Mid-Morning Look

Thursday, December 07, 2023

After a few weak trading days for the S&P and Dow, major averages are back on the rise as investors continue to “buy the dip” (for 6-weeks now since the October low), with major averages near best levels heading into year-end. Upside movement in a handful of large cap tech on the “AI” theme helping the broader averages as AMD jumps over 5% after unveiled new so-called accelerator chips that it said will be able to run artificial intelligence (AI) software faster than rival products and GOOGL also rises 5% after saying it developed a new artificial-intelligence (AI) system more powerful than any currently on the market. Economic data continues to provide broader markets with “goldilocks” scenario for economy remains strong/Fed rate easing possibly in future. Home builders hitting new all-time highs, TOL, LEN among them given a recent drop in Treasury and mortgage rates as market expectations build for FOMC rate cuts in early 2024. Oil prices reclaimed some ground on Thursday after tumbling to a six-month low the previous day. WTI crude oil futures broke below $70 per barrel for the first time in 5-months yesterday, on track for 7-straight weeks to the downside as the market remains concerned about sluggish demand in the United States and China. Prices last declined seven weeks in a row with a streak that ended in November 2018. JPY surge dominates FX markets today. The yen gains 1.9% against the USD after bond auction/expectations the BoJ will end the negative rate policy regime. Absolutely no fear as the Santa Claus rally continues to pick up steam, at highs of the day for major averages into the very important November nonfarm payroll jobs report tomorrow morning.

Economic Data

·     Weekly Jobless Claims climbed to 220,000 in the latest week vs. consensus 222,000 and from 219,000 the prior week; the 4-week moving avg climbed to 220,750 from 220,250 prior; continued claims fell to 1.861M from 1.925M the prior week.

·     October Wholesale sales (-1.3%) vs Sept +2.0% while Oct wholesale inventories revised to (-0.4%) vs. consensus (-0.2%) from -0.2%; stock/sales ratio 1.34 months’ worth vs Sept 1.33 months.

Sector Movers Today

·     In Transports: Trucker JBHT upgraded from Sell to Neutral at UBS and raised tgt to $205 from $176 because they see an improving outlook for intermodal volume growth in 2024 and it also believes the reset down in EPS expectations for 2024 has nearly run its course. Airline JBLU said it now expects its FY23 adj. EPS loss (-$0.50-$0.40), improved from prior loss outlook of (-$0.65-$0.45) saying since late October, close-in bookings have outperformed expectations for both holiday peak and non-holiday travel periods; also raises the low end of revenue forecast to rise 4%-5% y/y vs. prior view of 3%-5%. In LTL, SNDR upgraded from Underweight to Equal Weight at Wells Fargo and raise tgt to $25 as views the risk/reward balanced given the backdrop of stabilizing freight trends and opportunity for earnings acceleration in H2 2024.

·     Aerospace & Defense: ASLE receives supplemental type certificate from the FAA for “AerAware” – Co’s Enhanced Flight Vision System (EFVS) for Boeing’s 737NG product line. NOC raised its share-buyback authorization to $3.8 billion after saying it had authorized an additional $2.5 billion for repurchasing company stock. Elon Musk’s SpaceX has initiated discussions about selling insider shares at a price that values the closely held company at $175B or more – Bloomberg.

·     In MedTech/Tools: In Tools & Diagnostics: Goldman Sachs downgraded DHR to Neutral saying they are getting more selective based on valuation and upgraded QGEN to Buy based on the defensiveness of QGEN’s respective end markets and resilience vs. other mature Tools with more capital-intensive instrument exposure – firm believe tools sector growth will normalize to 5% in 2025 and 2026. MDT announced that it was terminating its agreement to acquire EOFlow citing multiple breaches of offer.

Stock GAINERS

·     AMD +4%; unveiled new so-called accelerator chips that it said will be able to run artificial intelligence (AI) software faster than rival products; raised AI TAM to $45B in ’23 growing at 70% CAGR to >$400B by ’27 (up from previous $150B).

·     ASLE +12%; receives supplemental type certificate from the FAA for “AerAware” – Co’s Enhanced Flight Vision System (EFVS) for Boeing’s 737NG product line.

·     CERE +11%; as ABBV agreed to acquire the company for $45.00 per share in cash for total equity value of approximately $8.7 billion. Proposed acquisition adds robust pipeline of assets focused on best-in-class potential for psychiatric and neurological disorders https://tinyurl.com/2tp962z9

·     DG +2%; posted a smaller-than-expected drop in Q3 sales on demand for its cheaper groceries and household essentials; said Q3 comp sales fell (-1.3%) vs. est. (-2.1%), after earnings and total sales beat and reaffirmed its fiscal 2023 forecasts.

·     DPZ +4%; after comments at investor day, as lifts long-term (2024-2028) annual global retail sales growth forecast to 7% climb from prior view of 4%-8% climb.

·     GOOGL +5%; said it developed a new artificial-intelligence (AI) system more powerful than any currently on the market, including technology developed by ChatGPT creator OpenAI. The Alphabet unit said the algorithm, Gemini, wouldn’t be widely available until early next year.

·     JBLU +11%; said it now expects its FY23 adj. EPS loss (-$0.50-$0.40), improved from prior loss outlook of (-$0.65-$0.45) saying since late October, close-in bookings have outperformed expectations for both holiday peak and non-holiday travel periods; also raises rev forecast.

·     SMTC +14%; reported in-line results but worse guidance, primarily as the module business takes another leg down; guides Q4 net sales $180-200Mm vs est. $211.8Mm.

·     VRNT +16%; results above consensus as Q3 revenue down 3.1% y/y, and sees no change to stable “elongated sales cycles,” reiterating FY24 revenue guidance of $910M; said SaaS ARR up 11% Y/y driven by solid bookings and renewals.

Stock LAGGARDS

·     AI -10%; as results were mixed as revenue came within the guided range while margins beat; revenue of $73.2 grew 17% y/y, up from 11% last quarter and 7% in the year-ago period; lowers FY24 loss from operations to ($135M)-($115M) vs. prior guidance of ($100M)-($70M).

·     CHWY -12%; as top-line guidance came in lower than expected, with management also lowering its FY2023 top-line guidance, though FY2023 EBITDA margin was reiterated at 3%.

·     CXM -27%; Q3 revs, adj op income topped consensus and raised guidance but lowered Q4 billings guidance and guides sub revs growth light as outlined pressure on renewals, including some large customers downsizing their contracts in Q4.

·     GME -8%; as Q3 revs $1.078 below consensus $1.18B; hardware and accessories sales fell to $579M, down from $627M y/y and software sales declined to $321M from $352M.

·     NAPA -9%; after muted 1Q results with F24 guidance revisions coming in below expectations due to category pressures from a weaker consumer and slowing premiumization trends; downgraded to Neutral at Bank America following Q1 results.

·     TTWO -2%; after being downgraded to Neutral from Buy at Bank America as assume Grand Theft Auto launch in the Fall 2025.

Syndicate:

·     89bio (ETNB) 15.135M share Secondary priced at $9.25.

·     Beacon (BECN) 5M share Secondary priced at $80.10.

·     Core & Main (CNM) 15M share Secondary priced at $35.80.

·     HCI Group (HCI) 1M share Spot Secondary priced at $78.00.

·     Wave Life Sciences (WVE) 20M share Secondary priced at $5.00.