Mid-Morning Look

Tuesday, January 02, 2024

U.S. stocks kick of the 2024 trading year mixed, as 2023 outperformers such as Technology (XLK) and Communications (XLC) see profit taking, down -2.7% and -1.25% respectively, while last year underperformers such as Healthcare (XLV), Utilities (XLU) and Energy (XLE) are all up over 1% early. The Nasdaq underperforms behind weakness in Apple (AAPL), hitting 7-week lows after an analyst downgrade, while mega cap names (AMZN, GOOGL, META, MSFT, NVDA) see profit taking. Electric vehicle stocks, both domestic and abroad, are active after December delivery/production results and overall 2023 count (TSLA, RIVN, LI). U.S. Treasuries prices slumped after a strong December, with yields moving higher despite markets still pricing in Fed rate cuts of about 150 basis points this year! The yield on the 10-year Treasury rose 7.5-bps to 3.935% (about 15-bps off December lows while the 2-yr yield rose 7-bps to 4.32%. Futures markets see a nearly 70% chance of a 25-basis point rate cut at the March 20 meeting, up from a 55% chance seen a month ago, according to CME’s FedWatch Tool. Bitcoin prices topped $45,000 for best levels since April 2022, but crypto levered stocks seeing profit taking early (COIN).

• S&P Global Dec. Manufacturing PMI at 47.9 vs 49.4 prior

• In Specialty Finance: Stephens upgraded shares of AXP to EW and raised lease-to-own players AAN, PRG & UPBD; while downgrade CRMT & NAVI. The firm says while Stephens generally doesn’t like upgrading all stocks within a subsector, it thinks each of the LTO players will do well for specific reasons. Thinks AAN consensus EPS is overly conservative for 2024, considers PRG the safest, most conservatively underwritten of the group and said UPBD is on-track to be the first of the Lease-To-Own companies to inflect to positive top-line growth by Q423). Downgraded NAVI to Underweight driven entirely by expectations that consensus estimates are over 20% higher than where they should be and cuts CRMT to EW as thinks several moving pieces ultimately results in near-term sales likely being flattish.
• In Banks: Barclays with 2024 preview as expects U.S. large-cap banks stock performance to improve in 2024 versus 2023 as the Federal Reserve signaled potential interest rate cuts in 2024, raising price tgts on several banks (JPM, C, WFC, etc.) and sees loan demand accelerating later in the year, while expenses remain well controlled. Notes the S&P 500 Banks Index rallied 11% in December 2023 on expectations of looming rate cuts. Wells Fargo raised its price target on Citigroup (C) to $70 from $60 saying they expect stock to double to $100+ over 3 years. In Regional Banks, Barclays downgraded shares of CFG to Equal weight and RF to Underweight as expects net interest income growth to lag peers in the near term for both, but upgraded HBAN to Equal weight as to expects the bank to benefit from stable to expanding NIM throughout 2024.
• Software outlook from Piper: the firm upgraded NCNO, WEAV to Overweight, downgraded AVDX to Neutral and downgraded both Unity (U) and BL to Underweight saying as they enter 2024 with a higher degree of optimism for application software based on 1) stabilizing demand fundamentals after two years of moderation, 2) a declining interest rate backdrop sparking greater appetite for growth stocks, 3) new secular tailwinds for cloud and data driven by a generational shift to AI, 4) CIO survey optimism showing accelerating cloud and AI spending intentions, and 5) favorable risk-reward scenarios on 2025 metrics. Piper flags WDAY, MNDY, and KVYO as three GARP ideas to own with compelling risk-reward profiles having CY25E EV/S multiples below 8x.

• LBPH +180%; shares more than doubled early after positive topline data from an early clinical trial testing its experimental drug for the treatment of seizures.
• MRNA +10%; upgraded to Outperform from Perform at Oppenheimer with a $142 price target citing increasing visibility on COVID-19 vaccine sales, a financial framework for OPEX progression and key catalysts in 2024/25.
• VYGR +29%; after saying it signed a collaboration/license agreement with NVS potentially worth more than $1 billion (Voyager said it will receive $100M in upfront consideration from Novartis, including a $20M purchase of newly issued equity, and that it is eligible to receive up to $1.2B).
• WYNN +4%; as casino stocks outperform (LVS, MGM) after the Macau gaming industry ended 2023 with recorded gross gaming revenue up 334% y/y to $183.1B patacas ($22.7B). The year ended strong with gross gaming revenue 433% higher in December to $18.57B patacas ($2.30B). The GGR mark was also 16% than the level seen in November.

• ASML -4%; canceled shipments of some of its machines to China at the request of U.S. President Joe Biden’s administration, weeks before export bans on the high-end chipmaking equipment came into effect – Bloomberg. http://tinyurl.com/543rtxef
• AVXL -30%; after saying its Anavex 2-73 study missed a primary endpoint as the Phase 2/3 trial evaluated the clinical efficacy, safety, and tolerability of 30 mg Anavex 2-73 in 92 pediatric patients with Rett syndrome. The other co-primary endpoint, the Clinical Global Impression-Improvement scale, was not met.
• CORT -26%; after losing a patent trial with TEVA late Friday over its Cushing’s syndrome drug Korlym as the court found that Corcept hadn’t met its burden of proving induced infringement.
• GDRX -15%; downgraded to underperform from buy at Bank America and cuts price objective to $4.5 from $8.00, while upgraded DOCS to Neutral from Underperform at Bank America and raised tgt to $29 from $21.
• PNM -6%; after AGR terminated its 2020 deal to buy the company for $4.2B as Avangrid, which is majority-owned by Spain’s Iberdrola SA, said it was unable to obtain all final regulatory approvals by Dec. 31 and so it terminated the deal.
• RIVN -9%; slips as Q4 delivers 13,972 vehicles, below the est. 14,114. For 2023, the company said it delivered 50,122 vehicles, up 146.5% from a year ago but below the FactSet consensus of 51,000 deliveries.
• YY -15%; after saying BIDU cancelled its $3.6B bid for the company. Baidu said in a regulatory filing that the closing conditions for the all-stock agreement had yet to be fully satisfied. “The company seeks to discuss with JOYY the next steps following the termination of the share purchase agreement.” http://tinyurl.com/yep8ph9r