Mid-Morning Look

Monday, July 22, 2024

U.S. stocks off to a strong start this week, with the S&P looking to snap its 3-day losing streak (first since the middle of April), while the tech heavy Nasdaq surges as much as 1.5% (has since pared gains) led by gains in semiconductors (SOX rising over 3% before paring gains) and trying to snap its first 3-day losing streak (first since 6/20-6/24) as investors “buy the dip” after losses last week. Small caps underperform early, with the IWM pulling back under 216, further paring big gains from prior week and a half (last week highs $226.64) as markets see early rotation back into tech (QQQ, SOX) after falling nearly 4% last week for Nasdaq. The CBOE Volatility index (VIX) pulls back below 16 after hitting the highest levels since late April of 17.19 on Friday. Earnings results pick up steam this week, with telecom stocks down this morning after VZ results weigh on shares. In Central Bank news this weekend, the People’s Bank of China (PBoC) cut its 1Y and 5Y LPRs 10bps each to 3.35% and 3.85% respectively; also cut 7day Reverse Repo rate 10 bps to 1.7%; lowered collateral for MLF facilities from July; strengthening counter-cyclical adjustment to better support the real economy. No major economic data in U.S. until late week with GDP on Thursday and PCE inflation on Friday. The Fed is in their “blackout” period ahead of the FOMC policy meeting next Wednesday (no rate cut expected – but markets counting on September cut). Stock markets taking the Presidential news this past weekend in stride after Joe Biden ended his reelection campaign and endorsed Vice President Kamala Harris. Also, in Washington this week, the FBI, Secret Service director to testify after last weekends failure to protect former President Trump. Treasury yields steady ahead of the Treasury selling $183 B in new 2-, 5-, and 7-year notes this week.

• In Utilities: Barclay’s downgraded ED to Underweight from equal weight and cut tgt to $92 from $97 in utility Q2 preview and said AEE, EVRG, NI, and PCG are their current top OW ideas saying they continue to prefer companies who have upside to asset base growth / earnings growth coming from economic development, solid balance sheets to limit equity dilution, constructive regulatory frameworks and attractive relative valuation. Keybanc previews sector as well saying while the utility index had a decent 1H, they note that it was driven mostly by a handful of large caps, namely NEE, PEG, CNP, and SO, while the firm expects more even performance during the 2H, as investors begin to rotate into laggards and “value” names, as well as SMIDs. Keybanc upgraded POR to Overweight and $52 tgt.
• In Beauty and Consumer Products: EL was downgraded to Market Perform from Strong Buy at Raymond James as a slower recovery in China and travel retail and heavy competition in the U.S. dampen its prior expectations for a more significant rebound in FY25. In Q2 earnings preview, Stifel upgraded IFF to Buy, raised price tgt on CL to $105 from $95 in consumer products while saying they continues to be cautious on the group as volume growth is likely to remain muted reflecting the cumulative impact of price increases and heightened global macroeconomic uncertainty pressuring consumer spending.
• In Retail: ANF upgraded to Overweight from Neutral at JPMorgan and raised tgt to $194 from $167 saying with shares down ~20% since Q1 EPS (= 25% underperformance relative to SPX), they upgraded with its fieldwork & mgmt access pointing to continued broad-based demand at the Abercrombie brand and Hollister brand only in middle innings. In Sports/Lifestyle Retail: Stifel previews quarter saying BIRK, ONON, SKX, and LULU favored names in sports/lifestyle brand retail and see risk to the team sports category for DKS The firm notes analysis assesses the influence of U.S. population projections and population cohort spending behaviors on multi-year growth prospects for Sports & Lifestyle Brands. In Sporting Goods Retail: VSTO said Czechoslovak Group raised the base purchase price for a fourth time for the proposed acquisition of its ammunition business, Kinetic Group, by $50M to $2.15B.

• CLW +10%; signed a deal to sell its tissue business to Italian multinational tissue-paper maker Sofidel for $1.06B. Clearwater said the planned sale concludes its review of strategic options for the business and supports its transformation to become an independent supplier of paperboard to North American converters.
• IQV +4%; after guidance; forecasts FY revs $15.43B-$15.53B, above prior forecast $15.33B-$15.58B, narrows FY adj. EBITDA to $3.71B-$3.77B from prior $3.70B-$3.80B and boosts FY adj EPS to $11.10-$11.30 from $10.95-$11.25.
• S +10%; extends Friday 7.8% advance; seen as possible beneficiary, along with other cyber security companies, after CRWD software update on Friday impacted several companies with tech outages.
• RDDT +3%; after The Information reported the company has struck deals with sports leagues including the NFL, NBA and MLB to get videos and other content for its social media site
• RTO +7%; was upgraded to market Perform from underperform at Bernstein as the analyst noted a front-page article in The Sunday Times business section, reporting that Rentokil could be subject to a takeover bid will likely put a floor under valuation in the near term.
• SERV +68%; adding to Friday’s 187% spike after NVDA said in SEC filing late Thursday it bought 62,500 shares of automatic sidewalk delivery firm for $4/share in July 2023, revealing a 10% stake)
• TXG +3%; upgraded to Buy from Hold at Jefferies with an unchanged price target of $24 citing conviction in single cell recovery for the upgrade

• CRWD -12%; downgraded by several Wall Street firms and price tgts lowered as analysts note concerns related to resistance to new deals with the cybersecurity company after last week’s global outage.
• IPG -2%; was downgraded to Underweight at Morgan Stanley saying without material adj. EBITA growth, the firm sees a negative risk/reward skew for shares with risk to ’25 estimates and limited potential for multiple expansion.
• RYAAY -17%; cuts Q2 forecast, now forecasts fares ‘materially lower’; still forecasts customers 198M to 200M, est. 199.06M; Q1 rev. Eu3.63B, vs. est. Eu3.92B; Q1 profit after tax eu360M, vs. est. Eu512M.
• VZ -6%; Q2 adj EPS $1.15 was in-line with consensus on revs $32.8B vs. est. $33.06B; said Q2 wireless retail postpaid phone net additions of 148,000; said lost a net 410,000 wireless lines off its prepaid subscriber base over the second quarter as its SafeLink brand suffered the loss of the government subsidy.