Mid-Morning Look

Thursday, August 22, 2024

U.S. stocks opened higher before pulling back to breakeven, as the tech heavy Nasdaq Composite rises to around the 18,000 level before dipping, up 9 of last 10 days into today while the S&P 500 nears its all-time highs into Fed Chairman Powell speech tomorrow (market expectations for very dovish spin, with hopes for aggressive rate cuts this year by the Fed – currently baking in about 100-bps by end of 2024). With the S&P up 0.35% early, it remains on track for a 13th straight day of higher lows for the index; it would need to break 5591.57 (yesterday low) to break that streak in what has been a massive rally off early August lows. Economic data softer on Thursday as U.S. business activity fell to a 4-month low in August and firms continued to struggle to pass on higher prices to consumers, as S&P Global said that its flash U.S. Composite PMI Output Index edged down to 54.1 this month after a final reading of 54.3 in July. Weekly jobless claims also climbed from the previous week as well. Yesterday, the BLS revisions came in at -818K jobs which was a bit higher than consensus but not as high as some estimates. Yields dropped yesterday following the data as the 10Y dropped to the lowest levels since the Yen carry blowup in early August closing below 3.80%, but yields have bounced today ahead of Powell at Jackson Hole tomorrow. Recaps of top movers on earnings (SNOW, ZM, AAP, BJ, CSIQ, URBN) all detailed below. The dollar index popping higher so seeing pullback in gold/silver after run to record highs.

A busy day of Fed speakers so far, and more to come as the Jackson hole Symposium gets underway, highlighted by Fed Chairman Powell comments tomorrow (Friday 8/23) at noon. Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday he was on board with a September rate cut as long as the data performs as he expects it to. “When it comes to an imminent move down in the cost of short-term borrowing, “for me, barring any surprise in the data we’ll get between now and then, I think we need to start this process” of lowering rates, Harker said in an interview with Reuters. He continued in CNBC interview saying job mkt softening but off very high levels; re: rate cuts- used the term “methodically”- wouldn’t commit to 25 or 50 but comments seem to point to 25- dependent on remaining data prior to Sept meeting.

• July Chicago Fed National Activity Index at -0.34 vs -0.09 Prior and June revised to -0.09 from 0.05. 28 of the 85 monthly individual indicators made positive contributions, while 57 indicators affected the index negatively.
• U.S. S&P Global August flash services PMI at 55.2 (vs 55.0 in July), U.S. S&P Global August flash composite PMI at 54.1 (vs 54.3 in July), and U.S. S&P Global August flash manufacturing PMI at 48.0 (vs 49.6 in July).
• July Existing Home Sales rose 1.3% to 3.95M unit rate (vs. consensus 3.93M) and vs June 3.90M; U.S. July inventory of homes for sale 1.330M units, 4.0 months’ worth; U.S. July national median home price for existing homes $422,600, +4.2% from July 2023.

• Consumer Staples: EL was upgraded to overweight at Piper and tgt raised to $114, coming away from earnings more comfortable with current valuation levels and having stronger conviction in updated forward estimates. UL was double upgraded to Buy from Underperform as believes that organic growth will reach a CAGR of 4.6% in 2024-27E on the back of stronger underlying growth, separation of Ice Cream will be beneficial for growth, and local competition in EM and more private label competition challenges are well understood.

• EL +2%; upgraded to overweight at Piper and tgt raised to $114, coming away from earnings more comfortable with current valuation levels and having stronger conviction in updated forward estimates.
• OPRA +12%; Q2 revenue of $109.7M was ahead of consensus of $108.7M while adj. EBITDA of $26.6M also beat consensus of $24.5M; Q3 revenue guidance of 17% y/y growth was in line with consensus while adj. EBITDA guidance was raised ahead of the street.
• PTON +20%; quarterly sales unexpectedly grew for the first time in over two years, to $643.6M from $642.1M (above est. $628M) while quarterly loss narrowed to $30.5M from $241M y/y; though did guide Q3 and year lower.
• SNPS +3%; FQ3/FQ4 sales a touch above consensus estimates while pf-EPS came in 5%/1% above as Operating Margin expands on improving operating leverage.
• ZUO +9%; raising both our revenue outlook and our non-GAAP operating income ranges, as well as increasing our target for adjusted free cash flow; Q4 results beat and guides Q3 revs $115-117Mm vs est. $115.11Mm, adj op Inc $20.5-21.5Mm vs est. $20.34 and adj EPS $0.11-0.12 vs est. $0.10.

• BJ -5%; as Q2 EPS/revs topped consensus and Q2 comp club sales increased by 3.1% y/y but lowers FY24 merchandise gross margin forecast to remain flat y/y vs prior expectations to improve about 20 basis points, while maintained FY24 EPS range of $3.75-$4.00 despite Q1 beat.
• CSIQ 11%; after cutting FY24 revenue view to $6.5B-$7.5B from $7.3B-$8.3B after guiding Q3 revs lower at $16B-$1.8B (est. $2.18B) and missed Q2 results.
• SCHW -2%; after TD said it had set aside $2.6 billion for fines for weaknesses in its anti-money-laundering practices. It plans the sale of 40.5 million shares of common stock in Charles Schwab (SCHW) at $61.65, reducing its ownership interest in the wealth-management company to about 10% from more than 12%.
• SNOW -12%; reported Q2 EPS/revs ahead of views on better guide, but Q2 Product revenue beat guidance by ~3%, below last quarter (5-6%), but in-line with FY24 (3-4%), driven by strong growth in tech/financial services; reported RPO growth (+48% Y/Y), and said the rate of the sequential NRR decline decelerated to 100bps vs. 300bps/400bps in 1Q25/4Q2.
• SPT -4%; was downgraded to Underweight at KeyBanc and reducing ests with a $28 downside price target following a deeper look into the Company’s first half performance and what it might mean for its ability to reaccelerate revenue growth in 2025 up to the Street’s liking.
• URBN -10%; reported 2Q24 results that beat on total sales (driven by upside in Wholesale and Nuuly), margins, and EPS, but the company missed comps at all three divisions. Negative comps persist at the UO brand.
• VIK -6%; Q2 EPS $0.37 missed the $0.66 estimate (below y/y $0.46) and revenue fell short as well rising 9% y/y to $1.59B vs. est. $1.6B, but said its advance bookings are running ahead of year-ago levels.
• WSM -8%; mixed Q2 as EPS $1.74 tops the $1.60 estimate but revs of $1.79B fell from $1.86B y/y and was below ests $1.81B; Q2 Same-store sales fell (-3.3%) worse than the est. (-2.5%) drop; lowers FY revs view to minus 4.0% to minus 1.5%, vs, prior down 3% to up 3%; lowers op margin to 17.4%-17.8%, from prior view 17.6%-18.0%.