Closing Recap

Thursday, May 09, 2024

U.S. stocks pushed quietly higher all day on rising interest rate cut hopes after weekly jobless claims data climbed to an 8-1/2 month high (back to bad data being good for stocks), while Treasury yields fell on a solid 30-year auction, though volumes remain light this week ahead of key CPI, PPI inflation data next week. The Dow Jones Industrial Average made it a 7^th day in a row of gains, while Smallcaps outperformed as well (Russell 2000), with the biggest gains coming in REITs, Utilities and Energy as oil prices gained, while Technology lagged amid semi weakness on ARM guidance. Some large cap tech still strong as META, NFLX make it a 7^th day in a row of gains and AMZN hit new all-time highs. Utilities have been on a tear, new 52-week highs and up nearly another 1% posting its 7th straight day of gains as CNBC noted that every name in index above its respective 50dma (hit highest levels since January 2023). Year-to-date, Utilities, Energy, and Communications are all up over 12% and Financials up over 10% YTD. We are getting to the end of earnings season with around 450 of the S&P 500 having reported, with big retailers (WMT, TGT, HD, LOW) and a few software names reporting in coming weeks. With today’s gains, the S&P is back to best levels since middle of April (around 5,212), with 52-week highs not far away at 5,264. There remains no fear, even into next week’s inflation reports as markets are still counting on at least 2-rate cuts this year. Since the April monthly decline, stocks have rallied with fear subsiding quickly as evident in this week’s AAII sentiment report as Bullish sentiment rose to 40.8% from 38.5%, while bearish sentiment tumbled to 23.8% from 32.5% (neutral rose to make up the difference). Meanwhile the CBOE Volatility index (VIX) dropped below the 13 level (lowest since January) after hitting highs above 21 in late April. Zero fear as broader stock market averages extend gains (several in Europe at all-time highs). What can change confidence? A sharp spike in inflation for a 4^th month perhaps, erasing hopes of rate cuts and raising rate hike fears. In Europe, London’s FTSE 100 hits record for fourth session after BOE signals rate cuts; ended the session 0.3% higher, after rising as far as 8,396.25 points earlier in the day; FTSE 100 has risen more than 8% so far this year, more than double its 3.8% gain in 2023. The BoE’s Monetary Policy Committee voted 7-2 to keep rates at a 16-year high of 5.25%. However, Governor Andrew Bailey said it was possible the central bank would need to cut rates by more than investors currently expect.

• Treasury yields moved to session lows this afternoon following a strong 30-year Treasury auction, as the 10-yr yield dropped to 4.45%. The U.S. Treasury sold $25B in 30-yr notes at a yield of 4.635% vs. 4.642% when issued prior; bid-to-cover ratio 2.41, as primary dealers take 15.36% of U.S. 30-year bond sale, direct 19.78% and indirect 64.86%. The $125B in supply this week was generally well received (lackluster 10-yr auction yesterday).

• CART reported 1Q results well ahead of expectations (GTV, revs, EBITDA beats) and guided 2Q EBITDA ahead in both $ and percent of GTV terms, although the midpoint of GTV guidance was only slightly ahead of expectations.
• COST April core comps were +5.5% with sales up 7.1% Y/Y, including a 0.5% negative impact from Easter timing shift. Traffic was positive both worldwide and domestically and transactions were up ~1%.
• SN recorded a 25% increase in sales to $1.07B (est. $950M) in Q1 citing broad demand across its major product categories and forecast sales to increase between 10% and 12% versus prior guidance calling for between 5% and 7% growth.
• TPR lowers its annual sales forecast after missing Q3 sales expectations on sluggish demand for its handbags and accessories; now sees fiscal 2024 sales of over $6.6B from prior estimates of about $6.7B.
• WRBY shares jump as posted smaller Q1 loss on revs $200M tops $196M estimate and raises annual net revenue forecast to $753M-$761M above prior view $748M-$758M.
• YETI Q1 adj EPS/sales beat ($0.34/$341.4M vs. $0.25/$333.3M) highlighted by double-digit growth across both wholesale and direct-to-consumer channels and guided FY EPS $2.49-$2.62 vs. est. $2.49.
• In Dining/Restaurants: CAKE reported Q1 results above consensus, upgraded at Raymond James saying results reflected encouraging comp resilience and strong relative outperformance in a softening industry backdrop; DNUT Q1 results topped market expectations citing robust demand for its doughnuts, strong digital sales, as well as lower costs and maintained its forecast; PZZA Q1 EPS topped views but sales fell -2.5% y/y to $513.9M missing the $544M estimate an said US company-owned comp sales -3%, below ests. -0.79%.

• In Loding & Leisure: ABNB shares slip after Q1 top/bottom line results beat but sees Q2 revenue $2.68B-$2.74B below consensus $2.74B and sees Q2 adjusted EBITDA flat to up on a nominal basis (said Easter holiday was beneficial to Q1); Hyatt (H) Q1 adj EPS $0.71 misses the $0.91 consensus view on Ebitda $252M vs. est. $302.5M and forecasts FY adj. EBITDA $1.15B to $1.19B, below prior view of $1.18B to $1.23B.
• In Casino/Gaming: Gaming equipment supplier AGS said it would be acquired by affiliates of Brightstar Capital Partners in a roughly $1.1 billion deal, with shareholders to receive $12.50 per share in cash, representing a premium of 39.5%.

• In Transports: Freight/Truckers; FWRD shares tumble on results, posting a wider Q1 loss of (-$0.64) vs. est. (-$0.11) as adj. income from operations $12.5M vs. est. $31.9M and revs were $541.8M, below consensus $591.4M noting operating expenses rose 61% y/y to $607.5M and said continues to face weak freight demand, excess carrier capacity. In rails, NSC shareholders voted down an attempt by an activist investment firm to remove the company’s chief executive and take control of its board.
• In Industrials: BLBD handily beat consensus estimates, raised full year guidance, and increased their long term adj EBITDA margin guidance, benefiting from a cyclical recovery in school bus purchases and subsidized EV school buses pushing ASPs meaningfully higher. EMR was upgraded to Buy at Deutsche Bank saying now been impressed by the company’s robust operational performance for two quarters in a row and expect this beat/raise track record to continue in the coming quarters. In E&C, KBR hosted its first investor day since 2021 providing financial targets for adj-EBITDA, sales, margins and OCF in 2027 that indicate a double-digit sales and adj-EBITDA CAGR from 2023-2027.
• In Materials/Chemicals: in ag chemicals, NTR Q1 EPS $0.46 topped the $0.39 estimate saying sales volumes for crop nutrients, NTR’s biggest segment, at 1.46M tonnes in North America, up 22.5% from a year ago (better results than comps CF, MOS last week); gold miners get a boost behind rebound in prices on economic data, though silver prices outperformed, rising over 3% as shares of PAAS, WPM saw strength.
• In Solar: RUN reported a mixed bag 1Q results and tweaked the guidance to the downside across several items, but indicated positive sales trends, which it expects to translate into higher installations in 2H; SEDG shares slide early after reported 1Q revenue results in line with its guidance, with disappointing gross margin numbers, and issued a 2Q forecast below expectations ($250M-$280M, vs. consensus $305.99M) and said gross margin from the solar segment was negative -3.5%.

• In FinTech/Payments: FOUR posted a Q1 EPS moss of $0.54 vs. est. $0.62 as Q1 payment volume $33.4B just below est. $33.82B and Q1 adj. EBITDA margin 46%, mostly in-line with ests.; after selling off yesterday post results, AFRM was upgraded to Overweight from Neutral at JP Morgan and raised tgt to $43 – noted weakness came after 2^nd largest partner SHOP declined on a weak forecast but said Shop pay will continue to fuel AFRM growth.
• In REITs: Data center REIT EQIX rises after Q1 total revenue grew 6.4%, below expectations, but FX was a $14M headwind relative to guidance; adjusted EBITDA grew 5.1%, despite a FX headwind relative to guidance, and was 170 bps above consensus. AFFO grew 3.1% to $8.86, 320 bps above consensus; announced of completion of its independent investigation.

• EHAB shares fell after the results and said after a prolonged strategic review/sale process, EHAB’s board has decided to keep the company public. Reuters reported Hedge fund AREX Capital Management is seeking seven board seats at Enhabit, arguing that new directors are needed to help reverse poor financial performance.
• EXAS reported Q1 results that were ahead of consensus, though the results reflect only 6% y/y top-line growth and provided Q2 revenue guidance that was a touch lower than Street estimates and reaffirmed its 2024 guidance.
• RAPT shares tumbled after saying it has decided to close and unblind both its phase 2b clinical trial of Zelnecirnon in atopic dermatitis and its phase 2a trial of Zelnecirnon in asthma.
• RVPH shares fell after announcing FDA alignment on brilaroxazine clinical trials for NDA in schizophrenia; said topline data from 1-year open-label extension long-term safety trial expected in Q4 2024; said FDA indicated it will require a long-term randomized withdrawal study post-approval to support maintenance of effect.
• XFOR announces $125M capital infusion from $105M sale of priority review voucher and $20M drawdown from existing loan facility.

• In Media: WBD reported Q1 revs $9.96B below ests. $10.27B and Q1 total subscribers 99.60M compared to est. 98.87M; FOXA was upgraded from Neutral to Buy at Bank America and raise tgt to $40 saying FY24 was set to be a challenging year given the extremely difficult comparisons to FY23, but is now well-positioned to accelerate earnings in FY25; LYV upgraded from Neutral to Buy w/ $115 PT at Redburn saying a Department of Justice (DOJ) investigation continues to linger, but argues that break-up concerns are overblown, creating an attractive entry point for those willing to take a calculated risk. TKO reported better-than-expected Q1 results and raised its full-year guidance as an upside was seen from UFC and WWE.

• In Software: HUBS reported Q1 above consensus (revs $617.4M vs. $597M), but consistent with broader commentary within software, but saw incremental macro headwinds emerge in Q1; guided FY adj EPS $7.30-$7.38 vs est. $7.26 and Bloomberg reported GOOGL is progressing in talks to Buy HubSpot, https://tinyurl.com/3mdumzfp ; RBLX shares tumbled after results and guided Q2 bookings $870M-$900M, below consensus est. $902.5M, with in-line Q1 daily active users 77.7M; said people only spent 16.7 billion hours on the Roblox platform instead of the 17 billion hours expected.
• In Internet/Ad tech: APP shares jump after 48% y/y rise in revs to $1.06B above $974M estimate and guided Q2 revs $1.06B-$1.08B vs. est. $1.01B; TTD reported 28% y/y rev growth was the fastest since Q3’22 and a 5%-point acceleration vs. Q4, while Keybanc noted CTV is moving toward programmatic and the Trade Desk is a key enabler of CTV monetization which should sustain a 20%+ revenue growth profile; MGNI rises on Q1 beat as adj EPS $0.05 vs est. $0.00, adj EBITDA $25Mm vs est. $17.4Mm on revs $149.3Mm vs est. $124.2Mm.
• In IT Services/Consulting: EPAM shares tumble as Q1 results beat, but forecasts Q2 adj. EPS $2.21-$2.29, below consensus ests of $2.44 and guided Q2 revs $1.14B-$1.15B vs. expectations of $1.17B and lower FY guidance saying they believe challenging demand environment unlikely to improve this year as much as expected. CDLX strong Q1 with positive EBITDA and strong user engagement as redemptions grew by 20% y/y, but shares fall as guides Q2 revs $73-81Mm vs est. $81.39Mm and adj EBITDA ($3.0Mm) – $1.0Mm vs est. $2.486Mm.

• MKSI reported 1Q24 EPS of $1.18, which beat consensus of $0.75 and revs of $868M was +9% y/y compared to consensus of $849M; Q2 guide came in above consensus but indicates sequential decline.
• SITM was upgraded from Hold to Buy at Needham with $130 tgt after posted beat and raise results as customer inventories declined and order activity picked up.