Mid-Morning Look

Friday, May 10, 2024

U.S. stock markets initially getting the green light again from investors, as the Nasdaq jumped +0.5% at highs to roughly 100 points from 52-week highs and the S&P 500 (SPX) about 25 points from its record highs – before markets were hit by a pullback on economic inflation data. Since the end of a weak April, it has been another massive buy the dip moment occurring for major averages, with investors unafraid of higher inflation readings as hopes remain strong for Fed monetary easing later this year amid signs of a cooling jobs market. The S&P, Dow (on track for an 8^th straight “up” day), Nasdaq and Russell 2000 are all higher by over 4% this month thus far and all eleven S&P sectors in the “green” MTD, with biggest gains in Utilities (XLU +7% MTD), Technology (XLK +5% MTD), and Communications (XLC +5%), followed closely by REITs (XLRE +4.9%).  Stocks took a turn lower around 10:00 after a hotter inflation reading this morning, as the 1 and 5-yr inflation expectations from the University of Michigan Confidence. University of Michigan surveys of consumers 1-year inflation outlook prelim May 3.5% vs final April 3.2% and University of Michigan surveys of consumers 5-year inflation outlook prelim May 3.1% vs final April 3.0%. The data comes ahead of next week’s PPI and CPI data (5/14, 5/15 respectively) after 3 months of surprisingly high inflation readings so far (CPI, PCE, ECI). Treasury yields edge to highs after the data and gold pares gains.

• Inflation position of UoM hotter: University of Michigan surveys of consumers 1-year inflation outlook prelim May 3.5% vs final April 3.2% and University of Michigan surveys of consumers 5-year inflation outlook prelim May 3.1% vs final April 3.0%.

• In Autos: The U.S. said it was planning to place a tariff on Chinese electric vehicles (LI, NIO, XPEV) and other sectors including batteries and solar equipment, while also maintain existing levies after a review. The announcement builds on calls to increase tariffs on steel and aluminium and a probe into Chinese shipbuilding. LEA was upgraded to Overweight at Morgan Stanley saying after a ~11% sell-off since the beginning of April, believes the stock has a much more commensurable risk-reward relative to its other OW’s, driving the upgrade. In EV Charging: BLNK reported a smaller-than-expected loss of (-$0.17) while revs rose 73% y/y to $37.57M vs. est. $33.73M; said achieved record first quarter revenues of $38M with gross margin of 36%.
• In Restaurants: CAKE was upgraded to Buy at Citigroup and tgt raised to $47 from $38 ate results, citing an increasingly de-risked unit growth outlook, a stabilized labor environment (decreasing volatility in the model), and valuation that does not fairly reflect traffic outperformance vs peers and vs pre-COVID history. BROS upgraded from Hold to Buy and raised tgt to $46 from $33 at TDCowen and elevated it to its #2 overall pick saying sees a clear path to shares doubling over the next 3 years. SG shares jumped after the salad restaurant chain’s revenue topped estimates (comp sales +5% on higher menu prices), and it boosted its same-store sales forecast for the full year to 4%-6% from prior 3%-5% view.
• In Utilities: The XLU hit new 52-week highs again as the defensive sector seeing unusual strength the last few weeks (7day win streak for XLU); in research, Dominion (D) was upgraded to Neutral at Bank America and raised tgt to $54 following the utilities completion of a lengthy business review and restructuring process in early March, that has seen the company shed non-core assets, fortify its balance sheet, de-risk its offshore wind project, and simplify its strategy.

• CDNA +28%; shares hit 52-week highs after the company raised guidance for full year 2024 revenue which is expected to be in range of $274M-$282M and Q1 results beat.
• ITOS +35%; after results and said Belrestotug + dostarlimab exceeded pre-defined efficacy criteria for clinically relevant activity observed in an interim assessment of Phase 2 GALAXIES Lung-201.
• MTD +15%; shares jumped after Q1 adj EPS $8.89 easily topped estimates of $7.65; and raised 2024 adj profit per share in the range of $39.90-$40.40, above previous range of $39.60 to $40.30 per share.
• NTRA +11%; Q1 broadly beat w/ $3M of + FCF while revs grew 38% above the 32% est., margins of 56.7% beat 49.7% consensus, Signatera vols grew 17% QQ (62% YY) above the 54% est. and guidance was raised (revs, margins, FCF).
• NVAX +121%; signed a licensing agreement with SNY that includes commercializing a combined COVID-19 and flu shot, in which the firm will receive $500M in upfront payments as well as $700M in development, regulatory and launch milestones.
• SG +38%; shares jumped after the salad restaurant chain’s revenue topped estimates (comp sales +5% on higher menu prices), and it boosted its same-store sales forecast for the full year to 4%-6% from prior 3%-5% view.
• TSM +4%; said April sales t$236.02B, +59.6% y/y and says Jan-April sales t$828.67B, +26.2% y/y; shares +3%
• VSCO +7%; guided Q1 EPS $0.7-$0.12 vs. est. loss (-$0.03) and said sees Q1 revs down 3%-4% vs prior forecast of decline of 4%-6% driven by improving trends in stores and digital business; reaffirms annual sales and adj operating income forecast; said sees Q1 operating income $35M-$40M above prior forecast range of $10M-$35M.

• FROG -15%; shares fell as Q1 Cloud revenue growth of 47% y/y was slightly above its view for growing mid-40%’s, but narrowly missed the Street expectations after Q1 EPS/revs narrowly topped expectations.
• FWRD -9%; tumbles a second day after the logistic company lowered guidance the day prior, hurting shares.
• MGNX -73%; shares tumbled after the drug developer reported five deaths in a mid-stage trial of its investigative therapy for prostate cancer, prompting several analyst downgrades.
• PGNY -22%; shares downgraded to sector weight from overweight at Keybanc after Q1 revenue missed consensus estimates saying they are becoming weary as more questions arise on visibility into revenue and customer trends.