Mid-Morning Look

Thursday, December 12, 2024

U.S. stocks showing a little weakness after surging Wednesday behind in-line inflation data, pushing big tech and major averages to record highs (AAPL, AMZN, GOOGL, META, TSLA). While the CPI inflation reading yesterday was in-line (though up from prior month) kept Fed rate cuts on the table into 2025, today’s PPI inflation data showed a notable jump in headline and core, which took a little steam out of further aggressive cut outlook (though a 25-bps cut still expected next week). Weekly jobless claims soared, which also gives the Fed more ammo to act on lower rates. Lots of central bank action today as the European Central Bank (ECB) reduced its key interest rate to 3% from 3.25% warning that growth will be weaker than it had previously while the Swiss National Bank (SNB) cut its interest rate by an aggressive 50 bps to 0.5% to 1%. In stock news ADBE shares declined following softer annual guidance, steel stocks down on analyst downgrades of sector, utility/nuclear names bouncing back along with consumer staples and REITs in defensive stocks. Stocks may have dipped on the open, but again quickly rebound, paring losses as investors take advantage of every dip.

• Weekly Jobless Claims jumped to 242,000, above 225,000 prior week and vs. consensus 220,000; the 4-week moving average climbed to 224,250 from 218,500 prior and continued claims climbed to 1.886M from 1.871M prior week; the insured unemployment rate unchanged at 1.2% Nov 30 week from 1.2% prior week (prev 1.2%).

• In Cable & Telecom: Keybanc upgraded CHTR to Overweight from Equal Weight at Keybanc with $500 PT noting the stock is off its lows but can continue to work higher as broadband subscriber trends improve primarily as a function of lapping Affordable Connectivity Program, continued growth in rural, and underlying subscriber declines being mostly stable. TMUS was downgraded to Sector Weight from Overweight at Keybanc based on valuation, which it thinks has become stretched, and it is unwilling to raise its price target to justify the valuation. CMCSA was upgraded to Buy from Neutral at Seaport with a $46 price target.
• In Utilities: WEC was upgraded to Neutral from Underperform at Bank America to reflect the constructive outcome in the recently completed Wisconsin rate case, strong demand growth in Wisconsin, WEC’s robust capital spending plan, strong balance sheet and performance record. CEG was upgraded to Buy from Neutral ($269 tgt) at Bank America citing sustained double-digit growth, an asset mix and business model that provides clean, baseload generation, and a compelling valuation relative to peers. Looking into 2025, JP Morgan upgrades NJR to Overweight from Neutral and EMA to Neutral from Underweight; AEP was downgraded to Neutral at JPM saying the company’s new CEO has introduced several key organizational changes that are encouraging, but the transition likely takes time. XEL was upgraded to Overweight from Neutral at JPM saying while wildfire liabilities have weighed on shares, it has “room to run” following a positive Q3 update.

• CIEN +15%; shares jumped as better guidance offset Q4 miss; reported Q4 adj EPS $0.54, below ests of $0.66 as gross profit falls 5.4% y/y on better revs but guided Q1 revs $1.01-$1.09B above est. $1.0B.
• CNC +3%; forecasted FY adj. EPS of more than $7.25 for 2025, topping consensus est. of $6.97 and sees FY rev of $166.5-$169.5B topping the $166.63B estimate while projects a health benefits ratio of 88.4%-89%.
• DBVT +18%; after saying it aligned with the FDA on key study design elements for its Comfort Toddlers study, including study size and wear time collection methodology and analysis.
• MET +4%; after provided new 5yr targets of: 1) 15-17% ROE, 2) double-digit EPS growth, 3) $25B+ of free cash flow, and 4) 100bps direct expense ratio improvement at Investor Day.
• RIOT +2%; after the WSJ reported activist investor Starboard Value takes stake in the Bitcoin miner, pushing Riot to convert some mining facilities to space for big data-center users
• WBD +12%; announced a new corporate structure where they will oversee two distinct operating divisions including global linear networks, which will focus on maximizing profitability and free cash flow, and streaming and studios, which will target driving growth and strong returns on increasing invested capital.

• KROS -74%; after saying it has halted dosing of 3.0 mg and 4.5 mg doses of its high blood pressure treatment in a mid-stage study due to fluid buildup around the heart.
• LOVE -24%; shares tumbled after Q3 sales $149.9M missed the $155.3M estimate and lowered FY25 sales to $660M-$680M from prior $700M-$735M and lowered year EPS view to $0.27-$0.74 from $1.01-$1.26 owing to higher discounts; said near-term headwinds for category clearly persisted through the pre-election period.
• NDSN -6%; after results as Q4 topped views, but guided Q1 and FY below views; guides FY25 sales $2.75-2.87B vs est. $2.933B and adj EPS $9.70-10.50 vs est. $10.41.
• OXM -6%; missed Q3 revenue, profit estimates saying high inflation, impact of two hurricanes, and election distractions led to tentative consumer spending; lowered FY24 revenue to $1.50B-$1.52B vs. prior $1.51B-$1.54B and EPS seen $6.50-$6.70, vs. prior $7.00-$7.30 forecast.
• STLD -3%; UBS downgraded NUE and STLD to Neutral & CMC to Sell (all from Buy) saying despite weak sector-wide Q3 results/Q4 guidance and disappointing steel pricing & demand data, CMC/STLD shares are up >25% from the September lows.