Mid-Morning Look

Monday, July 10, 2023

U.S. stocks opened higher after slipping last week, as investors await remarks from Federal Reserve officials later today/this week and look toward key inflation data Wednesday (CPI) and Thursday (PPI) as well as bank earnings Friday (JPM, WFC, C). Benchmark 10-year yield little changed around 4.04% as mkts await inflation data this week for further clues on whether price pressures are continuing to moderate. Benchmark 10-year yields reached an eight-month high of 4.094% on Friday. Large cap technology weakness early, while Smallcaps seeing strength. Note the Nasdaq 100 index is set to adjust the weighting of its 100 components, with the “magnificent seven” stocks (AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA) currently accounting for more than half the index’s weight. The Nasdaq 100 special rebalance will take place before the market opens on Monday, July 24, to “address overconcentration in the index by redistributing the weights.” Industrials, Financials, Energy, and Healthcare early leaders, but gains mostly broad-based outside of large cap tech (AAPL, AMZN, MSFT, GOOGL). Quiet start to the trading week as major averages look to snap their 3-day losing streak.

Economic Data

·     Wholesale sales fell -0.2% in May vs. consensus +0.2% and vs April unchanged (prev +0.2%), while May wholesale inventories revised to unchanged vs. consensus -0.1%; U.S. may stock/sales ratio 1.41 months’ worth vs April 1.40 months.

Sector Movers Today

·     In refiners: IEP shares rose after the WSJ reported Carl Icahn finalized amended agreements with banks that untie his personal loans from the trading price of his company’s shares, increase his collateral and set up a plan to fully repay the borrowings in three years. TD Cowen previews the sector as DINO tgt to $40 from $42, DK to $21 from $20 and MPC to $142 from $145 as expects strength in PSX, MPC through the 2Q revision cycle vs weakness in DK, PBF. Mizuho previews as well saying DK, PBF model notable misses for qtr and modest beats for VLO, DINO.

·     Bank preview: Earnings season around the corner, with large cap banks reporting this Friday (JPM, WFC, C, PNC, STT). RBC Capital said today 2Q23 core EPS and business trends should overshadow the disruption caused by the SBNY and SIVB failures. Key themes include: (1) net interest income levels driven by lower net interest margins partially offset by modest loan growth; (2) credit quality metrics remain strong; (3) fee revenue growth will be mixed due to continued weaknesses in the capital markets, partially offset by seasonally higher residential mortgage banking fees; (4) operating expense growth should be moderate due to the weakness in incentive compensation; (5) commercial real credit trends especially in the office category.

·     In Medical Devices: SWAV upgraded from EW to Overweight at Morgan Stanley and raise tgt from $291 to $335 as expects a solid improvement in reimbursement to leave street growth expectations for 2024/25 as too low and with plenty of catalysts. ISRG tgt raised to $400 from $317 at Citigroup saying the upcoming Q2 may be the most “normal” quarter for U.S. medical technology since the advent of the pandemic. OM shares fall after disclosed two additional observations from FDA’s February 2023 San Jose facility audit, relating relate to Outset’s continuous renal replacement therapy (CRRT) promotion and TabloCart labeling.

·     In Auto Retail: Manheim June used-vehicle price index falls -4.2% vs. May & down -10.31% Y/Y as June ended at 45 days’ supply, down 4 days from 49 days at the end of May but 7 days lower than how June 2022 ended at 52 days (CVNA, KMX, GPI, AN among names in retail auto space). AAP downgraded to Underweight at Atlantic Equities, lowering its price target to $50, representing 28% downside as views the company’s ongoing weak performance as indicative of structural challenges and significant share losses.

Stock GAINERS

·     BMBL +3%; shares have broken hearts, but the business looks like a winner, said Barron’s noting the stock is down almost 40% since Barron’s recommended it last November.

·     HELE +16%; reported top and bottom line beat as Q1 adj EPS $1.94 vs est. $1.60; Q1 revs $474.7M vs. est. $465.36M; backs FY24 adjusted EPS and revenue outlooks.

·     IEP +17%; after the WSJ reported Carl Icahn finalized amended agreements with banks that untie his personal loans from the trading price of his company’s shares, increase his collateral and set up a plan to fully repay the borrowings in three years.

·     IOVA +13%; said it reached an agreement with the FDA on a plan to use results from an ongoing Phase 2 study of its experimental cell therapy called LN-145.

·     NBTX +48%; as reached an agreement with JNJ for development and licensing rights to an experimental drug designed to enhance the effects of radiation cancer therapy. Under terms of the deal, J&J is paying $60M upfront for NBTXR3, w/potential payments of up to $1.8B.

·     NSTG +22%; reported preliminary revenue for the 2Q that’s higher than beat estimates.

·     SCHW +2% was upgraded to Market Outperform from Perform at JMP Securities with $73 tgt saying recent data suggests some stabilization over the last quarter in the company’s cash sorting.

·     WYNN +3%; as casinos, travel, and leisure names among early market leaders.

Stock LAGGARDS

·     AAP -1%; downgraded to Underweight at Atlantic Equities, lowering its price target to $50, representing 28% downside as views the company’s ongoing weak performance as indicative of structural challenges and significant share losses.

·     FMC -9%; cuts FY23 revenue view to $5.2B-$5.4B from $6.08B-$6.22B (vs. consensus $6.11B) and guides Q2 revs below views saying an abrupt and unprecedented reductions in channel inventory by customers in late-May materially impacted volumes in the quarter.

·     FOXA -1%; downgraded to Underweight at Wells Fargo saying earnings are mostly Fox News earnings, and Fox News is facing viewership and share pressures.

·     MELI -5%; downgraded to Neutral from Buy (tgt to $1,350 from $1,680) at Bank America citing competitive concerns.

·     OM -10%; after disclosed two additional observations from FDA’s February 2023 San Jose facility audit, relating relate to Outset’s continuous renal replacement therapy (CRRT) promotion and TabloCart labeling.