Mid-Morning Look

Wednesday, January 24, 2024

U.S. stocks extend winning streaks to 5-days, on track for another day of record highs if gains hold, as large caps again underperform small caps heading into a potential catalyst rich two upcoming days. Tech gets another bump behind NFLX earnings/subscriber/margin numbers overnight (shares +12%), while semi make new all-time highs again behind ASML results. On a down note, chemical stocks tumbled behind lower guidance from DD. Communications (XLC) early leader +1.2% (+5.4% YTD) along with Technology (XLK) again +1% (+5.8% YTD) and Financials (XLF) +0.5%, while Materials (XLB), Consumer Staples (XLP) and Healthcare (XLV) lag. The U.S. dollar pares losses after S&P PMI posts highest since Oct 2022 – jumps to 50.3 from 47.2 est. (first time above 50 in 13 reports) and lifted Treasury yields (10-yr popped to 4.13% from 4.09% prior). The S&P Global January flash services PMI at 52.9 (vs 51.4 in December) and January flash composite PMI at 52.3 (vs. 50.9 in Dec). Strong across the board. News out China helping Asian region trading overnight as the PBOC to cut its reserve ratio requirement for all banks by 50bp, effective February 5, a move intended to free up 1 trillion yuan ($139.45B) to the market, Reuters reported. The reduction in the RRR, larger than most analysts expected, is the largest since December 2021 and follows cuts of 25bp in March and September of 2023. Coming tonight, earnings from TSLA, IBM, LRCX in tech, tomorrow the ECB policy meeting (no changes to rates expected), as well as GDP data in the US and then key PCE inflation data on Friday (along with several other big earnings in the next few days).

• In Chemicals: DD shares tumbled after warned of an earnings shortfall, guiding Q1 adj EPS to $0.63-$0.65 from $0.84 y/y and consensus of $0.88 and sees sales falling to $2.8B-$3.02B, below the consensus $3.04B; also issued prelim Q4 operating EBITDA about $715M, vs. est. $744.9M; lower guide due to inventory destocking and continued weakness in China led to lower volumes (shares of EMN, DOW, HUN moved in reaction).
• In Electrical parts/Equipment: APH posts Q4 net sales of $3.33B topping ests $3.15B and EPS $0.82 beats by a nickel noting sales bounce driven by growth in commercial air, defense, automotive and IT datacom markets, as well as contributions from acquisition program. TEL also rises on earnings as EPS and revs top views while said anticipates revenue growth in artificial intelligence applications through 2024.
• In China: US listed China stocks bounce a second day after China cut the amount of cash that banks must hold as reserves as hopes for more stimulus from Beijing are also supporting positive sentiment. China also tripled individual investment quotas under the cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area, the Chinese Central bank said (Shanghai Index rose 1.8% overnight).

• ELV +4%; Q4 adj EPS $5.62 vs. est. $5.64; Q4 revs $42.5B vs. est. $42.09B; raises quarterly dividend 10.1% to $1.63 per share; sees FY24 adjusted EPS greater than’$37.10 vs. consensus $37.05.
• FCX +5%; Copper producers for a bump overnight (FCX, SCCO) as the metal hits 3-week highs on China stimulus and as the dollar pares recent gains. FCX also reported quarterly results that topped ests ($0.27/$5.91B vs. est. $0.23/$5.85B).
• ISRG +4%; reported Q4 sales of $1.93B above ests $1.89B helped by strong demand for some surgeries; Q4 adj EPS $1.60 tops est. $1.48 and the company said it submitted for FDA approval of its Gen 5 system with clearance anticipated in 2024.
• KURA +40%; agreed to sell 8.7 mln shares, including ~7.3 mln pre-funded warrants, in PIPE (private investment in public equity) for $150 mln gross proceeds; purchase price of $17.25 represents 28.5% premium to stock’s last close.
• NFLX +13%; and subscribers boosting shares as added 13.1Mm subs vs est. +8.97Mm, while earnings missed and revs beat; for Q1, revs $9.24B vs est. $9.3B, expects Q1 paid net adds down sequentially but up vs year ago 1.8Mm; sees 2024 operating margin 24%, vs. est. 22.7% and prior 22%-23% and 2024 free cash flow about $6B.
• TXT +7%; reported earnings, said expects aviation segment revenue of $6 billion in 2024, up from $5.37 billion in 2023 as the U.S. Army replaces Black Hawk helicopters with aircraft made by its Bell unit.

• BB -13%; announces private offering of $160M of convertible senior notes.
• BKR -5%; Q4 adj EPS $0.51 vs. est. $0.48; Revenue climbed 16% to $6.84B, but below the consensus expectations of $6.93B; said expects Q1 results to reflect seasonal decline in int’l revenues as well as a slow start across U.S. land.
• DD -14%; after warned of an earnings shortfall, guiding Q1 adj EPS to $0.63-$0.65 from $0.84 y/y and consensus of $0.88 and sees sales falling to $2.8B-$3.02B, below the consensus $3.04B; also issued prelim Q4 operating EBITDA about $715M, vs. est. $744.9M.
• KMB -4%; following quarterly results/guidance in consumer staples.
• T -2%; after earnings miss and lower guidance as sees FY24 adjusted EPS $2.15-$2.25, below consensus $2.46 and FY24 adjusted EBITDA up 3%; added 526,000 net monthly bill-paying wireless phone subscribers in Q4.
• THTX -11%; shares fall after saying the U.S. FDA has declined to approve the new, more concentrated formulation of its fat reduction drug Egrifta SV.
• TXN -2%; shares slump as Q4 EPS $1.49 vs. est. $1.47; Q4 revs $4.08B vs. est. $4.12B; forecasts Q1 revs $3.45B-$3.75B, below consensus $4.09B and sees Q1 EPS $0.96-$1.16 vs. est. $1.41; said chip inventory builds up in its key markets with initial signs of weakness in the automotive sector.