Closing Recap

Wednesday, September 04, 2024

U.S. stocks on another rollercoaster ride Wednesday, trading lower initially overnight after yesterday’s sharp drop, bounced on the open, faded late morning before rallying in the final minutes, as the S&P, Smallcap Russell 2000 and Nasdaq 100 all holding at/near key technical levels heading into key economic data tomorrow and Friday morning. The IWM slipped, but held just above the 50dma support around $212, SPY is holding just above its $549 50dma support and the QQQ declined, dropping below its 100dma earlier of $461. The start of September not as bad as August thus far, but weak overall (recall the S&P 500 fell as much as 8% from its peak in early August but rallied to end the month up 2.4% in total return, the fourth straight month of gains and the ninth positive month in the past 10 months). Defensive sectors outperformed in the S&P 500, with Consumer Staples, Utilities, and REITs among the leaders following an early sell-off in tech and a rally in Treasury prices (sending yields lower), boosting high dividend paying sectors. Energy stocks erased early gains, sliding again while industrial metals were down for a fifth straight day. All eyes on ADP private payrolls tomorrow and then Nonfarm payrolls on Friday, ahead of the FOMC rate meeting in 2-weeks where there is a 45% chance of a 50bps cut as per fed fund futures late day.  

• The U.S. International Trade Deficit widened 7.8% in July to $78.8 billion from $73 billion in the prior month, the Commerce Department said Wednesday (vs. est. would widen to a seasonally adjusted $79.1B). U.S. July goods deficit $103.13B, services surplus $24.34B; July exports +0.5% vs June +1.7%, imports +2.1% vs June +0.6%. U.S.-China July trade deficit $30.12B vs June deficit $22.80B.
• July factory orders rose +5.0% vs. consensus +4.7% and vs June -3.3%; July factory orders ex-transportation +0.4% vs June +0.1% (prev +0.1%); July factory orders ex-defense +5.1% vs June -3.5%; U.S. July nondurables orders +0.8% vs June unchanged; July inventories/shipments ratio 1.45 months’ worth vs June 1.46 months.
• The Fed Beige Book showed economic activity grew slightly in three districts, while the number of districts that reported flat or declining activity climbed from five in the prior period to nine in the current period. District contacts generally expected economic activity to remain stable or to improve somewhat in the coming months, though contacts in three districts anticipated slight declines. On balance, prices increased modestly in the most recent reporting period.

• Oil prices were very volatile, as Brent Crude futures settle at $72.70/bbl, down $1.05, 1.42%, while WTI U.S. crude oil futures settle at $69.20/bbl, down $1.14, 1.62%amid growing pessimism about demand in the coming months as crude producers offered mixed signals about supply increases. Both benchmarks had earlier lost $1 and then bounced back to gain $1 from Tuesday’s closes, following news OPEC+ was discussing delaying a possible output increase because Libyan production is expected to rise, but succumbed to selling pressure this afternoon. Note Brent crude futures tumbled as much as 11%, or about $9, in a little over a week.

• Food space weak as HRL shares slipped after Q3 sales fell to $2.898B from y/y $2.963B (and below est. $2.95B), while EPS of $0.37 was a penny ahead of the $0.36 consensus; narrowed its 2024 EPS view to $1.57-$1.63 from prior guidance of $1.55-$1.65 and lowered FY24 sales view to $11.8B-$12.1B from prior $12.2B-$12.5B.

• Mattress Retailer TPX was downgraded from Outperform to Neutral at Wedbush saying valuation ex-MFRM accretion looks full as currently trades at 11x consensus NTM EV/EBITDA, 14% above the ten-year historical average of 9.7x and 21% above its 5-year average of 9.1x.
• In Department Stores: JWN founding family has made a bid to take the department store chain private by offering $23 per share in cash for the stake they do not already own, a filing showed on Wednesday. A group led by Erik and Peter Nordstrom sent a non-binding letter to the committee proposing a transaction.
• In Online Retail: PDD shares slumped after ABC News reported Federal safety regulators are calling for an investigation into popular Chinese e-commerce websites Shein and Temu (owned by PDD) over concerns shoppers can easily purchase baby and toddler products that do not meet U.S. safety regulations.
• In Sporting Goods Stores: DKS reported a beat and raise quarter citing strong demand for trendy and innovative shoe lines as lifts annual comparable sales growth to 2.5% to 3.5%, from 2.0% to 3.0% increase previously forecast; but shares declined as Wedbush noted the magnitude of beat and forecast increase is likely below "buy-side" expectations with guidance implying a sharp deceleration in trends in H2; SPWH Q2 EPS ($0.16) vs est. ($0.09), adj EBITDA $7.4Mm vs est. $10Mm on revs $288.734Mm vs est. $285.03MM.

• In Online Travel/Lodging: ABNB was downgraded to Hold from Buy at Argus citing the company slowing room nights growth while also warning that growing competition, soft demand, fewer extended visits, and increased marketing spending are likely to harm the company’s near-term earnings. BKNG was downgraded to Hold from Buy at Jefferies and trims tgt to $4,200 from $4,350 saying sustainability of room night growth is the key debate for online travel, following disappointing guidance for the second half of 2024 and softer demand in July. Its top-down industry model suggests growth will moderate further over the next three years, which causes it to take estimates below consensus.
• In Ride Hailing/Food Delivery: UBER files for denominated senior notes offering, size not disclosed; LYFT announces restructuring, termination of 1% of company’s employees and confirms no changes to Q3, FY24 guidance. LYFT said the plan involves disposal of certain assets related to bikes and scooters operations and termination of approximately 1% of company’s employees and ests will incur approximately $34M to $46M of restructuring and related charges.

• In Utilities: GEV shares jumped after Jefferies initiated with Buy and $261 tgt saying its "’Top Pick’ is decisively Vernova (GEV) where they find a backdrop of rapidly increasing estimates (+14% above FY25 Consensus EBITDA and +43% above guidance from March ’24) as the outlook for all segments (Gas Power, Wind, Electrification) each continue to improve. For TLN, Oppenheimer noted PJM responded to FERC’s deficiency letter and addressed its questions regarding the PJM/Susquehanna amended ISA. PJM maintained that FERC should accept the amended ISA as filed, specifically the third Co-located load ISA (permits load to increase to 480MW, from 300MW), and for it to be effective as of 8/3/2024. In addition, PJM believes broader issues concerning Co-located load should be explored, and it is supportive of FERC’s technical conference scheduled for 11/1.

• In Crypto/Bitcoin: Bitcoin prices remain weak, extending last week’s declines falling as low as $55,500 before paring losses, weighing on shares of crypto related names/miners (COIN, MSTR, MARA, CLSK, HUT, RIOT). CIFR released its August operations update saying it mined 151 Bitcoin during the month of August, a m/m decrease from 169 Bitcoin in July. In Bitcoin miners, Needham initiated coverage on: CORZ with a Buy and $16 tgt believe the company’s first customer agreement with CoreWeave is a unique deal among peers and offers attractive economics and terms; WULF with Buy and $6 tgt as believes WULF will be early to market in bringing a 100MW+ site online for HPC. (Neutral on IREN).

• ATHA shares tumbled after saying its experimental drug, fosgonimeton, failed to meet the main goal in a mid-to-late-stage trial in patients with mild-to-moderate Alzheimer’s disease. The drug failed to reach statistical significance in a test that measures cognition and other functions, compared to placebo at 26 weeks.
• AXSM said the FDA has acknowledged the resubmission of the Company’s New Drug Application (NDA) for AXS-07 for the acute treatment of migraine. The FDA designated the resubmission as a Class 2 resubmission and set a Prescription Drug User Fee Act (PDUFA) action goal date of January 31, 2025.
• HQY Q2 revenue/EBITDA/EPS coming in 5.2%/14.6%/22.9% ahead of consensus, respectively as the upside was driven primarily by higher custodial revenue ($138.7M vs Street $127.1M) and strong cost control; mgmt did raise its FY25 outlook—adjusting up both revenue ~0.5% and EBITDA ~0.9%.
• JNJ Delaware judge rules that Johnson & Johnson owes Auris Health Inc $1B in damages related to 2019 health robot deal.
• NVS begins construction of two new radioligand therapy facilities in the US, expanding its world-class RLT manufacturing and supply network
• TXG announced the launch of a new, low-cost Chromium platform, Chromium Xo. With a price of ~$25,000, Chromium Xo will be TGX’s most affordable single cell instrument and is designed to run TXG’s GEM-X 3′ assay.
• Medicaid names (CNC, MOH) underperform broader managed care (HUM, UNH); CNC affirmed adj EPS guidance at Wells Fargo conference (spoke 8:45 AM) while also forecasts Medicaid membership leveling off around 13M. HUM shares outperformed after CFO said at Wall Street conference today that hospital inpatient admission rates have stabilized at the levels the insurer was seeing since late May.

• In Industrials/Machinery: REVG raised FY adj EBITDA guidance to $155M-$165M, from prior $151M-$165.0M (est. $158.8M) but lowers bottom end of FY net sales to $2.35B-$2.45B from $2.40B-$2.50B after mixed Q3 results where EPS beat but sales fell -15% y/y to $579.4M vs. est. $619M (Ebitda rose 15% y/y to $45.2M).
• In Containers, Paper & Packaging: GPK said it expects FY24 adj EPS to fall below midpoint of previously announced $2.65 to $2.85 guidance range (est. $2.70) saying weather led to modestly reduced production. Morgan Stanley upgraded BALL to Overweight from EW (raising tgt to $78 from $69), as it sees an attractive buying opportunity given shares are down 10% since its peak earlier in 2024, while raising tgts on CCK ($105 from $92), and AMBP ($3.60 from $3.50).  

• BA delivered the most 737 Max jets to China in almost six years, offering a glimmer of progress to new CEO Kelly Ortberg as he works to clear a stockpile of completed aircraft and bolster cash at the embattled planemaker – Bloomberg
• ERJ was upgraded from Hold to Buy at TD Cowen for potential mid-teens 2024-26 CGR in revenues & adj. EBITDA from all sectors with improving FCF TD Cowen said potential Q3 catalysts are expected including the Boeing arbitration decision, big C-390 backlog add, and possible commercial orders
• For Engines: Bank America noted for GE, RYCEY, Safran that the monthly average YoY Engine thrust declined across all major OEMs MoM in Aug-24 vs Jul-24. Monthly average YoY engine thrust declined across all major engine OEMs MoM in Aug-24 vs Jul-24 with Safran reporting the strongest decline followed by Rolls-Royce, GE, P&W and MTU, respectively. Similarly, Narrowbody, Widebody and Freighters monthly average YoY thrust also fell MoM in Aug-24 vs Jul-24.

• FCX was upgraded from Neutral to Buy at UBS w/ $55 PT saying believes the fundamental outlook for copper remains compelling & positioning is cleaner after the Q3 price correction. Says FCX is the most liquid copper pure play with high correlation (5yr R2 0.87x) and offers beta (5yr 2.4x) to copper upside.
• U.S. Steel (X) would close mills and likely move its headquarters out of Pittsburgh if the $14.9 billion buyout by Nippon Steel collapses, the Wall Street Journal reported on Wednesday citing an interview with the company’s CEO. Later in the day, the Washington Post reported that Biden Admin prepares to block Nippon Steel acquisition of U.S. Steel – the news sent shares of US Steel (X) down as much as 17%.
• TECK was upgraded to Buy from Neutral at UBS with a price target of C$78, up from C$76 saying the stock’s risk/reward has improved following the commodity price consolidation, and the firm expects Teck shares to benefit from higher copper prices and to re-rate as the company announces the next phase of its growth, new cost savings and full QB2 ramp.

• GTLB shares rose after reported 2Q w/ rev growth of 31% above est. at 27% & FY guide raised from 27% to 28% at high-end while billings w/ 42% growth well ahead of Street & highest since 1Q24, led by enterprise strength & Ultimate wins.
• PD shares tumbled on mixed results, highlighted by a 3rd straight qtr of 10% ARR growth, but shares tumbled as FY/25 revenue guidance was lowered (to $463M-$467M from $471M-$477M) due to timing issues associated with enterprise deals taking longer to close and the lagging impact of attached one-time professional services revenue.
• RNG announced that Sonalee Parekh has resigned as Chief Financial Officer, effective September 10, to accept a Chief Financial Officer role at a public company that is not a competitor, supplier or customer to RingCentral.
• In Software Security: ZS shares tumbled as delivered a strong close to FY24, with all key metrics above guidance and/or street expectations, better than expected GTM productivity, with a record quarter for new/upsell billings, with growing contribution from emerging products (22% contribution to new business in FY24). However, this was overshadowed by an uneven FY25 billings outlook, which implies a deceleration in 1HFY25 before rebounding in 2H.
• Britain’s competition regulator cleared MSFT’s hiring of some former staff of Inflection AI and its partnership with the startup and said the deal did not require a deeper investigation. In March, Microsoft hired Mustafa Suleyman, co-founder of GOOGL’s DeepMind, as head of its newly created AI unit.
• In Telecom: FYBR shares spiked after the WSJ reported VZ is in advanced talks to acquire the company in a deal that would bolster the company’s fiber network to compete with rivals including AT; said an announcement could come this week, granted the talks don’t hit any last-minute snags, the people said https://tinyurl.com/yw7v73xz ; CHTR and AMCX said they have agreed to an early renewal of a distribution agreement, allowing Charter to carry AMC’s portfolio of linear cable networks for multiple years.
• In Advertising sector: shares of IPG shares slipped after Ad Week reported that OMC and WPP have won Amazon’s media review. “After a comprehensive advertising agency review for our consumer business, we’ve chosen to partner with OMG and WPP,” Amazon spokesperson Margaret Callahan said in a statement. https://tinyurl.com/5n895ac3
• In Electronic Equipment & Parts: APH was downgraded to Neutral from Buy at Bank America and cut tgt to $71 from $80 saying design changes of NVDA systems can potentially lower the AI revenue opportunity for APH and as a result, APH’s content per NVL36/72 rack could be lower ($24K vs. $50K/$74K).

• ALAB was upgraded to Overweight at Morgan Stanley with $55 tgt citing: overall AI content is growing rapidly, new ASIC opportunities are ramping where ALAB has higher content, new products launching, and says risk-reward profile is attractive at the current stock price.
• AMD appointed former NVDA executive Keith Strier as senior vice President of global AI markets; he will be responsible for expanding the company’s AI vision, AMD said in a statement.
• ASML shares weak on reports of delays to some machine part orders with suppliers, while UBS also downgraded to Neutral from Buy, as sees a slowdown in EPS growth with 13% CAGR between 2025 and 2030, vs 24% seen in 2018-2025.
• QCOM launched the Snapdragon X Plus 8-core processor as it looks to ramp up its push into the AI PC space; said Snapdragon X Plus 8-core will be available from acer, Asus, Dell Technologies, Hp, Lenovo, Samsung.
• SMCI downgraded to Equal Weight from Overweight at Barclays and cut tgt to $438 from $693 citing the company’s poor gross margin in the June quarter and the annual filing delay that evidenced several fundamental risks.
• Mizuho maintained Outperform ratings on MU, STX, WDC, raising MU ests, but lowering PT to $145 from $155 as sees the HBM market growing ~6x y/y to ~$25B in 2025E and towards ~$35B by 2026E; sees HBM3e drive major upside for MU with revs growing 10-20X to $2-5B in C25-26E, alongside SK Hynix as key DRAM suppliers lag HBM supply traction.
• Bank America noted July total semis sales +18% YoY, ex-memory sales +6% YoY, memory sales +87% YoY, though MoM total/ex-mem sales -11%/-2%; total semis units +4% YoY, ex-memory units +5% YoY, memory units -2% YoY; total semis ASPs +13% YoY, ex-memory ASPs +1% YoY, memory ASPs +92% YoY.