Mid-Morning Look

Tuesday, February 13, 2024

U.S. stocks under significant pressure for only the second time since the middle of January, down sharply after the January consumer price index (CPI) inflation reading came in “hotter” than expected on both a M/M and Y/Y basis for headline and core (ex: food & energy) readings, lowering chances of aggressive interest rate cuts by the Fed. Following the data, Fed swaps price in less than 100 basis points of easing in 2024 (down from 150bps to start the year) and likely removes any chance of a March rate cut (May remains a possibility). WSJ’s Nick Timiraos noted "core inflation was firmer than expected in January, with the core CPI rising 0.39% from December. That leaves the YoY rate steady at 3.9%; the 3-month annualized rate ticked up to 4% from 3.3%; the 6-month annualized rate was 3.7% (vs 3.2%).” The 10-yr yield spikes to 4.28% from 4.15% following the CPI report, highest since 12/11 and the U.S. dollar trades above 150 yen for first time since November 17. The U.S. dollar index (DXY) hits three-month high, last up 0.7% at 104.84. Smallcap Russell 2000, which outperforms yesterday ahead of the report, fell over 3% today as the Smallcaps seen among top beneficiaries of low-rate environment. Large caps were also pressured with Technology (XLK) down over 2% as well as dividend paying sectors such as REITs (XLRE) -2.75% amid the bounce in yields and rate expectations. Several big earnings-related movers (see below) ahead of big week still of results. Gold prices tumble, the dollar and yields rise, and Bitcoin pulls back below $50K. The CBOE Volatility index (VIX) above the 15 level for the first time since end of January as stocks make new lows.

• In Retail: EXPR shares slide after the WSJ reported late Monday the retailer is preparing for a debt restructuring that could include filing for bankruptcy within weeks; in toy retailers, HAS shares fall as Q4 EPS misses ($0.38/$1.29B in sales vs. est. $0.66/$1.36B) on persistent demand weakness in toy industry and weaker forecasts. In apparel, PLCE was downgraded from Neutral to Sell at B Riley and cut tgt to $4 from $19 saying PLCE has run-rate EBITDA of ($3.5M), ~$265M of net debt, limited availability on its credit line, and a $50M-$75M imminent seasonal funding need.
• In Lodging & Leisure: MAR Q4 revenue missed/EPS beat and issued 2024 profit outlook below estimates ($9.18-$9.52 vs. est. $9.69) while anticipates a worldwide full-year RevPAR increase of 3% to 5%, compared with a 15% increase in FY23. TRIP said it formed a special committee to explore potential deals citing the recent LTRPA disclosure of its intent to evaluate potential alternatives involving LTRP (owns 21% stake) and Tripadvisor.

• JBLU+15%; after activist investor Carl Icahn reports a 9.91% stake in JBLU as of Feb. 1, a filing showed.
• LIAN +19%; said it has completed a strategic review and plans to initiate the winding down of its operations, including the sale of drugs in development.
• TRIP +11%; said it formed a special committee to explore potential deals citing the recent LTRPA disclosure of its intent to evaluate potential alternatives involving LTRP (owns 21% stake) and Tripadvisor.
• ZI +9%; Q4 results were largely as expected with revenue and operating margin upside consistent with recent quarters, while guidance was below consensus at the midpoints; cRPO bookings growth of 0.3% YoY slightly below estimate though billings were slightly better.

• BIIB -6%; as Q4 revenue and profit shrink on Aduhelm costs, slumping sales of MS therapies; BIIB recorded charges related to dropping its controversial Alzheimer’s drug Aduhelm and as said sales slumped in its multiple sclerosis therapies, the company’s biggest drug category.
• CDNS -3%; as guided Q1 revs to fall about 2% to between $990M-$1.01B below the analysts’ average of $1.08B and Q1 adj EPS $1.10-1.14 vs est. $1.37 (followed Q4 beat top/bottom line).
• GTHX -53%; said its lead cancer therapy in combination with chemotherapy failed to prolong survival of patients with an aggressive form of breast cancer.
• HAS -5%; shares fall as Q4 EPS misses ($0.38/$1.29B in sales vs. est. $0.66/$1.36B) on persistent demand weakness in the toy industry and weaker forecasts.
• MCO -6%; following earnings results as EPS $2.19/$1.48B in revs missed the $2.33/$1.49B estimate as performance of its credit ratings and assessment unit fell short of expectations.
• TDC -22%; as guided Q1 EPS of $0.53-$0.57 (vs. consensus $0.74), FY24 non-GAAP EPS of $2.15-$2.31 (vs. consensus $2.40); public cloud ARR growth of 35%-41% y/y (vs. consensus 47%); total ARR growth of 4%-8% (vs. consensus 9%); and free cash flow of $340M-$380M (vs. consensus $394M).
• WCC -21%; posted wide miss as Q4 EPS $2.65/$5.47B missed the $3.87/$5.59B estimates (and sales below last year $5.56b) and guided year sales growth of 1%-4% vs. est. $23.36B and adj Ebitda margin of 7.5%-7.9%.