Mid-Morning Look

Wednesday, May 01, 2024

U.S. stocks are mixed as investors await the Federal Reserve’s interest rate decision and Fed Chairman Jerome Powell’s comments at 2:00 PM, 2:30 PM respectively. NYSE breadth shows advancers leading decliners by 1.2:1 margin early as communications, materials, utilities, and financials lead – though note big tech AMZN (on earnings), AAPL, GOOGL, MSFT, META all "green" helping. Semiconductors dropping (SOX -2.8%) after results/guidance from AMD, SWKS, SMCI putting a hurting on the group early. Consumer products were weak, led by SBUX, EL, and CLX tumbling on results and lower guidance. Healthcare services slammed behind CVS miss/lower guide, while PFE rises on earnings. A very mixed picture of economic data this morning ahead of the FOMC policy meeting as ADP private payrolls were higher, but JOLTs weaker, ISM Manufacturing weaker, while its prices paid component (inflation data) was notably higher. Early Wednesday, the 10-year Treasury yield ticked lower to 4.63% from 4.69% while oil prices hit the lowest level in over a month. U.S. futures pared overnight losses earlier after the U.S. Treasury announced quarterly refunding of $125B, to raise new cash of $15.9B (in-line with expectations) and said does not expect to increase nominal coupon, or floating rate-note auction sizes for next several quarters. The headlines helped offset another upbeat job report as ADP private payrolls for April topped expectations while March results were upwardly revised. The Federal Reserve’s two-day meeting concludes later with an interest rate decision at 2 p.m. ET. Heading into the two biggest volume earnings nights of the quarter, over 300 S&P companies have so far reported. All eyes on Fed at 2:00.

• S&P Global April final manufacturing PMI at 50.0 (vs flash 49.9).
• U.S. JOLTS job openings reported at 8.488M in March vs. Feb 8.813M and ests. 8.68M.
• ISM U.S. manufacturing activity index 49.2 in April below consensus 50.0 and below 50.3 in March; however, the inflation portion, prices paid index rises to 60.9 in April vs. consensus 55.0 and 55.8 in March; new orders index 49.1 in April vs 51.4 in March and employment index 48.6 in April vs 47.4 in March.
• March construction spending fell -0.2% below consensus +0.3% and vs. Feb unchanged (prev -0.3%); March private construction spending -0.5%, public spending +0.8%.

• In MedTech: SYK reported organic net sales growth of 10% y/y despite a tough comp of 13.6% and the quarter having one less selling day; Q1 results, delivering a +3% sales and +6% EPS surprise led by strength in both MedSurg and Orthopedic. TMDX Q1 results comfortably cleared Street targets, with revenue improving 19% from 4Q and raised 2024 revenue guidance to $390-400M from $360-370M, taking projected growth to 61-66% from 49-53%. CVRX shares tumbled, downgraded at JP Morgan, William Blair after disappointing Q1 results and lowered 2024 guidance. IDXX shares tumbled after lowering its 2024 profit and revenue outlook after Q1 rev miss. CDNA upgraded at Craig Hallum lifts shares.
• In Food Sector: MDLZ reported a 1Q EPS beat with in-line organic revenue growth of +4.2% while mgmt.-maintained guidance for the year but acknowledged turbulence from heightened promo in U.S. biscuits, ERP conversion in Mexico, continued volume pressure in 2Q. KHC missed Q1 sales expectations at $6.41B vs. $6.43B estimate as inflation-hit consumers trims on higher prices of its premium lunch combos; reported in-line Q1 EPS but noted a volume drop in its North America segment by -3.7% from prior year drop of -6.5%, but sees volumes turning positive in 2H24.
• In Utilities: EIX reported results relatively in line with estimates, while maintaining 2024 guidance that was below consensus; interest expenses are expected to be a near-term headwind. Longer term, EIX maintained its 2025 outlook of $5.50-$5.90. PEG reported 1Q results ahead of our estimates and in line with consensus EPS, while maintaining 2024 guidance and the 5-7% long-term EPS growth rate. PCG confirmed WSJ report late yesterday that they are nearing a deal to sell a multibillion-dollar stake in its fleet of power plants to investment giant KKR.

• CCJ +4%; uranium stocks CCJ, URA, UUUU, NXE, UEC rise early after Bloomberg reported overnight the Senate passes Russian Uranium Import Ban, Sending to Biden. White House has called for a long-term ban on Russian imports; the bill allows for import waivers until 2028; retaliation feared – https://tinyurl.com/3bsx5p89
• DD +8%; after Q1 adj EPS $0.79 vs. est. $0.65; Q1 revs $2.93B vs. est. $2.81B; guides Q2 EPS and revs above views ($0.84/$3.03B vs. est. $0.65/$2.81B) and raises FY24 adjusted EPS view to $3.45-$3.75 from $3.25-$3.65 and boosts FY24 revenue view to $12.1B-$12.4B from $11.9B-$12.3B.
• DOCN +7%; after replacing AGTI in the S&P SmallCap 600 effective prior to the opening of trading on Tuesday, May 7.
• NYCB +22%; after charge-offs and provisions for potential loan losses declined in Q1 from the previous three months, helping ease commercial-property concerns.
• PFE +2%; forecasts FY adj EPS $2.15 to $2.35, above prior view $2.05 to $2.25 banking on cost cuts and better-than-expected demand for its COVID antiviral treatment and vaccine; still sees FY revs $58.5B-$61.5B.
• PINS +15%; after Q1 revenue and EBITDA upside vs Q1 and the Q2 guide; MAUs (Q1 global Monthly Active Users (MAUs) increased 12% y/y to 518M vs. est. 503.2M users) and guided Q2 revenue $835M-$850M above consensus $826.48M.
• TMDX +28%; Q1 results comfortably cleared Street targets, with revenue improving 19% from 4Q and raised 2024 revenue guidance to $390-400M from $360-370M, taking projected growth to 61-66% from 49-53%.

• CVRX -31%; downgraded at JP Morgan, William Blair after disappointing Q1 results and lowered 2024 guidance.
• CVS -12%; as forecasts FY adj EPS at least $7, forecast at least $8.30, vs. est. $8.29 as elevated demand for non-urgent procedures increased medical costs at its health insurance business; reported Q1 adj EPS $1.31 vs. est. $1.69 as comp sales +5.3% vs. +11.6% y/y and vs. est. +3.95%.
• EL -8%; forecasts FY organic net sales -1% to -2%, below prior +6% to +8% and guided Q4 adj EPS $0.19-$0.29 vs. est. $0.77 saying annual organic sales can slip more than previously expected due to continued softness in mainland China’s prestige beauty space (sees FY sales to fall 1%-2% vs prior view 1% drop to 1% rise).
• EXEL -10%; shares slip as Cabozantinib missed consensus sales ($379M vs. $414M) due to Q1 dynamics (net price decrease), but Exelixis reaffirms the guidance.
• HI -12%; shares drop after Q2 revs $785.3M vs. est. $810.69M; cuts FY24 adj EPS view to $3.30-$3.50 from $3.60-$3.95 (est. $3.70) and lowers FY24 revenue view to $3.23B-$3.3B from $3.28B-$3.44B (est. $3.33B) citing reduced volumes stemming from lower-than-expected orders.
• LEG -30%; shares tumbled as posted Q1 top and bottom-line miss (revs fell -10% y/y), while reiterated its projections for 2024 adj EPS $1.05-$1.35 on sales between $4.35B-$4.65B.
• NCLH -11%; Q1 revs grew 20.2% to $2.19B but below the consensus of $2.23B; noted passenger ticket revenue rose 20.8% to $1.46B versus expectations of $1.51B.
• SBUX -15%; Q2 results significantly missed expectations with -4% comp sales, with both international (-6%) and North America (-3%) showing consumer pullback, and traffic contracting in the US (-7%).
• SMCI -15%; mixed results as posted a slight miss vs consensus for Q3 revs of $3.85B vs. est. $3.95B while posted guide up for Q4 top line and a solid beat/raise on EPS driven by tax benefit and relatively strong gross margin in FQ324; gross margins were guided down in Q4 (2ppts y/y and flat q/q); raises FY24 rev view to $14.7B-$15.1BB, from prior $14.3B-$14.7B.
• SQ -9%; after NBC News reported Federal prosecutors are examining financial transactions at Block, owner of Cash App and Square noting internal documents indicate Block processed crypto transactions for terrorist groups and Square processed transactions involving nations subject to economic sanctions.
• SWKS -14%; reported an in-line MarQ and guided JunQ to $900M (below est. $1.02B), down 14% q/q, with Handsets down 20%+ q/q and Broad Markets (BM) up modestly q/q; posted softer than seasonal trends into JunQ with Mobile inventory correction; TD Cowen noted a major headwind into F2025 is a now expected ~10% content loss at Apple (iPhone 16).