Mid-Morning Look

Thursday, April 11, 2024

U.S. stocks were looking lower overnight, still feeling the disappointment of a third straight month of higher consumer prices (CPI) after yesterday’s data weighed on stocks/bonds, but major averages got a small boost this morning as producer prices (PPI) showed a deceleration from the prior month, helping ease some of the concerns. The CPI carries more weight than the PPI, but today’s report gave a little hope to those still hoping/expecting rate cuts by the Fed this year which were diminished yesterday following the CPI pop. After hitting new April highs of 17.61 this morning (taking out prior 16.92 on 4/4), the CBOE Volatility index (VIX) reversed lower following the tamer producer price index (PPI) inflation data, turning negative below the 16 level (but now back above 16.50 as stocks fade the higher open). Treasury yields jumped yesterday on the CPI, with the 10-yr hitting highs above 4.59%, slipping to 4.51% after the PPI, but has worked its way back to 4.57%. Meanwhile, the European Central Bank (ECB) decided to keep the three key ECB interest rates unchanged, as expected. Overnight, China saw a decline in PPI and CPI inflation helping the Shanghai Index. Next up, attention turns to earnings with large cap banks JPM, WFC, Citi reporting tomorrow morning (and next few weeks), before the Q1 flood gates open. Stocks pulled back after a modestly strong opening at morning lows.

• Weekly Jobless Claims fell to 211,000 from 222,000 prior week and below consensus 215,000; the 4-week moving average fell to 214,250 from 214,500 and continued claims climbed to 1.817M from 1.789M prior week; the U.S. insured unemployment rate unchanged at 1.2% in latest week.

• In Restaurants: TD Cowen raises tgts for CAVA to $73 from $63, CMG to $3,400 from $2,900 and SG to $22 from $17 saying their panel suggests a favorable Q124 fast casual sales & margin environment that increases its conviction in the sub-sector. Given fast casual’s YTD valuation expansion, TDCowen believes this places greater importance on raising 2024 adj. EBITDA guidance to sustain stocks’ runs. Stifel raised prices tgts on CMG, EAT, DPZ and FRPT and cut tgts on MCD and SBUX while continues to favor high-growth restaurant companies with attractive unit economics (E.G., BROS, WING).

• ARVN +3%; entered a strategic license agreement with NVS for worldwide development and commercialization of its experimental prostate cancer drug called ARV-766; ARVN will receive commercial milestones of up to $1.01 billion as well as tiered royalties for ARV-766 and receive a $150M as upfront payment.
• DASH +1%; upgraded from Neutral to Buy at MoffettNathanson and raise tgt to $164 saying its newly published industry tracker for U.S. restaurant and grocery delivery reveals share gains for DoorDash in each category, along with an increasing rate of adoption for grocery delivery.
• NKE +2%; upgraded from Neutral to Buy at Bank America and raise tgt to $113 saying estimates finally look achievable, Nike is taking bold steps to- transform, and cites upcoming potential catalysts that include the Olympics and the company’s analyst day meeting this fall.
• RENT +140%; reported revenue 2% above consensus, though the beat was driven by product sales, as ending active subs fell 5.8K Q/Q and 1Q24 revenue guidance came in 3% below consensus at the midpoint – but loyalty improved by 10% Y/Y in FY4Q23.
• RLYB +69%; as announces collaboration to advance therapeutic solutions for pregnant individuals at risk of fetal and neonatal alloimmune thrombocytopenia; said to receive funding for FNAIT awareness initiative and equity investment from JNJ, as received an equity investment of $6.6 million.

• HOOD -2%; was downgraded to Sell at Citigroup as they believe after recent price moves (fueled in part by Bitcoin), current valuation levels have disconnected from fundamentals and the risk/reward is negatively skewed.
• KMX -11%; as Q4 profit fell -27% as EPS of $0.32 vs. the $0.45 estimate while Q4 used vehicle sales of $4.50B missed the est. $4.6B, hurt by decreased profitability from units sold.
• LOVE –14%; as guided Q1 sales $126M-$132M vs. est. $147.5M after posted Q4 gross profit $149.6M vs. est. $158.4M and guides lower FY25 adj Ebitda view.
• RCEL -30%; after cutting its commercial revenue guidance for Q1 to $11.0M-$11.3M, ~26.1% – 28.1% below consensus estimates and the guidance provided on the Q423 call of $14.8M-$15.6M, promoting a downgrade at BTIG to neutral from buy.