assumption of up 3% Q/Q and driven by tightening bit supply dynamics. Checks also suggest blended NAND ASPs in Q423 are tracking to up 8% Q/Q, better than our industry average assumption of up 3% Q/Q.