Closing Recap

Tuesday, May 07, 2024

U.S. stocks finish mixed as major averages took a breather following a strong 3-day rally that boosted the Nasdaq, S&P and Russell 2000 above key technical levels on further hopes for rate cuts by the Fed. No major U.S. economic data for a second day kept focus on earnings, as Dow component and media giant Disney (DIS) shares fell over 9% after results, along with other notable earnings-related declines in tech (DDOG, PLTR, TDC), though chips got better results from GFS and MCHP said Q2 marked the bottom. Materials (XLB) outperformed behind gains in FMC, IFF on earnings in chemicals, DOW, LYB, WLK on PE pricing headlines late day and paper stocks after IP rose on M&A headlines. Defensive/interest rate sensitive sectors such as REITs and Utilities also outperformed. Technology and Consumer Discretionary were laggards. Broad gains in Europe as the Stoxx 600 jumps 1.1%, Britain’s FTSE 100 advances 1.3%, Germany’s DAX jumped 1.4%, France’s CAC 40 was up 1%, and Spain’s IBEX advanced 1.5%. Still no market moving data expected this week with the next all-important data point next week with CPI/PPI inflation for April.

Interesting commentary: The Fed’s Kashkari in lone Fed speaker today said the “most likely scenario is we stay put for continued period on rates); said if disinflation comes again, or we forecast marked weakening in job market that might lead to rate cuts – but Kashkari also noted the Fed would hike rates if needed. In a CNBC interview earlier, Billionaire investor Stanley Druckenmiller on Tuesday blasted fiscal and monetary authorities, including Treasury Secretary Janet Yellen and Fed Chair Jerome Powell, for causing high inflation. So, with Fed still holding rates higher (no cuts yet) @charliebilello tweeted “Higher For Longer means…Higher credit card rates (already @ record high), Higher auto loans rates (already @ highest levels since 2001), Higher mortgage rates (already @ highest levels since 2000).

• Treasury yields slipped early ahead of $125 billion in new debt supply this week; the 10-yr yield hit a 3-week lows below 4.43% with no data or Fed speakers impacting markets this week; yields bounced off lows of 4.42% for the 10-yr after the US Treasury sold $58B in 3-year notes at high yield 4.605% vs. 4.608% when issued prior, with a bid-to-cover ratio 2.63 as primary dealers take 14.87% of U.S. 3-year notes sale, direct 19.6% and indirect 65.52%. Next auction tomorrow with $42B of 10-year notes auctioned on Wednesday 5/8, and $25B of 30-year bonds on Thursday 5/9.

• RACE Q1 revenue EU1.59B, +11% y/y, estimate EU1.57B; Ferrari deliveries 3,560, -0.2% y/y; EMEA deliveries 1,573 units, +2.5% y/y; Americas Deliveries 997 units, +3.6% y/y; Mainland China, Hong Kong, and Taiwan 317 units, -20% y/y.
• GT posted mixed Q1 results as the tire company posted better EPS but revs $54.53B missed $4.82B estimate.
• LCID posted a wider-than-expected loss for Q1 ($0.30 vs est. ($0.25) on revs $172.74Mm vs est. $156.99Mm, delivered 1,967 vehicles, produced 1,728 vehicles, says on track for annual production of about 9,000 vehicles but forecast higher capital expenditure this year of $1.5B (up from $910M y/y) and reiterated an annual production forecast below.
• NKLA Q2 revs $7.5M missed the $15.8M estimate; said delivered 75 of its hydrogen fuel cell trucks in the first two quarters of production; delayed its delivery timeline for its reworked battery trucks to 2024 end from its earlier plan to complete it by the end of Q2 or early Q3; Q1 net loss was (-$147.7M) vs. (-$169.1M) y/y.
• RIVN reports after the close; earlier Digitimes reported speculation arises about AAPL exploring collaboration with EV startup citing supply chain sources https://tinyurl.com/38cw45vv
• In Used Cars (CVNA, KMX): The Manheim Used Vehicle Value Index (MUVVI) fell to 198.4, a decline of 14.0% from a year ago. The seasonal adjustment to the index magnified the results for the month, resulting in a 2.3% month-over-month decrease. The non-adjusted price in April decreased by 0.6% compared to March.

• In Retail Research: Citigroup upgraded shares of GPS (tgt to $28 from $21) and TGT to Buy from Neutral ahead of upcoming earnings. For TGT, believes the company has emerged as one of the winners within the retail landscape with an opportunity to improve EBIT margin in the years to come and for GPS, believes the risk/reward is favorable at current levels down -21% since 3/21. Jefferies was out with a look at specialty retail pricing and promotion data heading into Q1 prints saying across industry is seeing higher promotion rates (up 2.4% Y/Y) contributing to and -2.8% Y/Y decline in ASP – but for ANF, was the sole retailer that saw promotions decrease (~180bps) during the quarter while ASPs increased ~2% Y/Y.
• In Retail Earnings:  CROX beats Q1 sales and profit estimates, while Q2 revenue forecasts fall slightly short of expectations as it sees weakness at its HEYDUDE brand (guides Q2 revs 1%-3% vs analysts est. of about 3.1%; BYON shares fall as Q1 adj EPS loss wider at (-$1.22) vs. est. loss (-$0.87) on Q1 revs miss of $382.28M vs. est. $389.26M; Q1 orders delivered of 2.2M, an increase of 27% y/y. COTY reported strong Q3 sales and margin beat even ahead of consensus expectations, while narrowing its FY24 sales and EPS outlook towards the upper end of the range (Q3 LFL sales grew 10% y/y vs. est. +8%, and mgmt’s +6-8% 2H outlook range). TDUP reported a slight 1Q revenue miss while EBITDA was better than expected and said that EBITDA% will be positive in 2Q and should remain so for the rest of the year.
• In Restaurants: BLMN said current CEO David Deno is retiring and it’s hunting for a new leader; swings to Q1 loss, is exploring ‘strategic alternatives’ for Brazil business; Q1 results adj EPS $0.70/$1.2B revs (-4% y/y) vs. est. $0.74/$1.2B; as U.S. company-owned comp sales -1.6% vs. +5.1% y/y, with Outback Steakhouse comp. sales -1.2%, Bonefish Grill comp. sales -4.9%, Carrabba’s Italian Grill comp. sales +0.4%.

• LTH and LULU announced a new partnership naming lululemon as an official apparel partner of Life Time pickleball and tennis. The new collaboration came to life on May 4th at a major pickleball event at Life Time PENN 1.
• PTON shares jumped after CNBC reported Private equity firms have been circling Peloton for a potential buyout, people familiar with the matter told CNBC noting some of the discussions have centered on how to cut Peloton’s operating expenses to make a buyout more attractive. https://tinyurl.com/kw9czpzk

• In Water & Utilities: group continues to outperform, with XLU rising about 10% in last 15 days and utilities now the 4^th best sector in the S&P in 2024 up around 9%; earnings overnight helping several names with shares of MWA rising on results; NRG shares jump after posting Q1 profit of $511M vs. y/y loss of -$1.3B and adj core profit of $849M vs. est. $753M; DUK reports Q1 EPS and revs beat and backs long-term adjusted EPS growth rate 5%-7% through 2028.
•  In MLPs/Pipelines: WMB Q1 was well above consensus, driven by strong marketing results and now expects EBITDA to be toward the top half of its 2024 guidance range; maintained its 2025 EBITDA outlook and capex guidance ranges.

• In FinTech & Payments: FIS reported better-than-expected rev/adj EBITDA/EPS for Q1 and reiterated its rev/adj EBITDA guide, raised its adj EPS guide by $0.22.
• In Insurance: EVER reported Q1 revenue and adjusted EBITDA above the high-end of the outlook and guided Q2 well ahead of the Street; AMBC shares jumped after reported Q1 adjusted EPS of $0.82 compared to y/y loss of (-$0.30) as net premiums earned $18.3M, +69% y/y.

• APLS reported 1Q results, with revenue of $172M (vs. $166M cons), with Syfovre revenue ahead at $137.5M (vs. $130M cons) while Empaveli was light at $25.6M (vs. $29M).
• MDGL shares fell after results while analysts noted while there were no revenue expectations for Q1 for Rezdiffra, investors were looking for "some more color about how the launch is going in terms of specifically patient numbers or new script volume” according to one analyst.
• PFE shares fell late day after STAT news reported a young boy dies in trial for Pfizer Duchenne gene therapy; the headlines lifted shares of rival DMD drug company SRPT. https://tinyurl.com/48sk47x5
• VNDA shares jumped after Privately held contract manufacturer Future Pak said it will sweeten its buyout offer for the company to include contingent value rights, in addition to the proposed offer price of $7.25 to $7.75 per share in cash.
• VRTX Q1 revenue beat +4% vs consensus and a high-teens beat on EPS (+17% vs consensus) as revenues grew 13% y/y and were supported by ~$75-100M favorable impact of channel inventory phasing; Opex came in 4% below expectations.

• In Healthcare Services: HIMS beats by $0.04, beats on revs; guides Q2 revs above consensus; guides FY24 revs above consensus; KVUE shares rose after saying will cut 4% of its global workforce amid investments to grow its key brands, and beat Wall Street estimates for first-quarter profit with revs $3/89B topping the $3.79B estimate. ADUS Q1 results beat EPS, revs, and adj Ebitda driven by strength in Personal Care +9.3% comps.

• In Chemicals: FMC posted a Q1 beat, as sales of new products and restructuring cost benefits offset lower volumes. While 2Q24 guidance was in line, FMC expects to see volume and price growth for the first time since destocking began in 2Q23; IFF posted a top/bottom line beat and guiding to upper end of prior range. Shares of LYB, DOW, WLK popped late day after Morgan Stanley noted for April, CMA has just called the April N.A. polyethylene contract price up 3cpp, which they said was a solid outcome for Dow, LyondellBasell, and Westlake as it may be in-line but better than what they had.
• In Paper Products: IP shares jumped after Reuters reported Brazilian pulp and paper company Suzano has approached the company to express interest in an all-cash acquisition that would be worth almost $15B and has communicated its $42-per-share offer to International Paper’s board of directors verbally. Reuters notes the bid comes less than a month after IP agreed to buy British packaging firm DS Smith for $7.2B, beating out a rival bid from Mondi. https://tinyurl.com/376ypnw9

• AXON Q1 EPS of $1.15 tops consensus $0.95 with revenue of $460.7M, up 34% y/y est. $441.6M and issued a FY24 guide above consensus, outperformance on adjusted EBITDA ($108.9M vs. est. of $90.8M) in the quarter.
• RKLB mixed results as Q1 EPS loss (-$0.09) vs. est. loss (-$0.11); Q1 revs $92.77M vs. est. $94.99M; sees Q2 revenue $105M-$110M, vs. consensus $106.22M and sees Q2 adjusted EBITDA ($25M)-($23M).
• SPR said that it was "currently engaged in discussions" with BA regarding a potential buyout of Spirit but provided no details. Shares fell after the aircraft-components maker reported a much wider-than-expected Q1 loss, due to delivery schedule changes made by Boeing.

• Apple (AAPL) announced a refreshed tablet lineup Tuesday at an event which featured the debut of new iPad Air models, including a redesigned 11-inch model and an all-new 13-inch model that has 30% more screen real estate. The new Air models have their M2 chip, which helps to make the devices about 50% faster than models running the older M1 chip. The smaller model still starts at $599 for a 128GB configuration, while the larger one will begin at $799. Apple is also refreshing the Pro lineup as the 11-inch Pro starts at $999, while the 13-inch Pro starts at $1,299.
• In Optical Sector: COHR Q3 beat led by strong Networking revenue, offsetting weaker Materials revenue and lower margins; Q3 adj EPS $0.53 vs. est. $0.40 and revs fell -2.5% y/y to $1.21B vs. est. $1.17B; guides Q4 revs $1.23B-$1.32B above est. $1.27; also noted Telecom recovery “slower than we previously expected.” FN reported Q3 beat citing “record datacom revenue from continued demand for high-data-rate products” while saying sees sequential growth in autos next Qtr but notes ongoing inventory correction in traditional telecom; reported Q3 adj EPS $2.39 vs. est. $2.11; Q3 revs rose 10% y/y to $731.5M vs. est. $717.8M. LITE announced in-line results but disappointing guidance, as telco inventory continues to linger; company said, “next few quarters’ revenue will continue to be burdened by telecom customer inventory challenges as telco spending has slowed.” Also pointing investors to the cloud/AI opportunity (Q3 revs $366.5M vs est. $364.6M on EPS beat, but lower guide).
• In Components/IT Services/Consulting: TDC was downgraded to Underperform from Neutral at Bank America and cut tgt to $39 from $48 after results last night noting the company’s execution remains mixed in the near term and the back-half of the year loaded guidance creates incremental risk. ST director Mirshekari buys 268,310 shares @ $39.64 per share valued at over $10.6M purchase, as per filing last night; lifting shares.
• In Software: DDOG shares tumble after results mis high expectations and said Amit Agarwal will be stepping down as president; quarterly results and guidance topped views, but print was only a 3.5% rev beat, like last two quarters vs. likely higher hopes especially after the Azure/AWS/GCP prints. ZETA shares jumped as delivered another beat-and-raise quarter with revs of $194.9M was above $187.1M Street, and adjusted EBITDA of $30.5M was above the $29.0M Street.
• In Semiconductors: MCHP announced in-line results but offered worse guidance on weakness across all geographies and most end markets. But while guide is weaker, mgmt said bottom is in: “We believe that the June 2024 quarter marks the bottom of the cycle for Microchip and that our business will return to sequential revenue growth in the September 2024 quarter.” GFS posted Q1 EPS/revenue beat while forecast Q2 revs above estimates ($1.59B-$1.64B vs. est. $1.59B), betting on improving demand for semiconductors – midpoint of Q2 EPS view $0.24-$0.34 topped the $0.27 estimate. The WSJ reported that AAPL has been developing its own AI chips for data center servers – project code-named ACDC https://tinyurl.com/26pf5ztj ; NVDA PT raised to $1,100 at Goldman Sachs from $1,000 on increased FY2025-27 non-GAAP EPS (excl. SBC) ests, on average, by 8% to reflect intra-quarter industry data points indicative of continued robust AI server demand and improving supply. INTC and QCOM shares dropped late day after the Financial Times reported US to revoke licenses for supply of chips to China’s Huawei.