Closing Recap

Monday, August 07, 2023

Index	Up/Down	%	Last
DJ Industrials	408.17	1.16%	35,473
S&P 500	40.49	0.90%	4,518
Nasdaq	85.16	0.61%	13,994
Russell 2000	1.47	0.08%	1,958

 

 

 

 

 

 

 

 

 

U.S. stocks kicked off the week with a broad-based rally, as nearly eleven S&P sectors closed higher, led by more than 1% gains for Financials, Industrials, Communications, REITs, and Healthcare. The Smallcap Russell 2000 index underperformed on the day, lagging large caps as the Dow Jones Industrials posted its first gain in four sessions, surging over 300 points as nearly all the components in the index were higher. Apple (AAPL) fell a 5^th straight day, adding to weakness post earnings last Thursday, and is approaching its 100-day MA $176.50. The S&P 500 and Nasdaq are both recovering from their worst selloff since March last week when stocks fell after Fitch downgraded the U.S. AAA rating and economic data showed the Fed may not be done with rate hikes. The main indexes are higher for the quarter to date, but lower over the past 5 sessions and for the month-to-date. Trading is cautious ahead of Thursday’s CPI and as analysts debate soft landing potential, in large part seen as dependent on the FOMC’s policy path. July core annual CPI is expected by economists polled by WSJ to accelerate to 3.3% from June’s 3%. On Friday, monthly July PPI ex-food and energy is forecast to accelerate to 0.2% from 0.1%. Another 25 bp hike this year is still about a 33% probability but expectations for rate cuts down the road are being trimmed. In corporate news there were several M&A announcements (see below) and big movers in the Biotech space on trial data, but overall, just one big melt up day for stocks.

 

Commodities, Currencies & Treasuries

·     Oil pulls back after 6th straight weekly rise, down from 4-month highs as WTI Crude September futures settle at $81.94 a barrel, down 88 cents, 1.06% while Brent Crude futures settle at $85.34/bbl, down 90 cents, 1.04%. Gold prices slip -$6.10 to settle at $1,970.00 an ounce.

·     The U.S. dollar edged higher against major currencies on Monday, with Friday’s losses following a mixed U.S. jobs report seen by some investors as excessive given the economy remains resilient and the labor market is still tight. The dollar index fell to a one-week low last Friday in the wake of a U.S. non-farm payrolls report that came out weaker than expected.

 

 

Macro	Up/Down	Last
WTI Crude	-0.88	81.94
Brent	-0.90	85.34
Gold	-6.10	1,970.00
EUR/USD	-0.0009	1.1003
JPY/USD	0.69	142.45
10-Year Note	0.014	4.076%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA shares slid after disclosed that CFO Zachary Kirk horn was stepping down, after four years in the role and 13 years with the company; named Chief Accounting Officer Vaibhav Taneja as CFO.

·     In used cars (KMX, CVNA): the Manheim used car index for July came in -1.6% M/M, a slowdown vs. the 4.18% slump posted on a sequential basis in June. On a Y/Y basis, the drop was 11.6%, an acceleration vs. -10.3% Y/Y in June."

·     In EV sector: LCID reduced the price of the Air Pure by $5,000 to $82,400 from $87,400 and cut prices of the Touring and Grand Touring versions by $12,400 to $95,000 and $125,600 – Reuters.

 

Consumer Staples & Restaurants:

·     In M&A news: CPB agreed to acquire SOVO the parent company of food brands including Rao’s, in a deal valued at about $2.7B as holders will receive $23 per share in cash https://tinyurl.com/3adh3hjz . FRGI to be acquired by Authentic Restaurant Brands for $8.50/share. Upon closing the transaction, Fiesta will operate as a privately held company and Pollo Tropical will remain based in Miami, FL https://tinyurl.com/bdhpktfe

·     In Food sector: TSN shares slide after Q3 results missed consensus, reporting a loss amid impairment charges; Q3 adj EPS of $0.15 missed the $0.26 estimate citing lower prices of chicken and pork, and weak demand for beef (said in Q3, average sales prices at TSN drop 16.4% for pork and 5.5% for chicken); said sales fell -3% to $13.14Bvs. $13.495B y/y and consensus $13.62B. (Shares of other poultry meat names PPC, HRL were also weak in sympathy).

·     In Beverages: MNST upgraded from Neutral to Overweight at Piper after earnings, saying they remains bullish on the energy drink category specifically, especially with no private label. Separately, shares extended gains this afternoon after RBC Capital said checks confirm that Red Bull will increase prices in November mid-single digits on 12 oz. cans and high-single digits on 8 oz. cans.

 

Leisure, Gaming & Lodging:

·     In RVs: CWH was upgraded to Buy and raised tgt to $35 from $28 at Truist saying with the recent post 2Q earnings selloff, CWH’s strategic capital reallocation (I.E. dividend cut) now communicated risk/reward looks more palatable, to US.

·     In Casinos/Gaming: DKNG upgraded at Wells Fargo to Overweight saying they see a path to $1 billion in adjusted Ebitda in 2025.

 

Energy, Industrials and Materials

·     In Utilities: UBS with two rating changes as they downgraded FE to Neutral from Buy as it expects the stock to be range-bound until it approaches 2024E catalysts, while the upgraded PCG to Buy from Neutral, and raised tgt to $21 from $19 citing five drivers: 1) Top quartile EPS growth of 9%; 2) Improving credit metrics; 3) Better wildfire risk mitigation; 4) A 25% group P/E discount based on our $1.49 in ’25 and 5) several catalysts. Texas power prices surged more than 800% as searing heat pushes demand toward record levels and strains supplies on the state grid. Electricity prices for the grid rose to more than $2,500 a megawatt-hour – Bloomberg.

·     In Aerospace & Defense: JOBY and ACHR mentioned positively in Barron’s this weekend saying the companies are about to begin production of electric vertical takeoff and landing aircraft. For investors, the upside could be in the billions. ASTR announced a strategic reallocation of its workforce from its Launch Services organization to its Astra Spacecraft Engines business and has reduced its overall workforce by approximately 25% since the beginning of the quarter. ATI announces proposed $400m senior notes offering.

·     In Transports: Barron’s noted FDX, ODFL, SAIA, XPO, ARCB are among names that can win from YELL bankruptcy filing. Less-that-truckload shipping, or LTL, typically serves industrial customer, moving goods from sellers to buyers. Yellow, which is shutting down, was a major LTL player, operating almost 13,000 heavy-duty trucks. That’s more than LTL peers Old Dominion Freight Line (ODFL), XPO (XPO) Saia (SAIA), and ArcBest (ARCB).

·     Packaging solutions firm VRTV said it has agreed to be bought by private equity firm Clayton, Dubilier & Rice, LLC (CD&R) for $2.3 billion, in a deal that would take the company private. CD&R would pay $170 per in cash for each share of Veritiv common stock. https://tinyurl.com/2ytzs2jy

·     In Chemicals: BMO Capital downgraded NGVT to Market Perform from Outperform and lowered its target price to $60 as the headwinds in the CTO market are more extreme than feared.

 

Financials

·     Berkshire Hathaway (BRK) shares surged following quarterly results, trading to new all-time highs as operating profit for Q2 exceeded Wall Street expectations. Class B shares of the conglomerate of railroad, utility, energy, and insurance companies gained as much as 4%.

·     In Banks: Goldman Sachs said they reduced expectations for buybacks for most banks over the next 2 years saying that several banks could be very close to implied B3E capital targets and the proposal has a shorter timeline for implementation than they had expected. In addition, they also update their models for the most recent forward curve, which has rate cuts beginning one quarter later (now 2Q25).

·     In Private/Investment Managers: KKR beat partially offset by miss on lower insurance earnings; FRE beat driven by higher transaction fees and higher fee-related performance fees, while management fees inline. Organic growth to FPAUM softer.

·     In FinTech: PYPL said it is launching a U.S. dollar-denominated stablecoin, which will be redeemable one-to-one for U.S. dollars and will be issued by Paxos Trust Company.

·     In insurance: MET moved above its 200-day MA ($64.40) for first time since March as financials leading, with insurance names the best gainers LNC, AIG as well.

·     In Business Software: BKI shares edged higher after the FTC agreed to dismiss a federal court case against ICE’s $11.7 billion proposed acquisition of the company, clearing a major hurdle for the dela to proceed. The two co’s said the joint agreement will allow them to continue working toward a final settlement agreement with the FTC. https://tinyurl.com/yc4eawyp

·     In Business Support: TNET upgraded from Market Perform to Outperform at TD Cowen and raise tgt to $125 from $95 as believes is positioned to be an attractive compounder with an ongoing commitment to returning capital to shareholders. CLVT was downgraded to Underperform at Bank America and tgt cut to $6 from $10 as has reduced confidence in the pace of CLVT’s three-year turnaround strategy.

 

Healthcare

Biotech & Pharma:

·     Astellas (ALPMY) said the FDA approved a second medicine for geographic atrophy, a progressive eye disease and a leading cause of blindness in older people. The monthly eye injection, called Izervay, was developed by Iveric Bio (which was recently acquired by Astellas). Wedbush noted that Izervay will compete directly versus APLSSyfovre in the GA market.

·     AXSM announced receipt of a Paragraph IV Certification Notice Letter from Hikma Pharmaceuticals (HKMPY) regarding Hikma’s submission of an Abbreviated New Drug Application (ANDA) for a generic version of Sunosi (gSunosi).

·     BNTX shares fell as Q2 revs declined to €168M ($184M), lower than the €692M projected and well below the €3.2B in sales from a year earlier saying the write-offs by Pfizer “significantly reduced” profit share and hence earnings.

·     DNA announces collaboration with MRK to improve biologic manufacturing and is eligible to receive up to $490M in upfront research & milestone fees, option license payments, commercial milestone payments.

·     ELAN shares rise after Q2 top and bottom-line results top consensus and raised FY23 adjusted EPS view to 80c-89c from 76c-83c and revs to $4.35B-$4.41B from $4.31B-$4.4B.

·     NKTR shares jumped after reports new and corrected data from an early-stage study testing its experimental drug to treat a type of chronic skin condition called eczema; co said efficacy data previously generated by LLY for rezpegaldesleukin, were incorrectly calculated by Lilly.

·     SAGE, BIIB shares tumbles after the FDA approved Zurzuvae as the first pill to treat postpartum depression, but the rejected the drug for major depressive disorder, a much larger opportunity, saying the companies didn’t provide substantial evidence of effectiveness and calling for additional studies.

·     VTGN shares rose as much as 3,471% pre mkt ($60 per share) before pulling back after saying the Phase 3 study of its fasedienol nasal spray as a treatment for social anxiety disorder met its primary endpoint as well as meeting its secondary endpoint and was well-tolerated.

 

Healthcare Services & MedTech movers:

·     Healthcare technology: TRHC agreed to be acquired by private-equity firm Nautic Partners in a deal valued at about $570 million, including debt, with holders to receive $10.50 a share in cash, a 34% premium to Friday’s closing price of $7.83. https://tinyurl.com/mr4ctth5

·     Medical Research: CDXS downgraded from Outperform to Market Perform at TD Cowen citing lack of NT catalysts and slash tgt to $4 from $21. Firm said the biotech scale back, including lead program CDX-7108, plus the early-stage of the siRNA platform cause move to the sidelines.

·     Healthcare providers: DVA upgraded from Neutral to Buy at UBS and raise tgt to $142 from $100 supported by materially positive revisions to its 2024 EBIT and EPS forecasts, which sit 10% and 18% above Street estimates, respectively.

 

Technology

Hardware & Software movers:

·     AAPL shares slumped on Friday following the outlook and some Q3 segment revs disappointing Wall Street. This morning, Digitimes reported that Taiwan supply chain partners cautious about new iPhone sales outlook https://tinyurl.com/ruvv88s5

·     In Security software: PANW removed from the Wedbush Best Ideas List (BIL) ahead of earnings, saying they believe near-term upside is limited given some of the fears around growth in the cyber security sector, which is an overhang on the name (recall group fell Friday after FTNT results and guidance weighed on sentiment).

·     In Networking and Comms: ADTN shares slide after Q2 revs were $327.4M, below consensus $329.8M; Q3 GAAP revenue is expected to be between $275M-$305M and between 20% and 11% below analyst consensus and guidance for Q3 op margin expected to be between -5%-0%. NNDM shares rose after announcing a buyback program that represents nearly /13 of mkt cap.

·     In Telecom: GOGO shares stumbled after Q2 results and lowered FY revenue view to $410M-$420M from prior $440M-$455M view (est. $440M) while reaffirmed FY Ebitda outlook. SATS was upgraded from Outperform to Strong Buy at Raymond James as thinks the company is positioned very well at a critical juncture for the U.S. Satellite industry, driven by significant capacity being brought online with the Jupiter 3 satellite, and a strong balance sheet.