Mid-Morning Look

Wednesday, August 07, 2024

U.S. stocks open the day broadly higher, adding to yesterday bounce back gains as all eleven S&P sectors in the “green” for a second straight day, as investors look to buy beaten down stocks after Monday’s sharp decline. There have been several potential reasons cited for the recent market downturn (probably a combo of many in fact), but the attention the media has given the “unwind of the carry trade” has been amongst the most spoken about. In a short 2-week period the Japanese yen strengthened from 162 to below 142 (roughly 12% move) as the Bank of Japan raised rates for the first time since 2008, while the FOMC kept rates steady at the July meeting (while a 25bps cut is expected in September). Hence the unwind of the carry trade – where many traders were borrowing Jap Yen (JPY) at low interest rates, converted them to USD and used this to buy US stocks (the rally in tech). The last 2-days however, the dollar has bounced vs. the yen, helped overnight after an influential Bank of Japan official played down the chances of a near-term rate hike, soothing investors’ concerns that a further jump in the Japanese currency could again rock global markets. Dovish remarks from BoJ Deputy Governor Uchida helped as he said, “I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile,” Uchida said in a speech to local business leaders in Hakodate, northern Japan. He reassured that “the bank will not raise its policy interest rate when financial and capital markets are unstable.” The yen fell about 2.5% to a session low of 147.94 per dollar following the comments from BOJ Deputy Governor Shinichi Uchida. Outside of that, there were several mixed earnings results overnight/this morning (recap of several below), the CBOE Volatility index (VIX) also extends losses, down -16% to 23 after falling -28% on Tuesday following its historic intraday spike to 65.73 on Monday as market fear ease, U.S. crude oil rises more than 2% after stock market snaps losing streak. The average 30-year fixed rate mortgage fell to 6.55% last week, the lowest since May 2023. Bitcoin gives up early gains, turning negative.

• In Food & Beverage: GO reported solid Q224 results and broadly maintained its 2024 guidance—lower comp but unchanged sales (slightly higher store growth) and profits. CART reported solid 2Q results with GTV upside driven by sequential growth of average order value (AOV). 3Q guidance was also above expectations, while management stated it assumes a modest order contribution from restaurants; EBITA guidance also above views. TAP downgrade Buy to Hold and lowering PT to $58 from $68 after results at TD Cowen.
• In Energy: DVN delivered a second consecutive beat/raise quarter in 2Q24 driven by stronger oil and total volumes, better oil and NGL realizations and lower LOE. SU was upgraded to Outperform from MP at BMO Capital after Suncor reported much better-than-expected Q2/24 financial and operating results as the company completed its heavy turnaround activities ahead of schedule. PR delivered a 2Q24 beat, driven by stronger gas/NGL volumes and better realizations and raised FY24 standalone production guidance 1.3% at the midpoint.
• In Internet Security: FTNT reported a solid 2Q for billings amid negative investor sentiment. 2Q billings slightly beat consensus by $20M/1% vs. an $18M/1% miss last quarter. Gross and operating margins beat significantly, and 2024 billings guide maintained; QLYS delivered mixed results combining in-line revenue and better than expected profitability with billings that missed expectations and declined 2% y/y; billings weakness combined with a still uneven macro led to lowered revenue guidance.

• CRUS +5%; posted strong F1Q (Jun) results and F2Q (Sep) guidance, which were solidly above expectations. Upside in the quarter was attributed to strong iPhone 15 demand, while guidance reflects the ramp of the new iPhone 16.
• FTNT +23%; reported a solid 2Q for billings amid negative investor sentiment. 2Q billings slightly beat consensus by $20M/1% vs. an $18M/1% miss last quarter. Gross and operating margins beat significantly, and 2024 billings guide maintained.
• GTHX +64%; entered into a definitive merger agreement under which Pharmacosmos A/S, through its U.S. subsidiary Pharmacosmos Therapeutics Inc., will acquire all outstanding shares of G1 Therapeutics common stock for U.S. $7.15 per share in cash for a total equity value of approximately $405 million.
• PETQ +47%; surges as Consumer health-focused private equity firm Bansk Group will acquire PETQ for about $1.5 billion in cash; paying $31 for each PETQ share held, a 50% premium.
• RUN +13%; reported strong 2Q results and maintained 2024 guidance. RUN introduced cash generation guidance for 2025 strengthened by ITC adders. The Company also indicated positive sales trends, which it expects to translate into higher installations in 2H and reiterated its annualized cash generation targets.
• SHOP +23%; shares rose as Q2 revs $2.05B topped consensus $2.01B and said expects Q3 revenue to grow at a low-to-mid-twenties percentage rate YoY, largely above estimates for a growth of 20.8%.
• SWI +14%; to join S&P SmallCap 600 effective prior to the opening of trading this Fri, 8/9 (replaces SPWR).
• UPST +34%; after guides Q3 revenue of approximately $150M topping ests $138.7M while Q2 revenue also beat estimates, adj. loss per share narrower-than-expected amid improvements in business coming from significant advances in AI model.

• ACAD -18%; While Nuplazid sales were above expectations, Daybue came in below due to slower-than-projected new patient starts. Acadia raised its guidance for Nuplazid but lowered it for Daybue.
• CRL -11%; as now expects adj. profit for 2024 to be $9.90-$10.20 down from prior forecast of $10.90–$11.40 per share and forecasts annual revenues to decline 2.5% to 4.5%, compared with previous expectation of a 1% to 4% revenue growth which reflects the lack of a recovery in demand
• CVS -3%; lowers its FY24 adj EPS to $6.40-$6.65, from prior forecast at least $7 (est. $6.97); had reported Q2 adj EPS $1.83 vs. est. $1.73 and revs $91.2B vs. est. $91.5B.
• DIS -3%; reports Q3 EPS of $1.39 tops $1.19 estimate as Q1 revenue rises 3.7% y/y to $23.16B vs. est. $23.08B as now forecasts year adj EPS growth target of 30%; said recorded a -3% drop in quarterly operating income at experiences segment that includes parks and consumer products.
• LYFT -15%; shares stumble as and forecasts Q3 gross bookings between $4.0 billion and $4.1 billion vs estimates of $4.13B, following mixed Q2 results (EPS missed/revs beat).
• NVRO -49%; downgraded by several firms, sending shares tumbling after delivered a Q2’24 miss on sales while EPS beat, and FY24 revenue guidance was lowered by 8.5% at the midpoint to down 5-6% y/y or $400-405MM. Management called out softness in the U.S. SCS market.
• PGNY -22%; as reported an in-line quarter, with utilization (female only) of 0.47% that was up from 0.46% in 1Q and lowered its full-year guidance to reflect a “lesser-than-historical rate of increase in revenue per utilizing member given the variation we’re presently seeing.”
• RIVN -9%; posted results that came in just above the top line estimate while seeing a miss on Adj. EBITDA vs. expectations; maintained full year guidance; announced technology JV With Volkswagen Group with a total deal size of up to $5B; ended the Q2 with $5.8B in cash and cash equivalents vs. $7.9B at the end of calendar year 2023.
• SMCI -12%; following mixed results as F4Q24 gross margin % reached a multi-year low with only marginal improvement expected in F1Q25 but reiterated its 14-17% LT GM% goal; delivered strong revenue guide for Sep-Q and FY25, indicating strong demand, though GM came in below (announced 10 for 1 stock split).
• TREX -20%; as announced Q2 revenue of $496M that was consistent with the company’s preliminary release in July, while gross margin percentage and adjusted EPS details revealed an easy beat vs. Street and management’s prior guidance.