Mid-Morning Look

Wednesday, June 26, 2024

U.S. stocks trade mixed on Wednesday, as the tech heavy Nasdaq and S&P 500 index are leading early while the Smallcap Russell 2000 and Dow Jones Industrials are lagging in similar action to Tuesday. Data today saw more weakness in the housing sector as new home sales in May tumbled to 6-month lows, adding to the recent string of weaker data points, and comes ahead of tomorrow’s GDP print and Fridays’ all-important core PCE inflation reading for May. Tonight, we get earnings in the semiconductor sector with Micron (MU) results as well as the Fed’s bank stress test results. European stock markets turned lower as the market braced for a French election and a key U.S. inflation reading. The Japanese yen fell to 160.62 per dollar, its weakest level since 1986, sparking speculation that Japanese authorities could intervene to strengthen the currency. The yen briefly rebounded after Japan’s top currency diplomat Masato Kanda said that authorities are “seriously concerned and on high alert” about the yen’s rapid decline, escalating warnings as the Japanese currency languished at its weakest level in almost forty years. Treasury yields hit their highest levels in a week, with the 10-yr above 4.3% while the dollar edges higher and god lower. Investors also await the first presidential debate between Joe Biden and Donald Trump Thursday night.

• In Restaurants: CMG 50 for 1 stock split took effect today; Barron’s noted fast-food chains (MCD, WEN, QSR, YUM) are heading toward a price war this summer as America pulls back on dining out. While a race to the bottom could hurt all players, McDonald’s, with its rich profit margin and cash flow, seems best positioned to emerge as the winner. PZZA tgt cut to $45 from $55 at Stifel following consumer survey and channel checks for the major pizza chains, as the firm raised its domestic SRS projection for DPZ to 5.5% (from 5.0%) and lowered it for PZZA to -3.5% (from -1.0%).
• In Metals: steel names active as U.S. Steel (X) was upgraded to Outperform from Market Perform at BMO Capital citing compelling valuation, though notes the Nippon/ US Steel transaction remains in limbo; WOR shares weak after Q4 results disappoint as adj EPS $0.74 misses est. $0.95 and revs -74% y/y to $318.8M vs. est. $359.4M; in gold miners, BMO Capital upgraded GFI to Market Perform from Underperform and slightly increasing its tgt to $14.00 primarily driven by its updated gold price forecasts published today and upgraded ERO to Outperform and raise PT to $41 from $37 in copper space saying it will not experience the same downside risk of falling copper prices.

• FDX +14%; shares surged after results/buyback; said expects to buyback $2.5B of shares for fiscal 2025 and $1B in stocks in Q1; Q4 adj EPS $5.41 vs est. $5.35 on revs $22.1B vs est. $22.069B; guides FY25 revs +low-mid-single vs est. +3.12%, adj EPS $20.00-22.00 vs est. $20.92, CAPEX $5.2B (shares of UPS also higher).
• PRGS +7%; after quarterly results beat with Q2 adj ESP $1.09 vs est. $0.95 on revs $175Mm vs est. $168.42Mm.
• RIVN +28%; shares surged after Volkswagen (VWAGY) said it plans to make a $5B investment into the electric vehicle maker as they plan a joint venture for next-gen electric vehicles. Volkswagen said they plan to invest an initial $1B, with up to $4B in planned additional investment.
• SVRA +4%; shares jumped after announced positive results from the pivotal, Phase 3 IMPALA-2 clinical trial, saying its experimental drug, molgramostim, met the main goal of a late-stage trial for a rare lung disease.
• TGLS +17%; after disclosing its board is conducting a review of the company’s strategic alternatives.
• VSTO +8%; as MNC raised its offer to acquire Vista Outdoor to $42 per share, valuing the deal at approximately $3.2 billion. Concurrently, CFIUS approved the sale of The Kinetic Group to CSG, clearing the final regulatory hurdle.
• WHR +13%; shares jumped after Reuters reported German engineering group Robert Bosch GmbH is weighing a bid for the company citing people familiar with the matter. Bosch has been talking to potential advisers about the possibility of making an offer for Whirlpool, which has a market cap of about $4.8B https://tinyurl.com/4t79r63d

• APTV -8%; downgraded to Underweight at Piper and cut tgt to $63 from $78 after Rivian announced the establishment of a joint venture with Volkswagen as the firm notes the rationale for the JV is a red flag for the APTV thesis.
• GIS -5%; shares slipped on quarterly results as Q4 organic net sales fell (-6%) vs. est. (-3.31%) and overall revs of $4.71B missed the $4.85B estimate (and down from $5.03B y/y) as consumers cut back on its higher-margin products.
• LUV -2%; provided Q2 update saying expects an all-time quarterly record for operating revenue in Q2 2024 but forecasts Q2 RASM y/y down 4.0% to 4.5% (down from prior guidance of down 1.5% to 3.5%) saying the cut in revs were driven primarily by complexities in adapting its revenue mgmt to current booking patterns in this dynamic environment.
• MRNA -5%; after saying its respiratory syncytial virus (RSV) shot mRESVIA showed 50% efficacy in preventing RSV after 18 months. In their clinical trials, GSK’s RSV vaccine Arexvy was 78% effective in preventing severe RSV over a second year and Pfizer’s was 78% effective midway through a second RSV season.
• TSHA -14%; shares fell after prices public offering of 14.4M shares at $2.25 per share.
• WOR -4%; after Q4 results disappoint as adj EPS $0.74 misses est. $0.95 and revs -74% y/y to $318.8M vs. est. $359.4M.