Mid-Morning Look

Thursday, June 13, 2024

U.S. stocks opened higher, looking to add to yesterday gains following another “cooler” inflation report and more strength in technology following better earnings in semiconductor space from Broadcom (AVGO +12%). U.S. producer prices (PPI) unexpectedly fell in May amid lower energy costs, another indication that inflation was subsiding after surging in the first quarter. Yesterday it was a “tamer” CPI inflation report and strong guidance from ORCL and AAPL related to AI commentary that pushed the S&P 500 and Nasdaq to record highs for a 3^rd straight day, while today it was a cooler PPI report and better results from AVGO in the semiconductor/AI space doing the heavy lifting.  The S&P 500 index ended Wednesday at another all-time high, its 28th of the year. Note the SPX crossed above 5,400 Wednesday for the first time, its 6th 100-point milestone of the year. It took 757 days for the SPX to go from 4,800 to 4,900 and just 140 days to go from 4,900 to 5,400. Much like yesterday its strength in Technology, Consumer Discretionary, and REITs is moving higher while other sectors are showing weakness. The Dow Jones Industrial Averages falls over 200 points and is now more than 1,500 points below its recent closing highs above 40K. Weekly jobless claims surged, boosting hopes for Fed rate cuts as bad data remains seen good for markets. Markets now pulling back, taking a little breather since the open with profit taking in many and small cap stocks (IWM) seeing weakness and continuing its underperformance vs. large cap tech strength. Tesla (TSLA) early strength on CEO pay package headlines.

• Weekly Jobless Claims climbed to 242,000 in latest week (highest since August of 2023) and above consensus 225,000; the 4-week moving average climbed to 227,000 Jun 8 week from 222,250 prior week and continued claims climbed to 1.820M (highest level since Nov 2021) in latest week and above consensus 1.798M from 1.790M prior week; the U.S. insured unemployment rate unchanged at 1.2%.

• In Retail: JILL shares tumbled as 2M share Spot Secondary priced at $31.00; CURV earning beat as stronger margins drove upside (Q1 EBITDA $38MM vs. $32MM consensus); LOVE Q1 adj EPS loss and net sales topped consensus but guided Q2 adj. EBITDA loss ($2M-$5M) vs. est. profit $3.38M; OXM posted Q1 results within guidance ranges; FY24 guide adjusted on softer comp expectations; said majority of Q1 sales decline was related to the expected -$17M decline in wholesale, but encouragingly, expects to make up ~half of the shortfall during the year. In activewear, Deutsche Bank said has a positive outlook on the athletic footwear category, led by solid product innovation and consumer demand, while we expect a cooling of athletic apparel trends in part due to wallet shift to fashion and non-athletic apparel spending (initiated buy ratings on BIRK, NKE, SKX and hold on LULU). WSM reports 2-for-1 stock split.
• In Chemicals: RBC Capital provided 2H preview as believes that 2H24 will be a pivotal period for chemicals and packaging names with the potential for more H2 downside risk rather than upside surprises. RBC said most companies continue to see significant demand headwinds and trough earnings levels from Q323 continuing through Q224. RBC continues to favor stocks under coverage that are benefiting from company-specific price/cost and share gain benefits (AXTA, SHW, CTVA cost reduction programs (CE, AXTA, FMC, LYB), portfolio actions (LYB, DD, BALL, GPK).
• In Aerospace & Defense: BA price tgt raised to $200 from $180 at Bank America saying the company has somewhat de-risked 2024 expectations after the late May announcement about burning cash and remains uniquely positioned in the robust air traffic demand environment, but turning around operations could take time; LDOS gets $738M US air force cybersecurity contract. SPCE board approved a 1-for-20 reverse split of the company’s common stock. TMUS selected by U.S. Navy for $2.67B 10-year contract.

• KMB +2%; double upgraded to Buy from Underperform at Bank America with $160 tgt (from $115) saying following KMB’s volume inflection in Q1 after two years of volume declines, the firm sees the beginning of a longer-term improvement taking hold in-line with the company’s initiatives from its March 2024 Investor Day.
• NEXT +2%; after signing a non-binding agreement with Saudi Aramco to supply 1.2 million tonnes per annum (MTPA) of LNG for 20 years.
• SRPT +4%; as PFE disclosed that its Phase 3 CIFFREO trial studying a Gene Therapy for the treatment of ambulatory patients with Duchenne muscular dystrophy did not meet its primary endpoint of improvement of motor function among boys 4 to 7 years of age (news helped send shares of SRPT higher which has competing DMD drug).
• TSLA +4%; after CEO Elon Musk said two key proposals to re-ratify his pay package and move the EV maker’s legal home to Texas from Delaware are passing by “wide margins.”
• VANI +11%; after FDA has lifted clinical hold placed on early-stage human trial evaluating its implant, NPM-119, for treating type 2 diabetes.

• GFI -10%; lowered its gold production guidance for the year to between 2.2M and 2.3M ounces of gold, down from a previous target of 2.33M to 2.43M ounces citing worse-than-expected impacts from winter weather in Chile.
• GNRC -4%; downgraded to Neutral from Buy at Janney after rally in shares.
• JILL -18%; shares tumbled as 2M share Spot Secondary priced at $31.00.
• MSTR -5%; announced that it intends to offer $500 million aggregate principal amount of convertible senior notes due 2032, proceeds of which will be used to acquire additional bitcoin and on other corporate affairs.
• PLAB -3%; said in regulatory filing that Richelle Burr, who is also administrative officer and secretary, was placed on paid administrative leave pending ongoing internal review.
• PLAY -11%; shares stumbled after results as Q1 results missed top/bottom lines with adj EPS $1.12 vs est. $1.70, adj EBITDA $159.1Mm vs est. $179.23Mm and revs $588.1Mm vs est. $621.26Mm.
• SIG -12%; reported Q1 EPS that topped consensus on in-line revs and backed year EPS, revs and comp estimates, but guided Q2 rev midpoint below consensus ($1.46B-$1.52B vs. est. $1.51B) and comp sales down (-2%-6%).