Mid-Morning Look

Thursday, March 14, 2024

U.S. stocks slipped on the open, erasing overnight gains as a few factors played against bullish market sentiment this morning, with the S&P 500 just a day removed from its latest all-time high closing: 1) oil prices hitting 4-month highs topping $80 an ounce (inflationary), 2) Treasury yields back on the move higher with the 10-yr yield hitting 4.27% this morning; 3) inflation data points not helping case for more aggressive rate cuts by the Fed this year with hotter PPI this morning – CPI/PPI both hot reports this week after same in January – hurting Fed rate cut narrative (recall coming into 2024 following December Fed “pivot” expectations were for 6-7 cuts – now we closer to three cut view); 4) riskier assets, volatile names seeing sharp reversals off overnight highs (Bitcoin back to $72K after hitting 73K earlier. Market resilience has been astounding to say the least, ignoring stronger inflation readings, holding in camp for aggressive cuts, along with momentum buying in growth sectors such as AI (NVDA, ARM) and speculative buying with Bitcoin rip this year. Early strength in energy stocks as oil tops $80 per barrel but most other sectors in the “red” heading into quadruple witching option expiration tomorrow Friday 3/15. Despite the early pullback and weaker breadth, markets have since rebounded and back into positive territory as every dip for months continues to be bought – though Smallcaps remain pressured.

• Retail Sales for February rose +0.6%, less than the consensus +0.8% and vs January downwardly revised -1.1% (vs. previous -0.8%); Retail Sales Ex-autos +0.3% below consensus +0.5%) and vs January -0.8%; Feb gasoline sales +0.9% vs Jan -1.4%, cars/parts sales +1.6% vs Jan -2.1%.
• Weekly Jobless Claims fell to 209K vs. est. 218K and 210K prior (revised down from 217K0; as the 4-week moving average fell to 208,000 from 208,500 prior; continued claims climbed to 1.811M from 1.794M the prior week.
• January Business Inventories unchanged (vs. consensus +0.2%) and vs Dec +0.3% (prev +0.4%); U.S. Jan business sales -1.3% vs Dec unchanged (prev +0.4%); U.S. Jan retail inventories ex-autos unrevised at +0.3% (prev +0.3%).

• In Food & Beverage: UTZ was upgraded to Buy from Neutral with higher $22 tgt saying mgmt meetings increased confidence in Utz’s roadmap to achieving its long-term sales algorithm, which could drive upside to both earnings/multiple. MO is seeking to sell a portion of its stake in BUD for as much as $2.2 billion to help fund its own share repurchases. Altria, which sells Marlboro cigarettes in the US, owns about 10% of the beermaker – BUD 35M share Spot Secondary priced at $61.50. Online grocery delivery CART was upgraded to Outperform and $43 tgt at Bernstein, walking away from the Q4 print with a more favorable view of the stock as we see room for Gross Transaction Value growth to exceed consensus expectations.
• In Banks: Goldman Sachs upgraded Citigroup (C) to Buy from Neutral with a $68 price target saying they see a "realistic path" to a 9.5% return on average tangible common equity in fiscal 2026, above consensus expectations. This will be driven by sales growth of 4% annually, execution of Citi’s announced reorganization strategy in the near-term, and exits from the remaining non-core international consumer franchise freeing up capital. Daiwa upgraded GS to Outperform, recommended Citi (C) for reforms and JPM for earnings as earnings solid for major banks; prospects for NII overshoots, investment banking market recovering; credit costs rising but peak likely soon.

• HEAR +28%; reported Q4 results and said it would buy PDP at an enterprise value of $118 million.
• HOOD +7%; after Bernstein initiated at Outperform and $30 tgt as sees a monster of a crypto cycle over 2024-25 and expects crypto market cap to reach $7.5Tn vs $2.6tn today while last night, HOOD revealed Assets Under Custody at the end of February were $118.7B, up 16% from January 2024.
• LAC +11%; after the co provided a construction plan update for its Thacker Pass lithium project located in Humboldt County, Nevada. Lithium Americas has received a conditional commitment from the U.S. Department of Energy, or DOE, for a $2.26B loan under the Advanced Technology Vehicles Manufacturing.
• MIRM +2%; said the FDA approved Livmarli to treat cholestatic pruritus, a feeling of itchiness, in patients five years of age and older with progressive familial intrahepatic cholestasis.
• MSFT +2%; as strength in mega cap tech AAPL, AMZN, MSFT helping keep markets afloat early.
• RTX +2%; upgraded to overweight from equal weight and raises PT to $120 from $100 saying segment margins likely to improve as contracts rollover and programs move from development to production.

• LEN -4%; mixed Q1 as EPS $2.57 vs. est. $2.20; Q1 revs $7.3B vs. est. $7.39B; Q1 new orders increased 28% to 18,176 homes; average sales price per home delivered was $413,000, down 8% y/y.
• MOMO -23%; after reported a drop in paying users for both Momo and Tantan apps; said for Tantan, monthly active users fell by 26% in December 2023 from a year earlier.
• PATH -5%; reported strong Q4 results, delivering a revenue beat and continued progress in improving, while ARR came in ahead of expectations ($1.464B versus Consensus expecting $1.453B), but total customers continued to decline (shares higher overnight on results but has since reversed).
• S -15%; reported F4Q with revenue, billings, and net new ARR coming in above expectations and all the profitability metrics significantly ahead. The F1Q25 top-line outlook was generally fine, but the operating margin guide for the quarter came in below and for FY25, the revenue guide was a touch below consensus.
• SPRB -74%; reported a CAHmelia-203 topline miss, with tildacerfont failing to achieve the primary endpoint of A4 reduction from baseline to week 12; 200 mg QD tildacerfont showed an A4 reduction of -2.6% (vs. ours, and even mgmt’s, base case -40%) with no statistical significance.
• UAA -11%; shares dropped after news founder Kevin Plank will return as CEO, effective April 1 and succeed Stephanie Linnartz, who will step down as president, CEO, and member of the board.