Mid-Morning Look

Tuesday, June 25, 2024

U.S. stocks are mixed with tech leading. After a few days of selling in technology mega caps (NVDA, QCOM, MU) and rotation into other sectors (energy, industrials, financials), markets are back to their old ways, with a few large cap tech names keeping stock markets higher (Nasdaq +0.7%), while market breadth back to negative by little less than 2:1 margin. Smallcaps and the Dow Jones Industrial average both give back some recent gains, while riskier assets rebound (Bitcoin +3.5% to $61,500 after dropping below $59K late yesterday). In bond markets, 2-yr yield little changed at 4.74% and 10-yr also flat at 4.25% – reminder later we get $69B in 2-year notes coming to auction at 1pm EST to gauge investor appetite for shorter-term paper. Stock markets still awaiting key inflation data and Presidential debate this week for more direction, with GDP data Thursday, PCE inflation data Friday. U.S. natural gas futures slid about 2% while oil dips but still strong overall this month. Seeing strength in cruise stocks on CCL beat and raise, while pool stocks fall on lower POOL guidance and construction/material stocks lower following analyst commentary in the sector.

• Richmond Fed composite manufacturing index -10 in June vs 0 in May, Richmond Fed manufacturing shipments index -9 in June vs +13 in May, Richmond Fed services revenues index -11 in June vs +3 in May.
• U.S. S&P CoreLogic home price index rose 1.4% to 329.8 in April, a fresh record high, for the 20-City index, after rising 1.6% to 325.4 in March. The 12-month pace was little changed at 7.2% y/y from 7.5% (was 7.4%) y/y previously. The 10-City index also increased 1.4 % to 346.9 in April following the 1.6% gain to 342.2 (was 341.8) previously.

• In Autos: TSLA is recalling 11,383 model year 2024 Cybertruck vehicles manufactured from November 13, 2023, to May 26, 2024, the NHTSA says in documents posted to its website. XPEV was upgraded to Neutral from Sell at Citigroup saying they expect a lengthened model cycle ahead with market consolidation likely until 2031, which may lead to ROE recovery of leading auto makers from 2H25 to early 2029. RIVN was initiated Buy and $18 tgt at Guggenheim as the firm believes it uniquely positioned that can deliver a superior product compared to ICE vehicles enabled by software, technology and thoughtful design elements
• In Aerospace & Defense: BA has offered to acquire SPR in a deal funded mostly by stock that values its 737-fuselage supplier at about $35 per share, Bloomberg News reported as the offer is worth about $4.08 billion, as per Reuters calculations based on Spirit’s outstanding shares as of May 7. https://tinyurl.com/bdkecke2 . Note aerospace stocks were hit hard on Monday (ATI, CRS, GEV, SPR) following a profit warning from Airbus (EADSY) as lowered its 2024 jet delivery forecast to 770 from 800 on Monday.

• CCL +5%; results beat as Q2 adj EPS $0.11 tops the consensus loss of (-$0.02) on revs rising 18% y/y to $5.78B vs. consensus $5.68B with adj net income $134M vs. loss $395M y/y, and adj EBITDA $1.20B, +76% y/y while raised full year adjusted net guidance by about $275M (boosting shares of comps RCL, NCLH).
• ENVX +25%; announced it has signed an agreement with a leading California-based technology company to provide silicon batteries and packs for a mixed reality headset. Enovix will receive an immediate one-time payment for tooling to support battery pack dimensions followed by payments for the delivery of both sample and production quantities.
• GPS +3%; upgraded to buy from hold at TD Cowen saying the company is in the “early innings” of a transformation across all four of its brands and that the growth potential is underappreciated.
• MQ +2%; was upgraded from Equal Weight to Overweight at Wells Fargo with unchanged tgt of $7 saying believes MQ is overdue for a re-rating, given emerging opportunities, further innovation within SQ/Cash App.
• NVDA +3%; shares advance following their 13%, three-day rout that wiped out about $430 billion in market value.

• GRAL -13%; after ILMN announced the successful completion of the spin-off of Grail.
• NSC -4%; Wells Fargo lowered their Q2 ests for railroad saying they get the sense that the company’s 2Q OR guidance is becoming more difficult to achieve in the context of a smaller-than-expected sequential volume ramp-up.
• OMI -4%; announced that CFO Alexander Bruni resigned at the request of the company and appointed Corporate Treasurer Jonathan Leon as interim CFO.
• POOL -7%; lowered its annual EPS guidance range to $11.04-$11.44 from previous view $13.19- $14.19 (est. $13.15) and guided Q2 EPS in range of $4.85-$4.95 vs. est. $5.85; said YTD net sales, although sequentially better than Q1 24, are trending down around 6.5% (guidance weighed on shares of LESL, PNR, HAYW, SITE, SWIM
• SEDG -15%; shares tumbled after announcing a proposed private offering of $300M of convertible senior notes; notes maturity set for July 1, 2029. Additionally, it noted that a customer had filed for bankruptcy, meaning it might fail to collect the $11.4 million it is owed.
• SNX -5%; shares slip as Q2 results missed expectations with EPS $2.73/$13.9B revs below consensus $2.82/$14.1B and guided Q3 mid-point view below consensus as EPS $2.55-$3.05 (est. $2.93) and sees Q3 revenue $13.3B-$14.9B vs. consensus $14.51B, while net income seen $152M-$194M vs. est. $193.6M.
• WOLF -3%; after warned that an equipment incident will weigh on Q4 earnings & margins and Q1 revs; said expects temporary impact from equipment incident at Durham 150mm device fab; targeted Q4 revs from continuing operations is unchanged at $185M-$215M.