Mid-Morning Look

Wednesday, June 07, 2023

U.S. stocks rise to start the day, with the S&P 500 coming off its best closing levels since last August and the Nasdaq hitting fresh 52-week highs as the rip-roaring 2023 performance continues for U.S. averages. The Russell 2000 adding to gains this month (already +6% in 5-days this month) as Smallcaps playing catch up (up 5% YTD vs. Nasdaq +27% and S&P +11.5% YTD). The S&P 500 index (SPX) again failed to break above the 4,300 level, bumping up against it again today before selling pressure stepped in. Market expectations remain for a rate hike “pause” from the Fed next week, despite recent signs of stronger jobs data, rising wages, as inflation data has been mixed (PCE higher, some ISM data points softer). Weaker Chinese export data (Exports fell 7.5% in May from a year ago, far worse than the 0.4% decline predicted by a Reuters poll) failed to stoke further concerns about the strength of global demand. Markets also unphased by another central bank raising rates as the Bank of Canada raises key rate by 25 bps to 4.75% vs. 4.5% est. It seems U.S. markets seem happy to extend the rally into the FOMC policy meeting next week as the CBOE Volatility index (VIX) falls to lowest levels since early 2020, below the 14 level with absolutely no fear in stock markets. Treasury yields edge higher while the dollar slips, and gold is flat at around $1,980 an ounce. Early leaders include Energy, Materials and Consumer Discretionary while Staples, Healthcare and Financials fall.

Economic Data

·     Light day for economic data but the U.S. April trade deficit was (-$74.6B) vs. consensus (-$75.2B) and compared to March deficit (-$60.6B); April goods deficit $96.11B, services surplus $21.56B; overall, April exports -3.6% vs March +1.8%, imports +1.5% vs March -1.6%. U.S. April exports $249.02B vs March $258.19B, imports $323.57B vs March $318.78B.

Stock GAINERS

·     AFRM +20%; announced that eligible U.S. merchants offering Amazon Pay (AMZN) can now seamlessly add Affirm’s Adaptive Checkout™ as a payment option at checkout. This brings Affirm’s pay-over-time technology, used by millions of customers at Amazon.

·     MRVL +2%; following a Taiwan press report overnight (Liberty Times) suggesting MRVL has won an order for AMZN’s 2nd gen AI chip.

·     PLAY +18%; as posted Q1 adj. EBITDA beat and ~in-line comp sales vs. Truist ests as costs decline; Q1 EPS $1.45 vs. est. $1.24; Q1 revs rose 32.4% y/y to $597.3M vs. est. $601.74M; Q1 comps decreased (-4.1%); announces $200M share repurchase.

·     SFIX +30%; cost cutting drove a beat on the bottom line (adj EBITDA of $10 million vs a loss of $36 million a year ago, and better than guidance of breakeven +/-$5 million); Q3 revs beat but guided 4Q revs $365-375Mm vs est. $379.4Mm.

·     SMCI +10%; upgraded to Buy at Rosenblatt with $300 tgt saying its history has resulted in a formidable business model aligned with the critical factors for success in an AI driven world.

·     TSLA +3%; rises a 9^th consecutive day after Bloomberg reported all Model 3 vehicles are all now eligible for the full U.S. tax credit under new criteria for battery- sourcing set by the Treasury Department.

·     VRA +12%; posted a narrower loss in Q1 despite a decline in sales, while raised its year profit outlook to $0.57-$0.67 from prior $0.40-$0.50; said Q1 loss improved due to controlling costs which helped expand margins.

·     YEXT +31%; after Q1 results beat expectations and raised its full-year guidance, positioning itself as a play on generative artificial-intelligence but is also benefiting from cutting its workforce.

Stock LAGGARDS

·     BASE -19%; shares fall on wider loss than expected and weaker Q2 revs ($41.2M-$41.8M vs. consensus $43.31M); note shares have rallied nearly 70% YTD run into the print.

·     CPB -6%; posted slight Q3 EPS beat of $0.68 vs. est. $0.65 on weaker revs of $2.2B and guided FY23 adjusted EPS $2.95-$3.00 vs. consensus $3.01 Q3 gross margin of 30% vs 31.2% a year earlier, average selling price rose 12% in Q3, but posted a -7% decline in total volumes.

·     CVGW -7%; as Q2 adj EPS ($0.01) vs est. $0.18, adj EBITDA $6.9Mm vs est. $9.008Mm on revs $244.7Mm vs est. $265.2Mm.

·     DUOL -2%; downgraded to MP from OP at JMP Securities noting shares are now trading 8% ahead of prior $155 price target after gaining 96% YTD.

·     FGEN -4%; said its experimental drug, pamrevlumab, to treat patients with a rare neuromuscular disease did not meet the primary goal in late-stage study.

·     UNFI -24%; after slashing FY adj EPS forecast to $1.80-$2.30 from prior view $3.05-$3.90 after Q3 EPS of $0.54 missed the $0.68 estimate on in-line revs of $7.5B as gross margin contracted to 13.3% from 14.0%.

Syndicate:

·     Cogent Biosciences (COGT) 12.5M share Secondary priced at $12.00.

·     Day One Biopharmaceuticals (DAWN) 11.538M share Secondary priced at $13.00.

·     eFfector Therapeutics (EFTR) sells 7.76M shares at $1.125 in registered direct offering.

·     Mondee (MOND) 5.25M share Spot Secondary priced at $10.00.

·     NewAmsterdam (NAMS) 13.9M share Spot Secondary priced at $11.50.

·     Ryman Hospitality (RHP) 3.5M share Secondary priced at $93.23.