Mid-Morning Look

Wednesday, August 14, 2024

U.S. stocks open higher, getting a little bounce from mostly in-line July consumer price index (CPI) inflation results, but now slipping to little changed following yesterday’s mass stock rally into the results. The Nasdaq underperforms down over -0.5% but holding above 17,000 as technology a drag early. U.S. CPI inflation for July was in line with consensus forecasts. Specifically, both headline and core came in at 0.2%, month-on-month while the annual headline inflation edged down from June’s 3.0% to 2.9% (3.0% was the consensus forecast) and annual core inflation came down from 3.3% to 3.2% (3.2%). Prior to the CPI report, implied probabilities for September Fed meeting were 46.5% for 25bps cut, 53.5% for 50bps cut with a December implied rate of 4.239%; however, post the CPI results, Sept rate cut probabilities now look 56.5% and 41.5% for 50bps. Early weakness in consumer discretionary, communications, tech and materials with financials and energy outperforming. Earnings tonight from CSCO in tech and then tomorrow morning from WMT, BABA in retail.

• U.S. mortgage market index +16.8% in latest week ended Aug 9 as the average 30-year mortgage rate falls 1 bp to 6.54%; mortgage purchase index climbs 2.8% and refinance index climbs 34.5% as per weekly MBA data.

• In Steel sector: China Baowu Steel Group Corp. Chairman Hu warned that conditions in China are like a “harsh winter” that will be “longer, colder and more difficult to endure than we expected.” China’s steel market (Baowu alone produces about 7% of the world’s steel according to Bloomberg) is flashing multiple warning signs as the protracted property downturn shows no signs of ending, while factory activity remains subdued. Thyssenkrupp (TKAMY) posted a Q3 net loss of 54M euros ($59.4M), compared with a profit of 83M euros y/y, on sales that fell 6% to 8.99B euros; cut its bottom-line forecast to net loss in the mid-to-high three-digit million Euro range for the year vs. prior view for net loss in the low three-digit million Euro range.
• In the Food Sector: Privately held Mars, Inc. agreed to acquire Kellanova (K) for $83.50 per share in cash, for a total consideration of $35.9B, including assumed net leverage (news confirmed an overnight WSJ report). PFGC shares jumped early as Q4 adj EPS $1.45 topped consensus $1.37, though revs $15.19B slight miss of consensus $15.27B and said would acquire privately held foodservice distributor Cheney Bros for $2.1 billion in cash, bolstering its presence in Southeastern U.S. (said the deal is expected to close in 2025). HSY was downgraded to Hold from Buy at Argus citing the company’s recent Q2 earnings and revenue miss, with the management indicating that it continues to see customers seek value options and reduce the number of trips to the store.

• CAH +3%; reported a beat/raise quarter (Q4 adj EPS $1.84 vs. est. $1.73; Q4 revs rose 12% y/y to $59.87B vs. est. $58.54B) and raised its FY25 EPS outlook to $7.55-$7.70 from the preliminary outlook of at least $7.50.
• FLUT +9%; as Q2 adj EBITDA of $738M topped ests by 14% with strength across UK&I and Australia, while U.S. revs rose 8% q/q, the best QoQ growth rate in all U.S. online gaming. Flutter also increased 2024 U.S. and ex. U.S. EBITDA guidance by 4% and 2% at the midpoint.
• HA +5%; after ALK and HA said they will again extend closing their proposed $1.9B deal to give US antitrust enforcers more time to discuss a potential settlement. The airlines said they won’t close their tie-up until Aug. 16, a one-day extension beyond the previous deadline.
• ILMN +4%; upgraded to Buy from Hold at TD Cowen after Strategy Day highlights and raised tgt to $144 from $126, following the company’s strategy update as sees Illumina as a combination of a self-help and product cycle story (shares also upgraded to EW from UW at Barclays).
• K +7%; Privately held Mars, Inc. agreed to acquire Kellanova (K) for $83.50 per share in cash, for a total consideration of $35.9B, including assumed net leverage (news confirmed an overnight WSJ report).
• MRCY +21%; reported better than expected Q4 results, with adj. EBITDA of $31.2M, well ahead of consensus estimates of $14M on better revs $248.6M vs. $230.7M est. and called out a 4Q24 B2B of 1.14x.
• UBS +5%; posted a quarterly profit that was double the market forecast, helped by investment banking and larger-than-expected savings from Credit Suisse integration; posted net profit of $1.1B.
• VSCO +17%; after guiding prelim Q2 adj EPS to $0.34-$0.39, above est. $0.16 and prelim ADJ operating income $57M-$62M above the consensus est. $40.7M and sees Q2 net sales change -1% to -2% vs. prior -1% to -3%.

• GLBE -7%; shares fell after the application software company cut its full-year forecasts for both revenue and gross merchandise value (cuts FY24 revenue to $710M-$750M from $733M-$773M).
• GOOGL -3%; as Bloomberg reported a bid to break up Google is one of the options being considered by the Justice Department after a landmark court ruling found that the company monopolized the online search market.
• OUST -24%; after reported Q2 revenue that was in-line with consensus estimates on strong demand for REV7 sensors and software sales in the smart infrastructure and robotics verticals, but guided Q3 FY24 revenues below ests citing customer project delays and customer struggles with software development.
• SLRN -12%; anti-inflammatory drug succeeded in a Phase 3 trial for a common skin disorder called hidradenitis suppurativa, but the results didn’t show a clear edge over competing products.