Closing Recap

Tuesday, April 09, 2024

U.S. stocks opened higher, reversed sharply lower mid-morning before bottoming out about an hour after the open and squeezed higher as major averages posted modest declines ahead of the key inflation data point of the week. The Consumer Price Index (CPI) for March is expected at 8:30 AM tomorrow morning: Estimates are for headline CPI M/M to rise +0.3% (vs. +0.4% prior) and on a Y/Y basis to rise +3.4% (vs. prior +3.2%). The core CPI, excluding food & energy, are expected to rise +0.3% (vs. +0.4% prior) and on a Y/Y basis to rise +3.7% (vs. prior +3.8%). Markers/investors hope the CPI will provide further insight into the Federal Reserve’s timeline for monetary easing, which is currently “baking in” 3 rate cuts in 2024, with the first coming in June currently. A “tamer reading could push stocks higher while a 3^rd “hotter reading in a row could crush hopes for near-term Fed cuts. Europe was down across the board ahead of tomorrow’s CPI inflation report in the U.S. and a European Central Bank (ECB) monetary policy decision on Thursday when the ECB’s decision is expected that could determine the outlook for interest rate cuts. The Stoxx 600 down 0.6%, Germany’s DAX was down 1.3%, Britain’s FTSE 100 fell -0.2%, France’s CAC 40 was down -0.9%, and Spain’s IBEX declined -0.9%. Not the CBE volatility index (VIX) is now up about 25% over the last 2 weeks, while the 10-year note yield pulled back from its highest level since November 2023. Gold and other haven assets are up sharply year-to-date at new all-time highs. Defensive Utilities, REITs, and Staples were the lone S&P sectors in the “green”, while financials and industrials were the biggest losers. After the CPI tomorrow, other key catalysts this week include the PPI on Thursday along with the ECB meeting and the unofficial start to earnings season with big banks reporting on Friday.

• In Retailers: AEO was upgraded to Outperform at JP Morgan with $31 tgt based on 15x its FY25 EPS (= 1x PEG to its FY24/25 EPS growth), or 6.7x its FY25 EBITDA (above AEO’s 5.3x 3-year pre-pandemic average linearly supported by FY25 operating margins ~200bps higher vs pre-pandemic).
• In Consumer & Beverages: TAP was upgraded to Buy from Neutral at Goldman Sachs (said expects Q1 beat) as now sees a positive risk/reward given distributors expect TAP to be a big winner of spring shelf resets, more distributors (49% vs 44% in Sept) reported share gains strengthening for Miller Lite & Coors Light and 78% of distributors had more inventory of TAP brands in March. UBS believes Buy-rated KO, CL, ELF, and SPB along with Neutral-Rated CHD, EL, and TAP are best positioned entering Q1 earnings. While UBS remains constructive on Buy rated PEP, KDP, and PG, believes the risk/reward appears more balanced this earnings season.

• In Cruise lines: NCLH announced an order for eight new ships to be built across their three brands. The eight ships will encompass ~25K berths and will be delivered between 2026 and 2036. NCLH now has 13 ships on order over the next 12 years for a combined ~41K berths, which represents ~65% capacity growth.

• In Metals and Mining: Bank America with several research rating changes as they upgraded HBM from Neutral to Buy, upgraded FCX to Buy with $59 tgt and raise price tgt on TECK saying tight copper mine supply is increasingly constraining refined production and copper demand is steady, driven by energy transition tail winds. BofA see copper rising to $12,000/t or $5.44/lb for 2026E. Bank America also upgraded AGI from Neutral to Buy after the recent strategic acquisition of Argonaut Gold in an all-share transaction and downgrade VALE to neutral saying the iron ore recovery looks distant and struggles to see short-term upside potential for the commodity. Wolfe Research downgraded CLF to Underperform from Peer Perform after shares spiked 16% over the past two months, despite earnings estimates falling and upgraded US Steel (X) to Outperform from Peer Perform as it looks relatively cheap on a standalone basis, using ests well below its forecasts listed in the proxy.
• In Chemicals: CC was upgraded to Outperform with $34 tgt at BMO Capital and raised its target price to $34 saying while Q1 guide was well below expectations and communication around 2024 was limited, BMO is at/near the inflection point in several of CC’s businesses. KeyBanc raised price tgts on ALTM, CE, CTVA, EMN, FMC, OLN, and lowered for PPG in earnings preview saying remains constructive on the sector given potential for cyclical upside and favorable energy markets but believe a more selective approach is prudent following the recent rally.
• In Aerospace & Defense: GE upgraded to Buy at TD Cowen and said is among their favorite after mkt plays along with RTX and TDG while they raise price tgts for CRS, GD, MOG.A, TDG, TGI, TXT and WWD in defense earnings preview. TDCowen said robust YTD airline RPM/ASM gains & pushout of Boeing’s 737 delivery ramp enhance already strong aftermarket demand and pricing (up ~9-10% for RTX, TDG, and GE). However, BA’s 737 production reset is a short-term destocking risk for SPR, HXL, HWM, & TGI. BA deliveries in Q1 were the lowest since mid-2021 as handed over 29 aircraft in March, a slight improvement from the 27 delivered in each of the first two months of the year, for a total of 83 in the quarter.
• In Energy & Solar: MAXN shares tumbled after guiding prelim Q4 revs $229 vs. consensus $236.8M saying decision to ramp down all Maxeon 6 capacity faster than expected, resulting in higher than initially planned restructuring costs in Q4; sees Q1 revs about $186M below consensus $241.5M. BE said to receive up to $75M in federal tax credits for its manufacturing plant in Fremont, California; CEO said, “these funds will enable us to invest in the operational efficiency of our Fremont facility and accelerate the expansion of our stack capacity." In Coals (ARCH, CEIX, BTU, HCC), the EIA revised its April coal exports forecast downward by 33% and lowered its view for May by 20% due to the collapse of the Francis Scott Key Bridge in Baltimore and resulting port closure.

• In Consumer Finance/Lending: ALLY upgraded from Neutral to Buy at Bank America and raised tgt to $46 implying ~20% potential upside as sees further potential upside as doesn’t believe “$6” represents a ceiling (it forecast $6.18 for FY25E). AXP was downgraded to EW from OW in consumer lending preview at Barclays as sees limited upside on valuation and EPS revisions; notes NAVI faces additional NIM headwinds from accelerated FFELP paydowns during the quarter; continues to favor SLM and think it is the cleanest name into the print.
• In Exchanges & Brokers: Morgan Stanley upgraded LPLA to Overweight from Equal Weight with a price target of $315, up from $254, downgraded CBOE to Equal Weight from Overweight with a price target of $199, down from $211 saying Overweight thesis has largely played and upgraded NDAQ from Equal Weight to Overweight w/ $80 PT, new Top Pick replacing BLK but remain OW, bullish on the transformation story.
• In Mortgage Finance: UWMC upgraded from Underperform to Market Perform at KBW Inc. and now see limited downside to total return estimates while recommend a long UWMC-short RKT pair trade into 1Q earnings and upgraded PFSI to Outperform from Market Perform as think strong servicing earnings should continue to benefit from the “higher for longer” environment that seems to once again be the base case. KBW remains Outperform on COOP as it thinks the company’s servicing book will also continue to benefit from higher interest rates. Barclays said they favor COOP, PFSI, NMIH, and ESNT vs FAF, FNF, RKT, and UWMC saying seasonally lower Q1 volumes plus a 30Y mortgage rate that is ~7% for the quarter should present challenges for volumes and margins in Q1 for the stocks more levered to originations.

• MGNX was upgraded from Hold to Buy at TD Cowen after initial Phase II safety beat expectations and increases their conviction in vobra duo ultimately conferring meaningful clinical benefit in the next update in May.
• MRNA shares outperformed as Piper noted earlier Moderna presented Phase I KEYNOTE-603 Part C data showing mRNA-4157 + Keytruda achieved 2 CRs and 4 PRs for an ORR of 27.3% (6/22) and DCR of 63.6% (14/22) in HPV-negative HNSCC. Merck and Moderna are conducting the Phase III INTerpath trials of KEYTRUDA + mRNA-4157 melanoma and NSCLC.
• PFE said its RSV vaccine shows potential to protect high-risk adults ages 18-59, widening possible use.
• SYRS said it received FDA Fast Track Designation for Tamibarotene for the treatment of newly diagnosed unfit AML with RARA gene overexpression.
• TSHA initiated Overweight and $9 tgt at Piper as believe the company’s lead asset TSHA-102 is poised to transform treatment paradigm for Rett syndrome.
• In Cannabis: TLRY shares tumble after saying they no longer expects to generate adj. positive free cash flow for fiscal year 2024 due to delayed cash collection on various asset sales as forecasts 2024 adj. core earnings in the range of $60M-$63M vs. et. $66.7M and as Q3 revs $188.3M miss the $198.5M estimate. Also in the sector, Marijuana Moment publication reported Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) are soliciting support for a federal marijuana legalization bill that they plan to introduce later this month.
• In Medical Equipment: INMD shares weaker after forecasts FY revenue $485M-$495M, below prior forecast $495M-$505M (est. $499M) after weaker Q1 revs view $80.0M-$80.1M, vs. consensus $102.21M. NEOG falls after cuts FY24 revenue view to $910M-$920M from $935M-$955M and lowers FY24 adjusted EBITDA view to $210M-$215M from $230M-$240M.
• In Healthcare Services: IQV announced a tighter integration with CRM where IQV’s OCE and Salesforce Life Sciences Cloud are being combined with joint go-to-market once the VEEV/CRM agreement ends in 2025. Barclays noted this is incrementally more competition for VEEV, and represents an interesting customer choice, but also worth noting VEEV’s 80%+ share.

• INTC unveiled the Gaudi 3, an AI accelerator chip and asserted that Gaudi 3 is up to 1.7 times faster than the NVDA H100 at training large-language models, and up to 1.3 times faster for inferencing than the Nvidia H200, which is used specifically for inferencing rather than training. Gaudi 3 is up to 1.5 times faster than Nvidia’s H100 for inferencing applications, Intel says.
• BB shares rose after announcing a collaboration with AMD designed to revolutionize next-generation robotic systems by enabling new levels of low latency and jitter, and repeatable determinism.
• HLIT shares tumbled after forecast Q1 revenue between $121M-$123M vs. prior guidance of $110M-$130M and said CEO Harshman will retire effective June 11; also said its Board had completed the review process to evaluate potential strategic alternatives for its video business that was announced in October.
• In Chips, the Biden administration plans to announce it is awarding more than $6B to Samsung Electronics (SSNLF) next week to expand its chip output in Taylor, Texas, as it seeks to ramp up chipmaking in the U.S., according to media reports released late yesterday.