Mid-Morning Look

Friday, January 26, 2024

U.S. stocks mixed to start the trading day as the S&P 500 Index and Nasdaq look to make it a 7^th straight day of gains following another round of key earnings and inflation data. For a change, the Philly semiconductor index (SOX) showing underperformance, led lower by weakness in INTC and KLAC after guidance for future quarter weakens shares of both and leads to some profit taking in a group that has been a market leader on AI growth prospects. The Nasdaq being dragged slightly lower on the news, but large cap tech still helping early. Credit cards a strong space today led by AXP (lifting the Dow) after upbeat 2024 profit guidance and COF moved higher on results (Visa slipped after their Q4 – more below). Economic data today mixed as Pending Home sales strongest reading since June 2022, while December Personal Income and Spending rose, and the inflation readings were mixed (details below on Dec PCE). Treasury yields moved higher as data this week shows a strong economy. The Smallcap Russell 2000 Index among early leaders, but still lagging large caps in January (-2% MTD vs. S&P +2.55). Zero fear, zero pullback after hitting all-time highs this week for the S&P 500, Nasdaq, and Dow ahead of next week FOMC meeting where expectations remain for dovish talk into the March meeting. Investors also await the busiest week of S&P earnings this quarter next week (next 2 about 30% of index each week).

• Inflation data showed: December overall PCE price index +0.2% vs. Nov -0.1% and December year-over year PCE price index +2.6% vs estimate and prior reading of +2.6%
• Core PCE price index for December +0.2% (in-line with est. +0.2%) and vs. Nov +0.1% and the Dec year-over year PCE core +2.9% (vs. consensus +3.0%) and vs Nov +3.2%.
• Pending Home sales for December climb 8.3% m/m, the highest reading since June 2020 and above the consensus for up 2%; Dec. Pending Home sales fall 1.0% from previous year.

• In Defense: BAH boosted its FY Adjusted EPS forecast to $5.25-$5.40 from prior $4.95-$5.10 view (est. $5.05) on higher rev growth of 14%-15% (from prior 11%-14%) following a top and bottom line Q4 beat ($1.41/$2.6B vs. est. $1.14/$2.54B) as backlog rose 14% y/y to $34.3B. NOC downgraded from Outperform to Sector Perform at RBC Capital after earnings and cut tgt to $450 from $515 as believes the stock will continue to face headline risk associated with the Sentinel program, potential incremental B-21 cost pressure, and limited margin upside. LHX drops after Q4 results beat but guides FY24 revs $20.7-21.3B vs est. $21.451B, segment op mgn about 15%, adj EPS $12.40-12.80 vs est. $13.14.
• In social media: SNAP upgraded from Hold to Buy at Deutsche Bank and raise tgt to $19 from $10 saying they see a clear, strong catalyst path towards upwards revenue and EBITDA revisions; PINS tgt raised from $45 to $50, maintains Outperform following checks at Evercore/ISI and materially raising estimates in the wake of its proprietary tracking and analysis of its Amazon partnership and a series of channel checks.

• APPF +25%; shares jumped after results, as Q4 adj EPS $0.88 tops est. $0.72 on better revs $171.83M vs. est. $162.71M and guides FY24 revs $755-765Mm vs est. $763.34Mm.
• AXP +7%; shares jump as forecasts 2024 EPS $12.65-$13.15 vs. est. $12.40 after Q4 revenue rose 11% y/y to $15.80B missing the $15.99B estimate and said provision for credit losses jumped 40% y/y to $1.44B (est. $1.39B). Noted since Jan ’22, grown revenues by more than 40%, from $42B to $61B, and Card Member spending has increased by 37%.
• BAH +13%; boosted its FY Adjusted EPS forecast to $5.25-$5.40 from prior $4.95-$5.10 view (est. $5.05) on higher rev growth of 14%-15% (from prior 11%-14%) following a top and bottom line Q4 beat ($1.41/$2.6B vs. est. $1.14/$2.54B).
• DHR +4%; as shares of Diagnostic companies A, AVTR, DHR, TMO, WAT all rebounded early after German competitor Sartorius (SOAGY) Q4 top/bottom line beat and said expects underlying EBITDA margin to rise to slightly more than 30% in 2024, from 28.3% last year.
• LEVI +2% as news of 10%-15% of global corporate workforce in 1H’24 offset Q4 results that missed consensus and forecast 2024 sales and profit below market estimates.
• OLN +5%; reported 4Q23 adjusted EBITDA of $210M, slightly ahead of Street of $206M and guided for EBITDA to be up y/y in 2024.
• VERA +23%; after announced positive 72-week data from the open label extension (OLE) period of its Phase 2b ORIGIN trial of atacicept in patients with IgA nephropathy (IgAN), in-line with its guidance of a 1Q24 readout.

• INTC -12%; after its Q1 revenue guide of ~$12.7B, down 18% q/q was well below consensus of $14.3B as MarQ weaker with PC and FPGA/PSG weakness.
• KLAC -5%; Q2 results were solid, yet guidance for FQ3 missed consensus estimates (revs of $2.30B plus/minus $125M vs. est. $2.46B), driven by a customers delayed greenfield fab expansion; expects sequential revenue growth to resume in FQ4(Jun) and sustain through CY-end.
• NSC -2%; Q4 EPS $2.32 missing the est. $2.87 on revs $3.07B vs. est. $3.09B.
• PTCT -4%; after the Committee for Medicinal Products for Human Use of the European Medicines Agency issued a negative opinion following a re-examination procedure for conditional marketing authorization of Translarna.
• SAVE -15%; after JBLU filed a brief 8K in which it admitted that it has no intention of following through with the doomed deal a week after the DOJ blocked the acquisition of the airline (with almost $7 billion in debt and half a billion in cash burn).

• BrightSpring Health (BTSG) priced its initial public offering (IPO), selling about 53.3M shares at $13, below its targeted range of $15-$18 to raise $633M.
• Sagimet Biosciences (SGMT) 9M share Secondary priced at $12.50.