Mid-Morning Look

Wednesday, September 25, 2024

U.S. stocks open mixed as the tech heavy Nasdaq outperforms behind renewed strength in semiconductors (NVDA, ARM, INTC), while the Smallcap Russell 2000 underperforms. The S&P 500 Index and Dow Jones Industrials remain just off all-time highs reached yesterday (closed at highs Tuesday), but seeing sector rotation as leaders such as Materials yesterday are seeing selling pressure. Energy, Financials, and Healthcare also lagging. Yesterday the SPX had its 41st record close this year though internals were more mixed with 256 members higher and only 5 of 11 sectors were in the green. This morning, only two S&P sectors in the green as markets await GDP economic data on Thursday morning (and jobless claims) as well as PCE and core PCE inflation data Friday (as well as income and spending). There are no Fed speakers scheduled intraday after a flurry of speakers in recent days spoke “dovish” about last week’s 50bps interest rate cut and outlook for more going forward. Lone piece of economic data today soft as home sales declined in August. Auto stocks were weaker following a downgrade of GM, Ford, RIVN at Morgan Stanley. Not much else doing this afternoon except wait for tomorrow’s data. Oil prices slide, gold new record highs again.

• Auto Dealers were upgraded at Morgan Stanley: GPI, AN, PAG were all upgraded to Overweight from Equal Weight, while ABG, LAD, SAH all upgraded to Equal Weight from Underweight saying they are less cautious on auto dealers. Prices tgt raised for GPI to $430 from $285, LAD to $310 from $255, PAG to $180 from $115, SAH to $58 from $40, AN to $200 from $145 and ABG to $240 from $190. Morgan Stanley said the dealers have proven resilient with strategic M&A, cost execution, and recurring Parts & Service profit.
• In Bitcoin Miners: Macquarie initiated coverage on a few names as initiated on RIOT with an Outperform rating and $15 TP across its differentiated attributes, including geography, power deals, and cooling; initiated MARA with an Outperform rating and $22 target price, seeing it as the most-scaled, one-stop shop for broad exposure to Bitcoin infrastructure; CLSK with outperform and $20 tgt noting they continue to acquire smaller miners opportunistically, while holding on to its sustainability ethos and upscaling tucked-in sites; CIFR with Outperform and $6 tgt given what it thinks is a potential near-term inflection in profit and scale; and CORZ initiated Outperform an $16 tgt calling it the only miner with a scaled HPC/AI hosting deal in hand, diversifying revenues, reducing BTC risk.
• In Ride Sharing/Food Delivery: A federal judge on Tuesday declared unconstitutional a New York City law requiring food delivery companies to share customer data with restaurants. U.S. District Judge Analisa Torres in Manhattan ruled in favor of DASH, UBER and Grubhub saying the law violated the First Amendment by improperly regulating commercial speech. Separately, DASH was upgraded to Overweight from Sector Weight at Keybanc with $177 PT after Mobility and Delivery survey. The firm said the survey showed continued consumer intent to increase ride-sharing usage, which it believes bodes well for Overweight-rated UBER and Sector Weight-rated LYFT and walked away encouraged that DASH’s gains in food delivery and growing traction in grocery can sustain MT growth.

• FLUT +8%; outlines long-term growth plan saying it expects to more than double its core profit by 2027 and announces up to $5bn share repurchase program authorization.
• HPE +5%; upgraded to Overweight from Equal Weight at Barclays and the price target on the stock was boosted to $24 from $20 as believes that HPE will continue to grow its AI server revenues, improve in storage.
• INTC +4%; amid strength in semiconductors again, with NVDA higher and the Philadelphia Semi Index (SOX) rose above 5,150 (topping its 100dma resistance of 5,154); MU reports tonight.
• PRGS +12%; shares rally on earnings as Q3 adj EPS of $1.26 topped consensus $1.14 and revs rose +1.7% y/y to $178.7M vs. est. $176M; said Q3 Software License revenue $57.9M, +14% y/y; guided FY24 EPS $4.75-$4.85 vs. est. $4.76 and revs sees $745M-$755M vs. est. $730M

• GM -5%; downgraded to underweight at Morgan Stanley in broad auto sector downgrade (Ford, RIVN, PHIN all cut) and lowered industry to In-Line from Attractive driven by a combination of international, domestic and strategic factors.
• GPN 7%; was downgraded by a few analysts (BTIG, William Blair, and Seaport Global) after the company said at its Investor Day yesterday said 2025 was being declared a “transition year”.
• KBH -4%; shares fall on margins/EPS miss; Q3 EPS $2.04 just missed consensus $2.06, and revs rose 11% y/y to $1.75B vs. est. $1.72B; Q3 Homes delivered increased 8% to 3,631; Q3 Average selling price rose 3% to $480,900; Q3 housing gross profit margin was 20.6%, compared to 21.5%; Q3 Net orders fell -0.4% y/y to 3,085 below estimates.
• SAP -2%; shares sunk after Bloomberg reported the company and others were being investigated by U.S. officials for potentially conspiring to overcharge government agencies over the course of a decade https://tinyurl.com/4s8x7ake
• SFIX -34%; shares fall on guidance and weaker Q4 EPS loss of ($0.29) vs est. ($0.19); guided Q1 net revs $303-310Mm vs est. $319.1Mm and adj EBITDA $5-9Mm vs est. $7.39Mm; sees FY revs $1.11-1.16B vs es.t $1.308B and adj EBITDA $14-28Mm vs est. $34.19Mm.
• TSN -4%; downgraded to Underweight at Piper saying they see more downside risk that does not look priced in. The firm said cattle costs likely get worse before they get better and sees downside risk to unusually favorable beef pricing
• TH -17%; shares tumbled after the company said it disbanded a board committee formed to evaluate an unsolicited buyout bid from a TDR Capital affiliate and indicated that an acquisition may be off the table.
• TSVT -7%; and partner BMY said they would be discontinuing enrollment in its ongoing Phase 3 KarMMa-9 study studying Abecma in combination with lenalidomide vs. monotherapy in NDMM.