Mid-Morning Look

Monday, April 15, 2024

U.S. stocks take a sigh of relief after hopes for some de-escalation of Middle East tensions, while short-term oversold conditions may be providing some cushion early. Financials were leading after tumbling on Friday, rising +1.25% behind better GS earnings followed by Materials (behind metals strength) and Industrials as best S&P sectors – while most sectors in the "green". US 10-year Treasury yield hits 5-month high of 4.656% following strong retail sales data this morning, up over 15-bps on the morning while the dollar index (DXY) with modest gains early. Stocks are coming off a horrific Friday when the S&P 500 (SPX) fell -1.5%, the 5th daily decline of 1% or more this year (mostly in the last few weeks). Note the SPX has closed above its 50-day moving average for 162 consecutive days, the 10th longest streak since 1950 (50dma currently around 5,115 for SPX). The impact of the strikes by Iran against Israel this weekend was less than feared, but significant medium and long-term risks remain. The dramatic size and scope of the Iranian strikes (over 300 drones sent to Israel) and the successful interception of the strikes by Israel and its allies allows both sides to claim relative victory – especially given statements from Tehran that the operation is now over. Strong start for stocks as Dow futures rebound from worst week of 2024 even as traders brace for Israel response to Iran attack. Stock prices have pulled back off highs but still holding above overnight lows for futures.

• March Retail Sales ex-autos rose +1.1% (vs. est. +0.4%) and vs February; March cars/parts sales -0.7% vs Feb +2.5%, Retail Sales Ex-autos/gasoline +1.0% vs Feb +0.5% (prev +0.3%) and March Retail Sales Ex-autos/gas/building materials/food services +1.1% (cons +0.4%) vs Feb +0.3%.
• U.S. April housing market index 51 in-line with consensus 51 and prior month; April index of current single-family home sales 57 versus 56 in March, April index of home sales over next six months 60 versus 62 in March and April index of prospective buyers 35 versus 34 in March (previous 34).
• Feb Business Inventories rose +0.4%, in-line with consensus +0.4% and vs January unchanged; Feb business sales +1.6% vs Jan -1.0% (prev -1.3%); Feb retail inventories ex-autos unrevised at +0.4% (prev +0.4%).

• In Metals: most base-metal futures rose (AA, CENX, FCX) after the US and UK banned exchanges from dealing in Russian metals. The London Metal Exchange on Saturday banned from its system Russian metal produced on or after April 13 to comply with new U.S. and UK sanctions imposed for Russia’s invasion of Ukraine. The sanctions aim to restrict revenues for Russia from the export of metal produced by companies such as Rusal and Nornickel that help to fund its military operations in Ukraine. 
• In Banks/Brokers: GS reported Q1 revenue of $14.21B vs. est. $12.98B while quarterly profit jumps 28% on investment banking strength (Q1 EPS $11.58, consensus $8.56); said higher fees from underwriting debt and stock offerings as well as advising on deals lifted Goldman’s investment banking fees up 32% to $2.08B; MTB Q1 EPS misses views but shares rebounded; SCHW Q1 net income fell 15% y/y to $1.36 billion in the quarter, but EPS of $0.74 ex items beat the $0.73 est. as revs slid -7.3% to $4.74B but topped the $4.71B estimate; clients daily average trades rose to 5.96 million, up 1.1% from a year ago.

• BLKB +3%; after Clearlake Capital said it delivered a letter to Blackbaud’s Board containing a non-binding proposal to acquire all its outstanding shares for $80 per share; Clearlake reports an 18.2% stake in BLKB.
• CNC +3%; ELV and HUM were all awarded Florida RFP statewide awards, while CVS, MOH, and UNH lost market share as analysts call it a major win for CNC and helps to significantly de-risk the RFP pipeline.
• CPNG +2%; upgraded to Buy from Neutral at Citigroup saying a recent increase in membership fee by the South Korean e-commerce firm indicates management’s will to manage profit margins.
• CSCO +1%; upgraded from Neutral to Buy at Bank America and raise tgt to $60 from $55 as expects Networking to start normalizing and see renewed growth driven by Cisco’s share gains in Ethernet-based AI buildouts of hyperscalers; expects Security growth to accelerate with the help of firewall stabilization.
• GS +3%; reported Q1 revenue of $14.21B vs. est. $12.98B while quarterly profit jumps 28% on investment banking strength (Q1 EPS $11.58, consensus $8.56); said higher fees from underwriting debt and stock offerings as well as advising on deals lifted Goldman’s investment banking fees up 32% to $2.08B.
• MPW +22%; said it received $1.1B of cash proceeds from the sale of a majority interest in five Utah hospitals through a newly formed JV ($886M) and secured debt placed in conjunction with the transaction ($190M).
• PLL +35%; after receiving a permit for proposed Carolina Lithium project in North Carolina; had applied in August 2021.
• PVH +2%; was upgraded to Outperform from Neutral at Wedbush and raised the price tgt to $128 from $113 as they view the ~25% selloff post-EPS as a buying opportunity (SPX -2%).
• SNPO +30%; after REZI has agreed to buy Snap One Holdings for about $821 million; Resideo said it will pay $10.75 a share in cash for Snap One, a 32% premium to Friday’s closing price of $8.14. Resideo said the transaction, which it expects to complete in the second half of the year is worth about $1.4 billion including debt.
• WIRE +10%; as Prysmian (PRYMY) has proposed to acquire Encore Wire for $290.00 per share in cash for a total enterprise value of approximately €3.9 billion, representing a multiple of 8.2x EV/2023A EBITDA and 6.3x EV/2023A EBITDA, including run-rate synergies. https://tinyurl.com/5xjmydrs

• MBUU -4%; downgraded to MP from OP at Raymond James saying their shift to neutral stance is in response to the loss of Tommy’s Boats, one of MBUU’s largest dealers, which last week filed a civil complaint alleging breach of contract among other transgressions.
• MOH -4%; ELV and HUM were all awarded Florida RFP statewide awards, while CVS, MOH, UNH lost market share
• MRNS -74%; disclosed that its interim analysis of its Phase III RAISE trial did not meet pre-defined stopping criteria, with the enrollment completed at 100 patients with topline results expected summer of 2024; also provided preliminary 1Q net product revenues for ZTALMY of $7.4M-$7.6M (vs. $6.75M consensus).
• NMRA -14%; after disclosing its Phase 1 trial of NMRA-266 has been placed on clinical hold after pre-clinical safety issues arose in animal studies; the company said it is working with the FDA to evaluation the potential to resolve the clinical hold. 
• TSLA -3%; is laying off more than 10% of its global workforce, Electrek reported citing an internal company-wide email. According to the report, this means that at least 14,000 employees will be laid off.