Mid-Morning Look

Tuesday, May 21, 2024

U.S. stocks are mixed, holding not far off the recent record highs reached for the S&P 500, Nasdaq, and Dow Jones Industrials, last week with major averages in another “waiting pattern” ahead of FOMC policy minutes tomorrow as well as key earnings results from the face of “AI” sector with NVDA Wednesday night. S&P futures (Spuz) trade in narrow 13- point range, with early gains from Utilities, Financials, and Staples, while Industrials and Consumer Discretionary slip. No major U.S. economic data today, but many Fed speakers. The one grabbing attention early was Federal Reserve Governor Christopher Waller who ended speculation that interest rates may need to rise again, saying the latest inflation data is "reassuring" and the U.S. central bank’s policy rate is set appropriately. However, Waller also noted that he needs to see several more months of good inflation data before being comfortable to support an easing in policy. Fed policymakers have turned cautious on the outlook for inflation and monetary policy in recent months, and Waller, like many of his colleagues, did not repeat his view from recent speeches that a rate cut is likely later this year. Asian markets were down overnight, with Nikkei, Shanghai Composite, and Hang Seng indices declining while commodities pulled back, with gold prices down 0.7% and oil prices (WTI crude) falling 1%. Bitcoin continued its recent rally, rising 2.25% above $71,000 (has since pared gains) while Ethereum (ETH) is up 20% in 1.5 days on Bloomberg Tweets late Monday that the probability of an ETH approval is now 75% up from 25%. There are some stock market movers on earnings and guidance overnight, but another generally quiet start to the trading day.

• In Storage & Hardware: Barclay’s with two ratings changes as they upgraded HPQ from Underweight to Equal Weight and raise tgt to $30 from $24 after the stock has underperformed the group for the past 1.5 years; said are still a little concerned about margins and the embedded 2H PC ramp but see less downside to the shares. The firm downgraded PSTG to Equal Weight from Overweight after a strong run (shares are up 70% YTD vs the COMP up 10%). Barclay’s expects continued strong subscription growth at the expense of product growth.
• In Storage & Hardware: Barclay’s with two ratings changes as they upgraded HPQ from Underweight to Equal Weight and raise tgt to $30 from $24 after the stock has underperformed the group for the past 1.5 years; said are still a little concerned about margins and the embedded 2H PC ramp but see less downside to the shares. The firm downgraded PSTG to Equal Weight from Overweight after a strong run (shares are up 70% YTD vs the COMP up 10%). Barclay’s expects continued strong subscription growth at the expense of product growth. KEYS Q2 beat expectations slightly, but both top and bottom-line guidance for FQ3 is light as orders were flat q/q, in-line with expectations, anticipating slow demand in electronics industrial markets amid high borrowing costs. APH announced a 2 for 1 stock split.
• In Financial Services: shares of mortgage/credit reporting co’s EFX, FICO, EXPN, TRU all weaker initially as RBC Capital noted the CFPB is analyzing the rising mortgage closing costs, including credit reporting costs, and is interested in input from lenders and looking for possible new rulemaking and guidance to improve competition, choice, and affordability. Although they do not expect any material impact on mortgage credit report pricing in the near term, we continue to monitor for the headline risks and the potential to raise prices aggressively going forward. US Mortgages account for ~20%, 19%, 8%, and 2% of FICO, EFX, TRU, and EXPN revenues, respectively.

• LLY +2%; rises after its tirzepatide, receives approval from Chinese regulators. Also helping, co said its pivotal Phase 3 VIVID-1 study, patients with moderately to severely active Crohn’s disease, with or without previous biologic failure, achieved statistically significant and clinically meaningful improvements across multiple clinical and endoscopic endpoints at one year with mirikizumab compared to placebo.
• LRCX +1%; announces $10B share buyback and reports a 10-for-1 stock split; share repurchase "is consistent with our plan to return 75% to 100% of free cash flow to stockholders in the form of dividends and share buybacks.”
• LRMR +4%; after saying the FDA removed the partial clinical hold on its Nomlabofusp program in Friedreich’s Ataxia, after the agency reviewed data from its Ph 2 dose exploration study. The hold lift will allow the company to dose escalate to the 50 mg dose in its OLE study.
• M ; reported Q1 results that beat expectations and nudged up its full-year outlook; Q1 EPS $0.27/$4.85B vs. est. $0.15/$4.82B, while cop store sales dipped -1.2% to beat the consensus for a -3.1% decline, as same-store sales of Macy’s branded stores were down -1.6%; raised FY EPS to $2.55-$2.90 from $2.45-$2.85.
• XPEV +12%; Q1 revs rose 62% to CNY6.55 billion, beating an estimate of CNY6.22 billion; reported a narrower net loss in the first quarter of 1.37 billion yuan ($189.4 million), compared with a net loss of CNY2.34 billion a year earlier; forecast its quarterly vehicle deliveries in the range of 29,000 to 32,000, a rise of 25% to 37.9% YoY.

• GL -3%; shares fell after receiving a preliminary, informal inquiry from the SEC requesting information related to the recent short-seller reports (Fuzzy Panda, Viceroy Research) making allegations about the company.
• KEYS -8%; Q2 beat expectations slightly, but both top and bottom-line guidance for FQ3 is light as orders were flat q/q, in-line with expectations, anticipating slow demand in electronics industrial markets amid high borrowing costs.
• MU -2%; boosted its FY capital expenditure forecast spending to $8B from earlier expectation of $7.50B at J.P. Morgan conference saying they expect high bandwidth memory (HBM) chips to be multi-billion-dollar business in 2025.
• NDSN -6%; as guides Q3 sales $645-670Mm below est. $705.07Mm and adj EPS $2.25-2.40 vs est. $2.72 and guided FY revs $+0-2% vs est. +5.36% on a lower earnings view citing slow recovery of electronics and semiconductor markets.
• PANW -4%; reported line FQ3 and FQ4 guide as results mixed despite the largest TCV deal in Palo’s history at ~$150M; Q3 billings of +3% y/y met consensus and mgmt noted had incremental invoice duration headwinds while RPO bookings and cRPO bookings grew 17% y/y and +20%, respectively, and both accelerated. Guides FY billings $10.13B-$10.18B from $10.10B-$10.20B (est. $10.19B) and guides FY revenue $7.99B- $8.01B, from prior $7.95B-$8.00B.
• PTON -13%; announced that it intends to launch a global refinancing, pursuant to which it will offer $275M aggregate principal amount of convertible senior notes due 2029 in a private offering and enter a $1B five-year term loan facility and a $100M five-year revolving credit facility.
• ZIM -4%; reported Q1 revenue below estimates ($1.56B vs. $1.57B) for the fifth straight quarter while raised the midpoint of FY adjusted EBITDA to $1.35B from the earlier $1.15B.