Mid-Morning Look

Tuesday, March 19, 2024

U.S. stocks showing a little apprehension ahead of tomorrow’s FOMC policy meeting results/headlines/press conference from Fed Chairman Powell where rate cut expectations for 2024 have been dwindling in recent weeks following hotter CPI and PPI inflation data points, boosting Treasury yields. Treasury yields have risen 6-straight days heading into tomorrow’s FOMC meeting but dipping slightly this morning (10-yr at 4.31%). The U.S. Dollar Index (DXY) rose 0.5% back near the 104 level, rising vs. the Japanese yen after the BoJ policy meeting results last night (raised rates for 1^st time in 17-yrs but continues bond purchases and pledges to respond to any rapid rise in yields). Semiconductors giveth and semi’s taketh away as recent profit taking/pullback in the one of the top sectors in 2023 and early 2024 seeing a sharp retreat the last few weeks. NVDA shares slip after its GTC event provided no major surprises, SMCI announced a stock offering to raise cash, KLAC guided lower after exiting flat panel business, and general chip names (AMD, QCOM, ARM) seeing pullback in shares with the SOX index -2.4% below 4,650 after hitting ATH’s this month of 5,217. Gold prices -0.5% to $2,153, pulling back from recent record highs ($2,203) ahead of FOMC as rate cut expectations ease in recent weeks. Energy, Utilities, Staples, Financials among early sector leaders and Tech, Communications edging lower.

• In Utilities: SMR was downgraded from Equal Weight to Underweight at Wells Fargo and cut tgt to $4.50 from $7.50 as believes SMR’s strong YTD performance (+207% vs the S&P 500 +8%) is connected to positive developments for nuclear owners CEG & TLNE, but firm thinks investor enthusiasm for SMR is misguided. WES was downgraded from Outperform to Market Perform at Raymond James noting it is one of the best performers in the group this year, 4th among RAJA’s ~25 name midstream coverage space (behind only TRGP and ARIS, and takeout target NS).
• In Aerospace & Defense: RTX and TDG remain favorite Commercial Aftermarket cycle names at TDCowen saying the robust commercial aero aftermarket upswing is likely to extend through 2026 with above-guide gains in 2024-25. RTX tgt raised to $115 from $106; Airbus (EADSY) upgraded to Outperform at RBC Capital and raised tgt to EUR192 from EUR145 as believes the recent positive shift in sentiment has room to run as recent NB share gains could expand further and investor confidence in the mid-decade targets improves.

• FUSN +99%; AZN to acquire FUSN in deal valued up to $2.4B, paying an initial $21 a share for Fusion, with an extra $3 nontransferable contingent value right upon a specified regulatory milestone being reached; initial price is a 97% premium to Fusion’s closing market price of $10.64 on Monday.
• IP +8%; top gainer in the S&P after appointed Andrew Silvernail as new CEO, succeeding Mark Sutton, effective May 1; Sutton, who served as CEO since 2014, will continue as chairman of the board.
• JWN +12%; after Reuters reported Nordstrom Inc founding family is seeking to take the U.S. department store operator private, six years after a similar attempt proved unsuccessful.
• NCMI +23%; as reported better-than-forecast 4Q adjusted Oibda and announced a $100 million share buyback program; Q4 NCIM saw a 43% increase in active national advertisers and record revenue per attendee; sees q1 revs $34.5M-$35.5M vs. est. $34M.
• UL +2%; said it plans to spin off its ice-cream business as part of a restructuring that could affect around 7,500 jobs.

• MDGL -6%; 750K share Spot Secondary priced at $260.00, raising $600 million in an upsized public offering after shares have risen 16% since winning the first FDA approval of a drug to treat a fatty liver disease known as NASH.
• MSTR -16%; as Bitcoin prices tumble over 6% to $63K, more than $10K off its all-time highs reached earlier this month, also pressuring likes of COIN, RIOT, MARA which tend to track Bitcoin prices.
• SMCI -13%; shares stumbled after raising cash thru stock offering, saying it would sell 2Mm shares (price closed at $1,000.68 on Monday night); said to use net offering proceeds to support operations, including purchase of inventory, manufacturing capacity expansions, increased R&D as per filing.
• SMR -27%; was downgraded from Equal Weight to Underweight at Wells Fargo and cut tgt to $4.50 from $7.50 as believes SMR’s strong YTD performance (+207% vs the S&P 500 +8%) is connected to positive developments for nuclear owners CEG & TLNE, but firm thinks investor enthusiasm for SMR is misguided.
• STNE -9%; said co-founder Street won’t seek reelection at the next shareholder meeting in April; posted 4Q adjusted Ebitda that missed the average analyst estimate.