Mid-Morning Look

Wednesday, July 24, 2024

U.S. stocks off to a rocky start mid-week, with sharp declines across the board led by technology, consumer discretionary, communications and industrials down the most. The Nasdaq down over 2% led by sharp pullbacks in TSLA and GOOGL after results failed to impress investors, while semis (SOX) -2.5% also pressured. After weeks of record highs for U.S. markets, major indices seeing notable weakness for the first time, and failing to see a bounce early, taking out Friday’s lows for the S&P 500 and as the Nasdaq 100 breaks below its 50-day moving average support of 19,410 (the Nasdaq Comp about 100 points above its 100dma of 17,515). The 2-year U.S. Treasury yield falls 3.4 bps to 4.408%, lowest level since Feb 7; 10-yr flat at 4.239% (inversion narrows to about 16bps). Reminder that we are in the Fed “blackout period” so no comments until next Wednesday’s FOMC meeting, and many companies remain in their stock buyback “blackout period” just ahead of earnings (many big names still to come this week). Economic data mixed to weaker this morning with another drop in New Home Sales in June despite a huge drop the prior month. A few earnings winners this morning include STX, TMO, ENPH and MAT in retail, but many more losers on results (DB, LW, OTIS, ROP, TSLA, Visa and WNC among them). The yen remains the best performing G10 currency in current global environment dominated by market concerns about persistently sluggish growth in China, signs of slowdown in the US economy, political uncertainty in the US ahead of November’s presidential elections and geopolitical tensions.

• July preliminary S&P Global U.S. Composite PMI up to 55 vs. 54.2 est. & 54.8 prior; Manufacturing down to 49.5 vs. 51.6 est. & 51.6 prior; Services up to 56 vs. 54.9 est. & 55.3 prior.

• In Healthcare Facilities and Services: TD Cowen said top picks for sector are ADUS, ELV and ACHC, while raises PT on HUM and lowering PT’s CNC noting for several months they posited elevated trend would persist into 2Q24; ELV, UNH and HCA seem to confirm our thesis. They also posited mid-year was an inflection point for sentiment & trend reversal; their June Hospital Survey lends credibility to that thesis. CNC downgraded to Hold from Buy at Jefferies saying to offset higher Caid utl, CNC needed ~$600M of HIX risk adj benefit plus NII help. THC joins HCA the day prior with better results/guidance in hospital provider sector.
• In Banks: DB said they set aside 1.3B euros in provisions as it posted its first loss in four years; said the bank would not conduct a second share buyback this year. CADE downgraded to Neutral at Piper saying remains well-positioned overall, but it’s hard for US to see incremental outperformance relative to the group at these multiples. CBU downgraded to Market Perform at Raymond James saying while they like the franchise for its strong core deposit franchise (28% NIB) and robust fee income (40% of revenue), it believes shares are fairly valued.  NBTB also downgraded to market Perform at Raymond James citing valuation as well. SMBK downgraded to Neutral from Overweight at Piper saying N/T upside appears muted. TFC cut to Neutral from Buy with $47 tgt after earnings at Citigroup saying the bar is high, opportunity Is there to improve returns, but will be at more measured pace.
• In Oil E&P Sector: EQT Q2 adj EPS (-$0.08) vs est. (-$0.20), adj EBITDA $464Mm vs est. $407.43Mm; sees Q3 sales volume 510-560 BCFE; reaffirms FY sales volume 2,100-2,200 BCFE; MTDR better Q2 results as EPS $2.05 vs. consensus $1.76; Q2 revs $847.14M vs. consensus $825.29M; increased its full-year 2024 guidance range for total oil and natural gas equivalent production, oil production and natural gas production. RRC Q2 adj EPS $0.46 vs. est. $0.42; Q2 revs $530.04M vs. est. $594.28M; targeting a maintenance production program in 2024, resulting in approximately flat production at 2.12 – 2.16 bcfe per day; said 2024 all-in capital budget is $620M-$670M; expects annual production to be near high end of guidance.

• ENPH +10%; as results “better-than-feared” despite Q2 revs miss of $303.5M (below est. $308.9M and same quarter prior year $711.1M) and guided Q3 revenue of $370M-$410M below midpoint of $404.9M estimate.
• MAT +7%; Q2 adj EPS $0.19 topped est. $0.17 as Q2 revs fell -1% y/y to $1.08B, while maintained its full-year profit and sales forecasts, also posted a drop of 18% in advertising and promotional expenses.
• STX +7%; Q4 top and bottom-line beat (EPS $1.05/$1.887B vs. est. $0.75/$1.872B) as non-GAAP gross margin expanded to nearly 31%, and non-GAAP EPS exceeded the high end of our guidance range while also issued upbeat Q1 guidance.
• T +3%; Q2 adjusted EPS $0.57, in-line with consensus and Q2 revenue $29.8B vs. est. $29.92B; Q2 419,000 postpaid phone net adds vs. ests. 284K; backs FY24 adjusted EPS $2.15-$2.25, adjusted EBITDA view up 3% and FY24 capital investment view $21B-$22B; Q2 Free cash flow rose more than 9% to $4.6B vs. est. $4.2B.
• THC +6%; joins HCA the day prior with better results/guidance in hospital provider sector.

• BXMT -7%; after cutting its qtr dividend to $0.47 from $0.62 (announced a $150M buyback).
• DB -7%; said they set aside 1.3B euros in provisions as it posted its first loss in four years; said the bank would not conduct a second share buyback this year.
• GERN -8%; after saying its chief commercial officer is leaving the company in August, just two months after the approval of its first medicine, a treatment for a type of blood cancer.
• GOOGL -4%; Q2 total revenue was +0.7% vs consensus, driven by beats at Search & Cloud, while YouTube missed estimates citing tougher APAC comparisons and operating income (GAAP) was +5% above consensus/cloud revs accelerated for 3rd consecutive quarter, driven by GCP & AI.
• LW -29%; after Q4 EPS of $0.78 missed the $1.26 consensus as sales fell -4.9% y/y to $1.61B, missing the $1.7B estimates citing a global slowdown in restaurant traffic. LW also said Q4 volume declined 8%, with more than half of that decline reflecting market-share losses and lowered year sales view to $6.6B-$6.8B vs. est. $6.79B.
• SAGE -16%; and BIIB said their neurological disorder drug failed in a mid-stage trial. Announced results from Phase 2 KINETIC 2 Study of SAGE-324 for the treatment of essential tremor. No statistically significant differences were demonstrated between any dose of SAGE-324 and placebo in the change from baseline for the primary endpoint.
• TSLA -11%; reported another quarter of disappointing profit (45% drop) and postponed a highly anticipated unveiling of autonomous taxis; Q2 automotive gross margin reported at 14.65% vs. estimate of 17.86%.
• V -3%; posted higher Q3 revenue of $8.9B but showed a slowdown in overall U.S. volume growth which rose by 7%, (down from 8% payment growth in prior quarter), while processed transactions increased 10% (below the 11% growth in processed transactions during the March quarter).
• VSTM -21%; shares tumbled as 13.333M share Spot Secondary priced at $3.00.
• WNC -8%; after weaker Q2 results, and lowered 2024 EPS view to $1.50-$1.60 from $2.00-$2.50 vs. $4.83 last year and cut 2024 revenue view to $2.0B-$2.2B from $2.2B-$2.4B vs. $2.54B last year.