Mid-Morning Look

Wednesday, December 11, 2024

U.S. stocks rebounding, once again led by the usual suspects as large cap tech (Mag7 names) outperform. Big gains early in AMZN, GOOGL, META, NFLX, TSLA while the Philadelphia Semi Index (SOX) also rebounds rising over 1.9% to 4,990 after falling -2.47% on Tuesday. Helping boost market sentiment after a 2-day decline for the S&P 500 was November consumer price index (CPI) inflation data, exactly in-line with economist estimates, though did edge higher from the month prior in a continued slight acceleration. The consumer price index rose 0.3% last month, the largest gain since April after advancing 0.2% for four straight months. Despite the data, investors are shaking it off, not changing the view for another Fed 25bps rate cut next week at its policy meeting (despite strong economic data, signs of higher inflation, and stock markets at all-time highs). The dollar was little changed on Wednesday after U.S. price data came in line with forecasts, while Treasury yields dipped. The dollar rose overnight on reports China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs. Heading into year-end in 3-weeks, several Wall Street analysts prepping 2025 outlooks for various sectors (see some highlights below). In the oil/energy sector, OPEC lowered its forecasts for 2024 and 2025 global oil demand growth for the fifth consecutive time, saying they now expects 2024 global oil demand to rise by 1.61 million barrels per day (bpd), down from its forecast of 1.82 million bpd last month in its monthly report. OPEC cut its 2025 global oil demand growth estimate to 1.45 million bpd from 1.54 million bpd saying the weaker outlook highlights the challenge facing OPEC+. Starting out the day, stocks are surging, Bitcoin back up to $100,000, gold posts 3^rd straight day of big gains and oil rises – massive upside FOMO continues!

• In MedTech, Citigroup upgraded GKOS to Buy, downgrading BLCO and LUNG to Neutral and Neutral/High Risk, opening a Positive Catalyst Watch on ZBH, and entering 2025 with Top Picks: BSX (Farapulse, Watchman; adding to Citi Focus List) and PODD (type 2 opportunity), removing GEHC (China headwinds). Wells Fargo also with industry note, saying top picks for 2025 are ALC, ATEC, DXCM, ISRG, MASI and NVCR. In addition, they upgraded MMSI and PEN to Overweight from Equal Weight and downgraded RXST from Overweight to Equal Weight. Wells said the Trump healthcare (HC) nominations create uncertainty which will likely lead to HC underperformance. Medtech is best positioned within HC due to its “under the radar” status. Expect M&A to pick-up.
• In Autos: Goldman Sachs provides 2025 auto outlook – resiliency of profits, AI progress, recovery potential for industrial market in focus. Remain buy rated on GM and Ford (F), Neutral on TSLA; is lowering its EV forecast for the US market to reflect likely lower purchase tax credits, as well as reduced emissions requirements. Now expects EV mix as a percent of new vehicle sales to be 8.5% in 2025, 25% in 2030, 40% in 2035 and 60% in 2040, down from 9%/40%/60%/75% previously. MGA was downgraded to Sell from Neutral given its above average exposure to the European market where it expects weaker production in 2025 and below average content per vehicle growth. Separately GM said it will no longer fund the development of a commercial robotaxi business and will instead absorb its self-driving car subsidiary Cruise to develop driver assistance features for its cars.
• In Enterprise Software: JP Morgan downgraded shares of AI (to Underweight from Neutral), CXM (to Neutral from OW), and PD (to Underweight from neutral) based on our expectations of stock performance relative to the rest of our coverage. For PD, see several crosscurrents at play, which makes it difficult to underwrite the long-term success of the company’s multi-product platform play at this point. For AI, while understands that C3.ai is going after a massive and rapidly evolving opportunity around Artificial Intelligence, it thinks its uneven and subpar growth-plus-margin performance leaves a lot to be desired. For CXM, sees a balanced risk/reward.

• CADL +142%; after saying its cancer therapy CAN-2409 met the main goal of a late-stage trial in patients with a type of prostate cancer; showed a statistically significant improvement in disease-free survival vs radiation alone.
• FIGS +17%; received an acquisition bid from private equity firm Story3 Capital Partners that values the medical-apparel maker at over $1B, the WSJ reported. The firm offered $6 per share for the common shares of Figs that it does not already hold https://tinyurl.com/3em32be5
• PDCO +35%; entered into a definitive agreement to be acquired by Patient Square Capital, as Patterson shareholders will receive $31.35 in cash per share in a transaction value of approximately $4.1B.
• RLAY +5%; said its lead drug candidate to treat a type of locally advanced breast cancer, RLY-2608, helped patients live for about 11.4 months on average without the disease getting worse.
• SFIX +37%; after reported better Q1 print and management also lifting FY25E guidance modestly in the process; active customers slightly ahead of consensus, while revenue and adj. EBITDA were both solidly above, although both active clients and revenue were still down in the double-digits year-over-year.
• SKIL +23%; after results; Q3 revs $137.2M vs. est. $130M; raises FY25 revenue view to $520M-$530M from $510M-$525M while affirms FY25 adjusted EBITDA view of $105M-$110M.
• SPWH +17%; upgraded to Buy from Neutral at B Riley following quarterly results, which the firm said demonstrates meaningful sequential improvement (and far better than feared, driven by upside in the most important category, Hunt), gross margin increasing Y/Y.

• HSY -6%; MDLZ announces $9B share repurchase and said they remain committed to an acquisition strategy that is focused on “bolt on assets”. The buyback and headlines pushed shares of HSY lower, which on Monday rallied 10% on Bloomberg report that Mondelez had noted to explore takeover of Hershey
• M -8%; reported a slight beat to Q3 results ($0.04/$4.9B vs. est. $0.03/$4.72B), while qtrly comparable sales were down -2.4% on an owned basis and down -1.3% on an owned-plus-licensed-plus-marketplace basis and lowers FY EPS forecast to $2.25-$2.50, below prior view $2.34-$2.69.
• PLAY -16%; after 3Q comp store sales and EBITDA were reported below expectations as demand trends remain challenged in a tough consumer spend env’t – Q3 EBITDA $68.3Mm vs est. $73.9Mm on revs $453Mm vs est. $465.54Mm, comps -7.7%; also announced CEO transition.
• QTTB -67%; as announced topline results from the SIGNAL-AA Phase 2a signal finding clinical trial evaluating bempikibart, or ADX-914; while the results from its Signal-AD trial in atopic dermatitis demonstrated promising findings in Part A but didn’t meet primary endpoint in Part B.
• SLRN -20%; disclosed that its Phase 2b/3 trial of izokibep did not meet its primary endpoint in its study for Uveitis. The company continuing to focus on development of subcutaneous lonigutamab in TED, with the initiation of its Phase 3 scheduled for 1Q25.
• SMCI -6%; one of few names in semiconductors weak on the day.