Mid-Morning Look

Tuesday, August 13, 2024

U.S. stocks off to a very strong start, boosted by a “cooler” inflation report as its raising hopes/expectations of a more aggressive rate cut possibility by the Fed at the September meeting. Investors continue to buy the dip after the most recent market pullback two weeks ago and the big drop last Monday. U.S. stocks jumped after the producer price index for July came in below estimates and the prior month readings, the first of two major inflation reports this week with the consumer price index (CPI) out tomorrow morning. Bond yields dropped after the PPI data with the 10-yr touching lows of 3.85%, and the dollar slumped while commodity prices edged higher. In stock news, Dow component Home Depot (HD) reported a top and bottom line Q2 beat with mixed guidance as overall sales view was raised while lowering their comp sales view for the year (stock fell initially before recovering). The big story was Chipotle (CMG) CEO leaving to become the CEO of Starbucks (SBUX). So far, the S&P 500 (SPX) stalled just shy of 5,400, while the tech heavy Nasdaq (and large cap names TSLA, AAPL, META, MSFT, NVDA) outperforms, but the Smallcap Russell 2000 lags. Risk sentiment evident by a further tumble in the CBOE Volatility index, down -6% to 19.50 (well off last Monday highs above 65). Oil prices fell for the first time in 6 sessions. Expect more chop the remainder of the day as investors await the more important CPI inflation report tomorrow morning.

• In Media: RUM delivered 2Q revenue of $22.5mm (-10.0% Y/Y, +26.7% Q/Q), above ests and adj. EBITDA loss of -$28.7mm was below Wedbush -$24.9mm estimate Q2 average revenue per user (ARPU) up ~19% sequentially to $0.37; sequential growth in monthly active users (MAUs), which increased +6% Q/Q and +21% Y/Y to reach 53mm. WBD downgraded from Outperform to Market Perform at Bernstein and cut tgt to $8 from $10 after recently missed on all key financial metrics for Q2, and the stock is trading down >10% since the Q2 earnings. Reliance and DIS have offered to sell some channels to win faster antitrust approval for their $8.5 billion India media assets merger but are resisting changes to cricket broadcast rights they own, Reuters reported citing two sources familiar with the matter.
• Sports/Footwear Retail: ONON Q2 sales rose nearly 28% to 567.7M Swiss francs vs. est. 560.9M Swiss francs, and adj profit $0.15 Swiss francs vs. est. $0.16, but only maintained its 2024 net sales growth forecast of at least 30%; guides FY adj EBITDA margin 16% to 16.5%, vs. est. 16.3%. Bernstein noted that NKE and ADDYY biggest China wholesale partner, Pou Sheng, reported an -11% retail sales decline in July, down -9% YTD. Bernstein notes 80%+ of Pou Sheng’s China sales are from Nike and Adidas products. The July data extended a weak trend of -14% sales in June and -9% in 1H24. Parent company Yue Yuen reported a sharp acceleration in manufacturing revenue in July to +22%.

• DELL +2%; upgraded to Equal Weight from Underweight at Barclays and keeps $97 tgt as believes the higher multiple is fair, given the amount of AI business the company is generating (vs peers), which should contribute to overall top-line volume, and it expects this business to remain strong over the year.
• HRL +3%; upgraded to Buy from Neutral at Citigroup and raise tgt to $37 from $33 as sees slight upside potential to fiscal Q3 and fiscal 2024 earnings estimates and further upside in fiscal years 2025 and 2026.
• RUM +4%; delivered 2Q revenue of $22.5mm (-10.0% Y/Y, +26.7% Q/Q), above ests and adj. EBITDA loss of -$28.7mm was below Wedbush -$24.9mm estimate Q2 average revenue per user (ARPU) up ~19% sequentially to $0.37; sequential growth in monthly active users (MAUs), which increased +6% Q/Q and +21% Y/Y to reach 53mm
• SBUX +22%; SBUX announced that Brian Niccol has been appointed Chairman and Chief Executive Officer (CEO) starting on September 9, 2024 – Niccol currently serves as Chairman and CEO of Chipotle. CMG names Scott boatwright as interim CEO.
• SE +5%; reported Q2 EPS $0.14/$3.81B vs. consensus $0.17/$3.68B; said they expect that Shopee will become adjusted EBITDA positive from Q3; revising up our guidance for Shopee’s 2024 FY GMV growth to mid-20%; shares traded lower initially but reversed higher.

• CYTK -2%; downgraded to Neutral from Buy at Goldman Sachs and tgt cut to $60 saying looking ahead to the next 12-18 months, anticipate more positive than negative developments but believe that these events are largely expected
• HA -12%; shares tumbled on concern about a potential Dept. of Justice lawsuit to block its planned sale to ALK after a DoJ trial attorney who was involved in the DOJ’s lawsuit to block JBLU from buying SAVE filed to practice in Hawaii.
• HUT -3%; reported Q2 revs at $35.2M, up from $20.5M y/y; said net loss for Q2 was $71.9M, from a loss of $1.7M y/y; said 279 Bitcoin were mined in the quarter, compared with 740 Bitcoin mined y/y.
• PCRX -3%; after Truist downgraded the stock to sell from buy, saying a generic Exparel entry is imminent following a court ruling that canceled the drug’s patent.
• SYRS -62%; after saying late yesterday that an interim analysis of data from a mid-stage study for its blood cancer therapy showed a low probability of success for the trial and that they plan to stop enrolling patients in the study testing its therapy, tamibarotenein
• TME -16%; as quarterly results fall short of expectations.