Mid-Morning Look

Tuesday, March 28, 2023

U.S. stocks are mixed as the tech sector underperforms a second day on profit taking, while beaten up groups such as energy, utilities, financials lead along with materials and industrials, keeping the broader S&P flattish on the day. The question remains, with so much uncertainty regarding the Fed and interest rate hikes, inflation, geopolitical concerns, volatile Treasury markets/yields, and the latest banking financial concerns, why are equities holding up so well? The answer to this point has been simple, the weightings of Mega cap Tech names (AAPL, MSFT, AMZN, GOOGL, TSLA, AMD, NVDA), which are all massive outperformers in 2023 after a dismal 2022, have helped prop up the S&P 500 as the banking crisis has triggered a rotation into tech. Now with profit taking the last few days in the same such tech names, it’s been buying in all other sectors that keep the S&P trading in between its 50-day and 200-day MA levels (SPX 4,025 and 3,940 respectively). NYSE breadth strong for a second straight day as advancers outpace decliners, though volume overall light. Thus morning, FDIC Chairman Martin Gruenberg and Fed’s Vice Chairman for Supervision Michael Barr will be speaking before a Senate committee on the recent bank failures. Economic data mixed, but all eyes on PCE data Friday. Handful of stocks seeing strength early on earnings (WBA, MKC, PVH), drug headlines (ITCI, VKTX) and positive company developments (BABA, OSCR, OXY, LYFT) – details below.

Economic Data

·     February Advance Wholesale Inventories rose +0.2% M/M to $920.3B vs. +0.2% consensus and -0.4% prior. Advance Feb Retail Inventories rose +0.8% to $747.3B vs. +0.4% prior (revised from +0.3%). February International Trade in Goods (-$91.6B) vs. (-$90.0B) expected and (-$91.1B) – (revised from -$91.5B) in January.

·     Consumer Confidence index for March reported at 104.2 vs. est. 101.0; Consumer Confidence index for February revised to 103.4 (previous 102.9); the present situation index 151.1 in March vs February revised 153.0 and expectations index 73.0 in March vs February revised 70.4. US 1-year consumer inflation rate expectations 6.3% in March vs February revised 6.2%.

Sector Movers Today

·     In media: FOXA downgraded to Neutral from Buy at Bank America and lower tgt to $34 (from $42) as they struggle to find near-term catalysts; downgraded IHRT to Underperform and cut tgt to $4 due to limited near term visibility in IHRT’s business and upgraded PARA to Buy from neutral and up tgt to $32 based on the sum of its asset values in a sale scenario. KeyBanc said February streaming monthly churn moved modestly lower to 2.9% compared to a year ago and remained flat m/m and, when excluding NFLX from our data, churn for the traditional Media streaming services increased 0.1% m/m at 3.3%.

·     Energy stock movers: OXY rises as Berkshire Hathaway bought more stock in recent days (3/23-3/27), purchasing 3.66 million shares of the energy company and bringing its ownership to 211.7 million shares, a 23.5% stake, according to a filing late Monday. OXY was also upgraded to Outperform at TD Cowen and tgt raised to $70. BP and Abu Dhabi National Oil Co. will form a natural gas joint venture and have made an offer to take Israel’s NewMed Energy private in a deal worth around $2 billion, Bloomberg reported. In refiners: MPC downgraded to Neutral from Overweight at JPMorgan.

Stock GAINERS

·     BABA +7%; on reports plans to split its $220 billion business into six main units encompassing e-commerce, media, and the cloud, each of which will explore fundraising or initial public offerings when the time is right.

·     ITCI +15%; after announcing positive topline results from study 403 evaluating Lumateperone as monotherapy in patients with major depressive disorder with mixed features and in patients with bipolar depression with mixed features.

·     LOVE +19%; beats Q4 sales and profit estimates and provides mixed guidance as sees 2024 sales above analysts’ estimates at $700M-$740M vs. est. $692M but guides 2024 profit of $1.83-$2.24 per share, as mid-point below expectations of $2.10 per share.

·     LYFT +5%; after founders Logan Green and John Zimmer said they would step down as CEO and president, with board member and former AMZN executive David Risher taking on top role.

·     MKC +10%; Q1 adj EPS $0.59 vs. est. $0.51; Q1 revs rose 3% y/y to $1.57B vs. est. $1.54B; still sees 2023 adjusted EPS $2.56-$2.61 vs. consensus $2.57.

·     OSCR +60%; announces appointment of healthcare veteran Mark Bertolini to CEO; Co-Founder and CEO Mario Schlosser transitions to President of Technology.

·     OXY +2%; as Berkshire Hathaway bought more stock in recent days (3/23-3/27), purchasing 3.66 million shares of the energy company and bringing its ownership to 211.7 million shares, a 23.5% stake, according to a filing late Monday (OXY also upgraded at TD Cowen today).

·     PARA +75; upgraded to Buy from neutral at Bank America and up tgt to $32 based on the sum of its asset values in a sale scenario.

·     PVH +19%; as 4Q adj EPS $2.38 tops est. $1.67 on revs $2.49B vs est. $2.37B; guides FY revs +3-4% (+2-3% constant currency) vs est. +3%, op mgn approx 10% and EPS approx $10.00 vs est. $8.92; constant currency rev growth +8%; total DTC +10%; GM 55.9% vs est. 56.5%.

·     VKTX +53%; reported positive results from a Ph1 study of dual GLP-1/GIP receptor agonist VK2735; showed encouraging safety and tolerability in the study, along with positive effects on body weight, with up to 6% placebo-adjusted mean weight loss observed after 28 days. Viking said it plans to initiate a Phase 2 study of VK2735 in patients with obesity in mid-2023.

Stock LAGGARDS

·     ALLR 15%; after saying interim data readouts from ongoing mid-stage studies of its breast cancer drug and ovarian cancer drug is expected to occur at end of 2023.

·     AMD -2%; as semiconductors seeing some profit taking after massive run in 2023.

·     ANET -2%; after comments by Cleveland Research saying 1Q bookings appear to be moderating vs. trend as order visibility narrows in conjunction w/ shorter lead times.

·     HRMY -24%; shares tumbled after Scorpion Capital issues investigative report on Harmony Biosciences.

·     IHRT 9%; to Underperform at Bank America (along with FOXA and cut tgt to $4 due to limited near term visibility in IHRT’s business.