Mid-Morning Look

Monday, February 03, 2025

U.S. stocks open broadly lower overnight/into this morning as investors digest the impact of tariffs to trading partners China, Mexico and Canada that were implemented by the White House this weekend to the tune of 25% duties on Canada and Mexico and 10% on China. Energy imports from Canada will be lower with a 10% duty. Canada said they plan to retaliate against the tariffs as Canadian Prime Minister Justin Trudeau said Canada would respond with $155 billion of tariffs on U.S. goods, starting with $30 billion as of Tuesday. Categories include beer, wine, and spirits, household appliances, lumber and plastics. Early on, market moves related to trade war impact with everything from autos, furniture, food, beverages, medical devices/supplies, technology, chips are seeing broad weakness. The U.S. dollar index (DXY) rose to more than 1-year with the Canadian dollar, Mexican Peso falling hard along with the euro. However, U.S. stocks pared losses (quickly) an hour into trading after headlines that Mexico said they will deploy 10,000 national guard immediately to border to avoid trafficking of drugs to U.S. and notes U.S. and Mexico teams have started to work today on security and business. Mexican President Sheinbaum also notes tariffs are paused for a month from now! Those comments ripped markets off their lows, paring stock market declines. Earnings pick up steam this week, but all about tariffs this morning and its impact on stocks, commodities, currencies and crypto.   

• ISM U.S. manufacturing activity index 50.9 in January (above consensus 49.8) vs 49.2 in December while the prices paid index 54.9 in January (consensus 53.5) vs 52.5 in December; new orders index 55.1 in January vs 52.1 in December; employment index 50.3 in January vs 45.4 in December
• Dec construction spending +0.5% (above consensus +0.2%) vs Nov +0.2% (prev unchanged); Us Dec private construction spending +0.9%, public spending -0.5%.

• In Retail: TPX was cleared to proceed with its $4B acquisition of Mattress Firm Inc. after a federal judge in Texas rejected a claim by the FTC that the deal would hurt consumers https://tinyurl.com/39ztn34h . In research, PVH was downgraded at Wells Fargo saying while the stock is trading near lows on valuation, it’s feeling like a continued value trap setup as they can’t ignore the mounting issues which include possible China exit tail risk, sluggish Brand Heat impacting DTC sales, and growing inventory risk. Wells raise ests for BBWI and TPR and are among top picks in group along with BURL (best way to play Off-Price), CPRI (margin oppty, possible monetization of Versace), and REAL (story set to inflect with profitability now scaling).
• Food & Beverage names impacted by tariff headlines to Mexico & Canada: avocado suppliers such as CVGW, and AVO slipped early, with over 90% of the avocados consumed in the US coming from Mexico. Tariffs are also set to impact alcohol beverage companies including shares of STZ, TAP. Restaurant operators are under pressure as tariffs would result in higher food costs, with a significant portion of produce imported from Mexico (CMG, CAVA, CAKE, SBUX) as well as others. TSN reported Q1 EPS and sales above consensus ($1.14/$13.62B vs. est. $0.91/$13.44B), Overall sales volume increased 1.6%, while average prices rose 0.7% and said sees Fy25 sales to be flat to up 1% from the year prior; STZ was downgraded to Neutral from Overweight at Piper and cut tgt to $200 from $245 after President Trump has followed through on his pledge to impose 25% tariffs on all Mexican imports.

• IDXX +10%; as reports Q4 results ahead, with revs $954M (vs. $935M consensus, with Organic Growth +6%, CAG largest beat vs. cons) and EPS of $2.62 (vs. $2.40 est. and guides 2025 organic growth to 6% to 9%, with CAG organic growth of 5% to 8%, and EPS of $11.74 to $12.24 (vs. $11.94 est.)
• SSYS +19%; announced that Fortissimo Capital has entered into an agreement to invest $120 million in the Company, acquiring approximately 14% of Stratasys’ issued and outstanding ordinary shares through a direct purchase of 11,650,485 newly issued ordinary shares at $10.30 per share.
• TGI +35%; shares jump as Private equity firms Warburg Pincus and Berkshire Partners agreed to take the aircraft parts and services supplier private for about $3 billion, including debt as the buyout firms offered to pay $26 per share in cash https://tinyurl.com/4999mfe5
• TPX +4%; was cleared to proceed with its $4B acquisition of Mattress Firm Inc. after a federal judge in Texas rejected a claim by the FTC that the deal would hurt consumers https://tinyurl.com/39ztn34h
• TSN +3%; reported Q1 EPS and sales above consensus ($1.14/$13.62B vs. est. $0.91/$13.44B), Overall sales volume increased 1.6%, while average prices rose 0.7% and said sees Fy25 sales to be flat to up 1% from the year prior.

• FDX -5%; Loop Capital said it has eliminated all positive ratings in the transportation sector and recommend its clients don’t add to positions until the dust settles in “trade war” downgraded CP to Sell from Buy, CNI downgraded to Sell from Hold, UNP downgraded to Sell from Hold and downgraded FDX, CSX, NSC, GXO to Hold.
• MOS -3%; German mineral mining group K+S (KPLUY), which also produces potash fertilizers in Canada, said that import tariffs to be imposed by the United States would greatly challenge U.S. farmers. The group ships about 300,000 tonnes of potash from its Bethune site in the Canadian province of Saskatchewan into the U.S. per year; shares of NTR, MOS, CF were all active as well.
• OMI -24%; guided Q4 prelim adj EBITDA $135M-$140M vs $156M est. and Q4 revs also below expectations while narrows FY EPS guide to $1.50-$1.53 vs prior guidance $1.45-$1.55 and sees Fy revenue $10.67B-$10.70B vs prior guidance $10.6B-$10.8B.