Mid-Morning Look

Friday, May 17, 2024

U.S. stocks doing a whole lot of nothing to close out the week, trading in a narrow range and little changed from yesterday close as the S&P 500 (SPX) battles the 5,300 after topping it yesterday for the first time. The Dow, after topping 40K for the first time on Thursday, held below 39,900 after a late day fade Thursday pushed prices down. Still, the S&P 500 and Nasdaq are both tracking for a 4^th positive week in a row. Major US averages tracking for 6^th positive month in last 7 (fell in April) and best overall month returns since November (S&P +5% MTD, Nasdaq +6.6%, Dow +5.5% and Russell 2000 +6.5% MTD). It has been a broad-based rally with new leaders including Utilities, Energy and Financials after Communications and Technology paced gains in 2023. News this morning was very sparse, no major economic data and only a few Fed speakers on tap. Asian markets rallied overnight after China announced a raft of measures spanning from allowing local governments to buy "some" apartments, relaxing mortgage rules, to pledging to deliver unfinished homes. European markets remain very strong and global stock market optimism continues to grow with little to no fear (VIX index 5-month lows at 12.29). Fear and Greed Index: 64/100 = Greed, Crypto Fear and Greed Index 74/100 = Greed and Gold Fear and Greed Index: 76/100 = Greed as precious metals jump.   

• In E&C Sector: UBS raised its price targets for PWR ($313 from $270), MTZ ($129 from $110), and DY ($175 from $150), and reiterate its Buy ratings given recent market developments in renewables, grid, and telecom investment. For grid investment, the federal gov’t has acted to speed/reform transmission permitting and planning. In telecom, BEAD spending in 2025 is coming into focus, and private fiber development continues to grow. Data center momentum is adding incremental demand for both electric power and fiber lines.
• In Airlines: Wolfe Research upgraded UAL from Peer Perform to Outperform w/ $76 PT saying while shares have already outperformed YTD, they see more to go for the stock given strong fundamentals for legacy airlines and its expectation for improving domestic main cabin trends in 2H. Wolfe also upgraded ALK from Peer Perform to Outperform w/ $55 PT saying while they prefer fundamentals for the legacy airlines right now, ALK is facing several emerging tailwinds on the West Coast with an accelerating corporate recovery, improving competitive capacity and lower regional jet fuel prices.

• DD +2%; was upgraded to Buy at Jefferies with $101 tgt as expect DD’s end markets to start to exit trough conditions in 2H24, with upturns in demand and a tailwind from inventory restocking likely driving volume gains ’25.
• DESP +18%; posted Q1 gross bookings/net revenue coming in 0.4%/1.9% ahead of ests as top-line outperformance and expense discipline led to a meaningful beat on adj EBITDA/net income, on record adj EBITDA margin of 22.4%; reiterated FY revenue guidance of "at least $820m," and raised its adj EBITDA guidance to at least $155m (up from at least $150m).
• DOCS +18%; as Q4 revenue rises 6% to $118.1M above consensus $116.4M on better earnings; 1Q guidance was favorable, while the annual revenue range of 6.4%-9.0% was below consensus of 9.4%, though adj-EBITDA range bracketed consensus.
• HOOD +8%; upgraded from Underperform to Buy at Bank America and raise tgt to $24 from $14 saying they have monitored a rebound in multiple metrics, including organic growth, margin loan utilization, and year over year trading activity and payment for order flow, and expects this to continue through 2026.
• NEM +1%; Gold and Silver miners rise amid another pop in precious metal prices on improved interest rate cut expectations after eco data this week; shares of NEM, GOLD, AEM, GFI, PAAS, WPM, CDE among movers.
• RDDT +15%; after announced a deal to license its data to OpenAI, as well as to incorporate Reddit content into ChatGPT chatbot and other products.

• DLTR -2%; along with weakness in DG, partially giving up gains post WMT related earnings.
• DXC -18%; shares tumbled as Q1 was above guidance, except for FCF, while FY25 guidance was weaker than expected across the board and notably in FCF; sees FY revs $12.67-12.95B vs est. $13.191B, and adj EPS $2.50-3.00 vs est. $3.49; announced restructuring that will cost an additional $250 million in fiscal 2025.
• GLOB -5%; reported strong 1/CY24 results, while adjusting CY24 guidance (from at least 16% YOY C/C revenue growth to a range of 14.7%-16.4%) on continued macro-related spending uncertainty.
• GME -22%; files to sell 45M shares of Class A common stock; after guided Q1 sales to $872M-$892M below the $1.237B a year ago though narrows Q1 net loss to range from $27M-$37M from $50.5M loss y/y; said expects selling, general and administrative costs to range from $290M-$300M, down from $345.7M y/y.