Mid-Morning Look

Tuesday, April 23, 2024

U.S. stocks adding to big gains on Monday, looking to post the biggest 2-day rally in a few months as markets celebrating earnings results and economic data that help case for rate cuts in coming months by the Fed. A second day of broad-based gains for major U.S averages with Industrials, Technology, Communications, and Healthcare leading early while the materials sector underperforms in the S&P behind weakness in metals NUE, FCX after results and SHW in chemicals. The 10-yr yield tumbles 6 bps quickly to 4.58% following PMI data (off highs 4.65% earlier). Early gains in some chip stocks also offered support to equities, with NVDA, AMD, SMCI, ARM recovering some of this month’s losses. Autos get a boost behind better GM results and guidance, ahead of TSLA results tonight, looking to snap its 7-day losing streak. Gold prices fell as much as -1.4% after falling -2.75% Monday near lows of $2,300 an ounce (off recent ATH $2,448.40 an ounce), but pared losses dramatically to $2,342 an ounce following a bounce in stocks as better PMI data raised hopes of rate cuts once again. The

• U.S. S&P Global April flash services PMI at 50.9 (vs 51.7 in March) and U.S. S&P Global April flash composite PMI at 50.9 (vs 52.1 in March); S&P Global April flash manufacturing PMI at 49.9 (vs 51.9 in March).
• Richmond Fed composite manufacturing index -7 in April vs -11 in March; Richmond Fed manufacturing shipments index -10 in April vs -14 in March and services revenues index -13 in April vs -7 in March.
• March single-family home sales rose 8.8% to 0.693M unit ann. Rate above consensus 0.670M and vs Feb 0.637M unit rate; March home sales Northeast +27.8%, Midwest +5.3%, South +7.7%, West +8.6%; new home supply 8.3 months’ worth at current pace vs Feb 8.8 months and median sale price $430,700, -1.9% from March 2023 ($438,900).

• In Software: CALX shares tumble as guides Q2 revs $197M-$203M below consensus estimate of $228.1M on lower profit outlook for Q2 of $0.03-$0.09 vs. market est. of $0.22 and reported Q1 revs $226.3M vs. est. $233.7M. DDOG upgraded to Overweight at Wells Fargo and raised tgt to $150 from $130 as cost optimization comes to an end; believe Datadog has many ways to drive upside in FY24, including vendor consolidation, security cross-sell and Gen AI. SAP 1Q with results mostly in line with Street estimates. Positively, the top-line growth reaccelerated, cloud bookings remained strong, cloud margins expanded, and cash generation outperformed too. Specifically, the company generated the largest quarterly FCF in three years.
• In Retail: CPRI shares dipped after the FTC sued to stop TPR’s $8.5 billion takeover of Capri; FIVE was downgraded to neutral from Overweight at JP Morgan and cut tgt to $170 from $215 as work points to an underlying low-to-mid-teens earnings growth profile. HIBB shares jumped as announces definitive agreement to be acquired by JD Sports Fashion Plc for $87.50 per share in cash, in a $1.1B transaction; price represents a 21% premium to the April 22, 2024, closing price.
• In Aerospace & Defense: GE shares advanced after forecasts FY operating profit $6.2B-$6.6B vs. forecast $6B-$6.5B; raised its full-year profit forecast on strong demand for jet-engine parts and services as carriers keep their older planes in the air to tide over a shortage of new commercial aircraft. RTX Q1 earnings topped ($1.34/$19.3B in revs vs. est. $1.23/$18.41B), helped by demand for missile defense systems and strength in the commercial aftermarket business. LMT reported a near 14% Q1 sales rise as sales in its missiles and fire control unit jumped 25.3% to nearly $3Band sales in its aeronautics business, which makes the F-35 fighter jets, rose 9.2% to $6.85B; reaffirmed its full-year outlook, projecting net sales of $68.5 billion to $70 billion and profit between $25.65 and $26.35 per share.

• GE +4%; forecasts FY operating profit $6.2B-$6.6B vs. forecast $6B-$6.5B; raised its full-year profit forecast on strong demand for jet-engine parts and services as carriers keep their older planes.
• GM +6%; quarterly results that topped consensus and raised its annual forecast, citing stable pricing and demand for its gas-engine vehicles; Q1 adj EPS $2.62 vs. est. $2.12; Q1 sales rose 7.6% y/y to $43.01B vs. est. $42.19B; raises FY24 EPS $9.00-$10.00, up from prior $8.50-$9.50 (est. $9.04) and raises FY adj FCF, adj Ebit view and net income outlook.
• HIBB +18%; as announces definitive agreement to be acquired by JD Sports Fashion Plc for $87.50 per share in cash, in a $1.1B transaction; price represents a 21% premium to the April 22, 2024, closing price.
• IBRX +21%; said the FDA approved its Anktiva treatment for certain patients with bladder cancer; said it expects Anktiva to be available in the U.S. by mid-May.
• KMB +5%; boosted its FY sales and profit forecasts on higher prices and strong demand after beating Q1 expectations with sales of $5.15B above the $5.09B estimate and better EPS of $2.01; guides 2024 organic sales to rise in mid-single digits vs prior forecast of low- to mid-single digit rise.
• NVS +2%; raised its full-year guidance on wider use of psoriasis and arthritis drug Cosentyx; said 2024 net sales were set to grow by a high-single to low double-digit percentage and added that adjusted operating income was expected to grow by a low double-digit to mid-teens percentage.
• SPOT +14%; quarterly gross profit topped 1 billion euros ($1.1 billion) for the first time, revs rose 20% y/y to 3.64B euros, and monthly active users (MAUs) rise 19% to 615M, but missed own guidance of 618M, while gross margins rose to 27.6% in the quarter from 25.2% a year earlier.

• CALX -2%; as guides Q2 revs $197M-$203M below consensus estimate of $228.1M on lower profit outlook for Q2 of $0.03-$0.09 vs. market est. of $0.22 and reported Q1 revs $226.3M vs. est. $233.7M.
• CDNS -2%; shares fall (SNPS in sympathy) after reported a mixed quarter with Q224 revenue guidance missing consensus by ~7% saying the new Z3/X3 launch this year is causing some customers to hold off their Z2/X2 orders, leading to lower Q2 outlook while full year maintained.
• LXQ -14%; lowered its FY24 organic revenue growth for parts and services in range of 2.5%-4.5%, from previous forecast of 3.5%-5.5% and cut EPS view to $3.32-$3.62 from $3.43-$3.73 citing softer-than-expected Q1 demand and higher projected restructuring-, transaction-related expenses (missed Q1 revs as well).
• NUE -6%; Q1 miss and weaker guide hurts steel stocks as reported Q1 EPS $3.46 vs. est. $3.65; Q1 revs $8.14B vs. est. $8.26B; said expects Q2 earnings to decrease compared to Q1 (est. $3.63) primarily due to lower average selling prices.
• SHW -4%; reported weaker-than-expected Q1 adjusted EPS ($2.17 vs. est. $2.21) due to lower sales in North America while sales fell to $5.37B from $5.44B y/y while maintained its annual earnings target, which was below consensus.