Mid-Morning Look

Wednesday, August 21, 2024

New day, new rally for U.S. stocks, continuing the theme since the August 5^th Monday lows as market sentiment remains positive heading into the Fed Jackson Hole Symposium on Friday where Chairman Powell set to speak on economy/interest rates at noon. Consumer Discretionary stocks get a boost as Target (TGT) and TJ Maxx (TJX) both reported better quarterly results and raised guidance, while Department store Macy’s (M) declines on sales miss and lower sales outlook (group rallied last week on better WMT results). Target (TGT) Q2 EPS of $2.57 easily topped a Street forecast of $2.18, fueled by a stronger-than-expected comp increase of 2% and healthy gross margin expansion of 190 bps. S&P 500 consumer staples sector (XLP) hits record high. The market strength just continues as the S&P 500 on Tuesday may have snapped its streak of 9 consecutive daily gains…but it did make 11 consecutive higher-lows and on track for a 12^th. Semiconductors get a boost behind better ADI results/guidance. In transports, Canada’s freight rail transport could come to a grinding halt as the country’s two leading railroad operators plan an unprecedented, simultaneous, and indefinite work stoppage following deadlocked talks over labor contracts, which could impact fertilizers, coal, grain, beans, automobiles, and other goods. We were expected to see the BLS release its preliminary benchmark revision of payroll data this morning, but as of this writing, it had not been revealed yet on BLS website.

• In Beverages: Bernstein noted weekly beer tracker (BUD, SAM, STZ, HEINY) shows for the two weeks ending Aug 10th, market volumes declined -3.8% YoY. This is a sequential improvement from the -4.8% volumes in the previous two weeks. On a trailing 4wk basis the market saw volume declines of -4.3% (dragged further down by the prior 2wk period), a significant worsening vs last month’s -1.9%.
• In Aerospace & Defense: Truist upgraded WWD to Buy from Hold and raise tgt to $187 from $152 saying with China natural gas engine sales now effectively removed from expectations, and taking into consideration the recent stock pullback, says now is the time to get off the sidelines. Truist downgraded TGI to Hold from Buy and cut tgt to $15 from $17 citing the company’s continued weak cash generation, ongoing challenges in its interior segment, a general lack of near-term catalysts, and potential risk to management’s fiscal 2025 outlook.

• BBAI +24%; said it was part of a team with Concept Solutions that was awarded a 10-year shared contract worth as much as $2.4 billion to provide information- and emerging-technology services to the U.S. Federal Aviation Administration.
• GLW +2%; upgraded to Outperform from Neutral at Mizuho and raised tgt to $47 from $44 ahead of the upcoming Sept 19 review of its Optical glass fiber business and following the recent pullback in the stock.
• KEYS +10%; on results/guidance; saw core orders decline (-1%) y/y in 3QF24 (July). This was an improvement from (9%) y/y in Q2 and (12)% in Q1; Key areas of orders strength include data center/wireline orders and semiconductors.
• SDIG +50%; BITF agreed to acquire Stronghold Digital Mining, Inc. (SDIG), under which Bitfarms will acquire Stronghold in a stock-for-stock merger transaction. The Transaction is valued at approximately $125 million equity value plus the assumption of debt valued at approximately $50 million. https://tinyurl.com/2n6r9x62
• TGT +14%; Q2 comp sales rose 2% vs. est. 1.07%; revs rose 2.7% y/y to $25.5B vs. est. $24.88B and adj EPS of $2.57 topped the $2.18 estimate; Q2 Gross margin 28.9% vs. 27% y/y; raises FY adj EPS view to $9.00-$9.70, above prior forecast $8.60-$9.60, and est. $9.22; guides Q3 adj EPS $2.10-$2.40 vs. est. $2.24.
• TJX +3%; raises FY guidance for both pretax profit margin and EPS; raises FY EPS view to $4.09-$4.13, above prior forecast $4.03-$4.09 and sees FY comp sales +3%, the high end of prior forecast +2% to +3% (est. +2.76%); also reported quarterly EPS and sales above consensus.
• TOL +5%; posted Q3 EPS of $3.60 topping consensus estimate of $3.31 as sales rose 1.5% y/y and gross margin of 27.4% was 40bp lower y/y; KBW Inc noted that orders grew by 11% y/y vs. their +23% estimate and consensus +27% but mgmt noted a pickup in July/August due to lower rates; FQ4 guidance implies EPS of $4.10-$4.35 vs. est. $4.06.
• VGR +6%; JT Group agreed to buy the cigarette maker for about $2.4 billion to expand the Japanese tobacco company’s position in the US. JT Group will acquire all Vector for $15 a share https://tinyurl.com/49b3rdka

• AXP -2%; downgraded to Neutral from Buy at Bank America as they see limited incremental upside given potential for subdued billings volume growth and current premium valuation.
• DY -6%; shares fell despite EPS beating, supported by an increase of more than 15% in contract revenues to $1.2B from $1.04B y/y and was in-line with consensus views.
• JD -6%; as WMT has sold its stake in JD.com (JD), ending an eight-year investment in the Chinese e-commerce company. WMT sold 144.5 million American depositary receipts in JD.com at $24.95 apiece.
• LZB -5%; Q1 adj EPS $0.62 vs. est. $0.60; Q1 sales rose 2.9% y/y to $495.5M vs. est. $481.5M; but guided Q2 revenue $495M-$515M, below consensus of $518.4M.
• M -9%; cuts annual sales forecast for FY24 to $22.1B-$22.4B, vs. prior forecast $22.3B-$22.9B while reaffirms its annual adjusted EPS outlook; Q2 net sales fell -3.8% y/y to $4.94B, missing the $5.12B est., but EPS of $0.53 topped the $0.29 est.