Mid-Morning Look

Thursday, June 27, 2024

U.S. stocks rally as Treasury yields give back ush of the prior 2-days gains, as NYSE breadth improves, and stock markets shake off slightly higher inflation readings and mixed GDP and housing data. Smallcaps saw early outperformance given the drop in yields and recent underperformance vs. the S&P and Nasdaq this week. The 10-yr yield hit lows below 4.28% after topping 4.34% for the first time since early June prior to data. GDP came in a bit better than the prior estimate (but down sharply from prior quarter), while PCE readings edged higher (ahead of more updated May PCE data tomorrow morning). Pending Home Sales dropped, echoing the recent weaker New Home Sales data, while jobless claims fell. Tech mixed early as semiconductors little weakness early behind Micron (MU) results as beat for quarter but didn’t raise guidance, leading to rotation into software stocks this morning (PANW, ORCL, ZS, CRM) and continued strength into Mag 7 names (AAPL, AMZN, META, MSFT, TSLA). In retail, Dow component Nike (NKE) to report earnings after the close. Choppy action early led by gains in Communications, REITs, and Technology, while Financials and Staples slip. Markets await the Presidential debate tonight between Biden and Trump and the key PCE inflation data tomorrow morning. Major averages are currently on track for weekly gains as we close out the week, month, quarter and 1H of trading this Friday – on track for big returns!

• In the GDP inflation data, final Q1 PCE price index +3.4% (vs. prior estimate +3.3%) highest since Q1’23, while U.S. final Q1 core PCE +3.7% (vs. prior estimate +3.6%). U.S. final Q1 PCE price index ex-food/energy/housing +3.3% and U.S. final Q1 PCE services price index ex-energy/housing +5.1%.
• Weekly Jobless Claims fell to 233,000 Jun 22 week (consensus 236,000) from 239,000 prior week while the 4-week moving average climbed to 236,000 from 233,000 prior week (previous 232,750). Continuing claims reported at 1.839M vs. est. 1.824M.
• May Durable Goods Orders rose +0.1% (consensus -0.15%), May Durables ex-transportation orders -0.1% (consensus +0.2%) vs April +0.4%; May Durables ex-defense orders -0.2% vs April -0.5% (prev unchanged); May general Machinery orders -0.5%, electrical equipment -0.4%, defense aircraft/parts +22.6%, May nondefense cap orders ex-aircraft -0.6%, (cons +0.1%) vs April +0.3% (prev +0.2%).
• May Pending Home sales fall (-2.1%) M/M; vs. est. up +0.5% and fall (-6.6%) from previous year. Pending home sales fell in the densely populated South and the Midwest, which is considered a more affordable region. The rose in the Northeast and West.

• In Retail: H&M (HNNMY) missed quarterly earnings forecasts and predicting a fall in June sales, sending shares of the fashion retailer lower; said sales this month are likely to fall 6% in local currencies y/y citing poor weather; H&M still stood by its 10% operating margin goal for 2024; said for 2H’24 plans to boost sales by offering slightly higher discounts; posted overall operating profit 7.1B Swedish crowns, up from 4.74B a year earlier but below a mean forecast of 7.37B. LEVI shares tumbled as delivered $0.06 EPS upside on light revenue as strength in the Americas, DTC, and gross margin offset a shortfall in international and wholesale. The FY revenue direction was tempered by 1% due to FX, and FY EPS guide didn’t flow-through FY2Q upside. BIRK 14M share Secondary, priced at 54.00.
• In Food & Beverages: MKC posted better-than-expected earnings for Q2 and backed its outlook for the year as it anticipates volume improvement in the second half of the year. Bernstein noted the Beer industry (STZ, BUD, TAP, SAM) endures another difficult month as retail sales continue to decline YoY (-0.7%). US Beer/FMB/Cider volumes declined -2.5% in the 4wk trailing to 15-Jun-24 in Nielsen-tracked channels. This is a tad better than the last two months, but still -2.8% YoY for 12-wks trailing Price-mix growth of +2.2% in the 4wk trailing (+2.2% on 12wk trailing) was in-line sequentially. Overall $ sales growth declined -0.7% in the 4wk (-0.3% on 12wk trailing), in-line with May.
• In Life Sciences: TXG was downgraded from Outperform to Peer Perform at Wolfe saying in a reversal of Q1 sentiment, expectations are soft into the quarter and there is (1) some anticipated continued impact on single cell from the GEM-X transition (2) cannibalization of budgets due customers prioritizing spatial projects (3) price reductions in single cell. Wolfe also upgraded QGEN from Peer Perform to Outperform, incrementally more confident in potential to outperform its peers over the next year, as mgmt. has laid out a plausible path to reach >7% organic growth and >31% OM (’24-28). Lastly, Agilent (A) was downgraded to Peer Perform at Wolfe saying the potential for meaningful upside to expectations appears limited as it believes potential drivers to revenue and EPS upside are adequately captured.

• BB +15%; after better results as Q1 non-GAAPS loss (3c) vs. consensus (4c); Q1 revs $144M vs. est. $134.05M; sees FY25 non-GAAP EPS (7c)-(3c), vs. consensus (4c) and sees FY25 revenue $586M-$616M, consensus $600.97M.
• CRM +2%; early strength in software stocks (ADBE, ORCL, CRWD, ZS) playing catch up vs. semis.
• FUL +2%; shares jumped on results/guidance as Q2 adj EPS $1.12 vs. est. $1.03; Q2 revs $917M vs. est. $911.9M; Q2 adj gross margin 31.1% and updates FY adj EBITDA guidance to upper end of previously provided range.
• HUT +9%; on crypto strength and news earlier to join the Russell 3000 Index.
• JEF +7%; Q2 EPS $0.64 vs. est. $0.63 as profit jumped nearly twelve-fold as it earned higher fees from advising on deals as well as underwriting stock and bond sales.
• MKC +5%; posted better-than-expected earnings for Q2 and backed its outlook for the year as it anticipates volume improvement in the second half of the year.
• VRNA +4%; said the FDA approved its inhaled therapy Ohtuvayre as maintenance treatment for a chronic lung disease; it is the company’s first and provides a new inhaled non-steroidal treatment for chronic obstructive pulmonary disease.

• CTRI 17%; shares tumbled, downgraded to Underperform at Bank America after CEO unexpectedly steps down to become CEO at AEP.
• ELAN -5%; after provided an update last night on its innovation pipeline saying it expects a safety related ‘boxed warning’ (CRL) in the U.S. label for its experimental drug, Zenrelia, for itching and inflammation in dogs; while said final U.S. FDA approval is on track for late in Q3 of 2024.
• HIMS -11%; shares tumbled after Hunterbrook Capital said it was short HIMS, saying Hims & Hers sells knockoff GLP-1 weight loss drugs through a loophole that could end at any time – and relies on a sole GLP-1 supplier with previously unreported ties to fraud and bankruptcy. https://tinyurl.com/27xccj7p
• IP -11%; shares tumbled after the world’s largest pulp manufacturer, Brazil’s Suzano scrapped a deal to acquire the co that could be worth almost $15 billion. Suzano CFO said the group won’t pursue the acquisition and has reached the maximum price for the deal to generate value for Suzano, without disclosing financial details.
• LEVI -17%; delivered $0.06 EPS upside on light revenue as strength in the Americas, DTC, and gross margin offset a shortfall in international and wholesale. The FY revenue direction was tempered by 1% due to FX, and FY EPS guide didn’t flow-through FY2Q upside.
• MU -4%; posted a quarterly beat but failed to raise guidance for the year, disappointing Wall Street; Q3 adj EPS $0.62 vs. est. $0.50 and revs beat at $6.81B, +82% y/y vs. est. $6.67B; Q3 adj operating income $941M vs. loss $1.47B y/y while expenses rose 13% y/y to $976M; guides Q4 adj. EPS $1.00-$1.16 vs $1.05 est. and revs $7.4-$7.8B vs est. $7.6B.
• RXRX -17%; as 30.8M share Spot Secondary priced at $6.50.
• SM -9%; along with NOG after the two US oil producers agreed to acquire assets in Utah’s Uinta Basin for about $2.6B.
• WBA -23%; lowers FY adj EPS to $2.80-$2.95 from prior view $3.20-$3.35 after Q3 EPS results missed; said will close certain underperforming U.S. stores as part of its strategic review and simplify its healthcare portfolio in the country; said repositioning U.S. retail store footprint, acting across about 25% of network over 3 years. (CVS shares fell as well).