Mid-Morning Look

Tuesday, January 09, 2024

U.S. stocks slipped overnight, pressured by a bounce in the dollar and Treasury yields and on profit taking after massive gains on Monday paced by technology stocks (large/mega cap). But stocks have pared losses since the open, with Healthcare (XLV) the only S&P sector in the “green” early, with Energy (XLE) and Materials (XLB) down the most, falling over 1%.  Strength in a handful of large cap tech names (AMD, NVDA, AMZN, GOOGL) helping major averages pare losses. The 10-yr yield pulls back to the 4% level, 5-bps off morning highs, but at this point it feels like markets are waiting for the CPI inflation data on Thursday for the next significant move (PPI data also on Friday). Earlier the World Bank warned that global growth in 2024 is set to slow for a third year in a row, likely to grow 2.4% this year which compares to 2.6% in 2023, 3.0% in 2022 and 6.2% in 2021. Tech prices pressured overnight after Samsung sees a worse than expected drop in quarterly profit on weak demand, and as chip maker MCHP issued a revenue warning. Small caps pressured early as the Russell 2000 falls over -1.25%, coming despite upbeat comments at Goldman Sachs which said they see 9% upside next six months for the Russell 2000 Smallcaps and 15% upside next 12 months.

• In Industrials: GE announced its biggest-ever order for onshore wind power generation equipment as privately held Pattern Energy is buying 674 GE wind turbines with an electricity-generating capacity of 2.4 gigawatts. That brings Pattern’s GE Vernova-based wind capacity to 4.3 gigawatt hours. AYI Q1 adj EPS $3.72 vs. est. $3.23; Q1 revs fell -6% y/y to $935M but was in-line with consensus $935.14M; Revenue from its lighting and light-control business fell 7.5% to $70.7M, while its intelligent spaces unit climbed 13%. MSM Q1 adj EPS $1.25 vs. est. $1.31; Q1 revs $953.97M vs. est. $972.06M; Backs FY24 adjusted operating margin view 12%-12.8% and backs FY24 tax rate view 25%-25.5%.
• In Chemicals: PPG said it is reviewing strategic alternatives for its silica products business which represented between 1% and 2% of PPG’s total net sales in 2023. Keybanc previewed the sector ahead of earnings, making tgt changes and calling shares of FMC, OLN, CTVA, AXTA, and ECVT seen as most compelling risk/reward noting many of their "longs" have performed exceptionally well in Q4; as a result, it has less confidence in NT performance. BASFY was downgraded to Underperform at Bernstein saying they can’t get comfortable with BASF’s fundamentals at these prices and takes its 2024 and 2025 numbers down as sees as ripe for correction. GVDNY upgraded to Market-Perform, from Underperform at Bernstein citing an unusual 2-year underperformance.

• AYI +9%; Q1 adj EPS $3.72 vs. est. $3.23; Q1 revs fell -6% y/y to $935M but was in-line with consensus $935.14M; Revenue from its lighting and light-control business fell 7.5% to $70.7M, while its intelligent spaces unit climbed 13%.
• CENX +14%; was upgraded to Buy from Neutral at B Riley and tgt raised to $14 from $10 calling it the greatest beneficiary of the 45X production tax credits.
• CRWD +4%; upgraded from Equal Weight to Overweight at Morgan Stanley and raised tgt to $304 from $203 as sees an improving demand outlook for CRWD as accelerating cyberattacks, multiple new products and GenAI tailwinds drive estimates upside.
• CUTR +28%; guided FY revenue in range of $211.5M-$212.5M up from prior guidance of about $205M (est. $211M) and said cash and marketable securities of approximately $143M as of end of Q4, vs. prior view of about $135M.
• JNPR +22%; after the WSJ reported HPE is in advanced talks to buy JNPR for about $13 billion according to the WSJ, saying a deal between the two companies could be announced as soon as this week, http://tinyurl.com/2cyck8am
• MTCH +7%; shares jumped after the WSJ reported Elliott Investment Management has built a big $1B stake in the Tinder owner and intends to meet with Match to discuss ways to improve online dating company’s performance http://tinyurl.com/25hpsc5e
• SRPT +6%; Wedbush noted the upside guidance to ELEVIDYS and the potential of label expansion on the Horizon. Wedbush said SRPT expects an FDA response (day 74 letter) on the filing for ELEVIDYS/DMD in early March 2024 and a PDUFA date in August 2024
• URBN +10%; after reported that November and December net sales increased 10% compared to the same two months the year prior.

• ES -6%; as announced an impairment of $1.4 billion-$1.6 billion related to its offshore wind joint venture with Orsted.
• EXTR -8%; after saying Q2 revenues are now expected to be approximately $294-$297M vs. consensus of $320.5M and said remain confident in our long-term strategy.
• GRFS -24%; after short-seller Gotham City Research criticized the financial reporting of the Spanish pharmaceutical company, which denied the allegations. Gotham City Research said in its report that it believes Grifols’s debt-to-earnings ratio is worse than reported by the company. http://tinyurl.com/4nxyz54e
• MCHP -1%; said it sees prelim Q3 revs down sequentially about -22% vs. guidance of down (15%-20%) citing weakening economic environment customers faced.
• MSM -2%; Q1 adj EPS $1.25 vs. est. $1.31; Q1 revs $953.97M vs. est. $972.06M; Backs FY24 adjusted operating margin view 12%-12.8% and backs FY24 tax rate view 25%-25.5% (comps GWW, FAST were active).
• NEOG -12%; said Q2 sales slipped -0.2% to $229.6M and lowered its FY24 revenue view to $935M-$955M from $955M-$985M and Ebitda outlook saying despite seeing signs of improvement in end markets, those improvements are happening slower than previously expected.
• TCS -14%; after cutting its Q3 revenue view to $214M from $220M-$225M (est. $225.4M) saying expects its profitability for the quarter to be negatively impacted by the sales shortfall.