Mid-Morning Look

Wednesday, May 22, 2024

U.S. stocks are flat, moving sideways most of the morning so far, a day after the S&P 500 and Nasdaq each closed at fresh record highs, while the Dow remains below the 40K level after topping it for the first time ever last week. Markets for the last 3-days remain in “waiting game” with the biggest earnings report, maybe of the quarter, due after the bell in NVDA. The “AI” hype has been massive over the last 6-9 months, as NVDA has remained the face/key player of the industry, so every word tonight about results, outlook/orders will be closely watched for read through to others. Just how big is NVDA? @KobeissiLetter tweeted yesterday Nvidia $NVDA, earnings alone drove 42% and 37% of the S&P 500 year-over-year EPS growth in Q3 and Q4 2023. The company also accounted for 11% of the entire S&P 500’s return over the last 12 months. In Q1 2024, Nvidia’s contribution to the S&P 500’s EPS growth is estimated to reach ~40%. Nvidia’s Q1 2024 EPS and revenue are projected to grow by 474% and 241%, respectively." The CBOE Volatility Index (VIX) ended Tuesday at 11.86, its lowest close since November 2019 and is little changed this morning. Commodity prices, after hitting recent record highs for gold, copper and 2-year highs for aluminum, seeing some profit taking this morning. Lone piece of economic data showed weaker Existing Home Sales data. Dollar index (DXY) higher, Bitcoin around $70K and Treasury yields stuck in 4 bps range all week (last 4.43%). Note the S&P 500 (SPX) ended the day at a new all-time high, its 24th of the year. Over the last 12 years, the SPX has hit 371 all-time highs, which is more than any 12-year period in history (as per Charlie Bilello).

• In Industrials: GNRC was downgraded to Perform from Outperform at Oppenheimer without a price target, saying recent strength in the shares now reflects a more reasonable anticipation of business model development prospects. Oppenheimer upgraded AME to Outperform from Perform with a $200 price target which reflects "strong runway" on the Paragon integration and additional acquisition capacity, sturdy end-market mix, and robust operations. MIDD was downgraded to Underweight at JP Morgan predicated on its expectation that MIDD’s consensus numbers are unachievable as it is modeling FY24 and FY25 EBITDA 5% and 12% below consensus, respectively.
• In Lending: The Biden administration says it’s canceling another $7.7 billion in student loans for 160,000 borrowers. That brings the total student debt relief it has approved to $167 billion. In Buy No, Pay Later (BNPL), the U.S. Consumer Financial Protection Bureau (CFPB) will apply some credit card consumer protection rules to buy now, pay later (BNPL) lenders, the agency said. BNPL providers include AFRM, Klarna and Afterpay. Under an interpretive rule issued by the CFPB on Wednesday, BNPL lenders will be required to investigate customer disputes, refund products that have been returned, and provide periodic billing statements.
• In E-Commerce/Online Retail: SHOP was upgraded to Buy from Neutral at Goldman Sachs and raise tgt to $74 from $67 noting shares are down 23% YTD due to an investment cycle weighing on margin expansion in 2024 and more mixed consumer spending data point; VIPS shares slip as CEO said in Q1 saw slow business momentum due to softer-than-expected seasonal demand, and forecast Q2 revenue in the range of RMB26.5 bln-RMB27.9 bln, below analysts’ average estimate of RMB29.3B (after Q1 revs missed consensus views). PDD shares jumped after the Chinese e-commerce platform Q1 revs of RMB86.81B ($11.99B), topped consensus of RMB75.66B, powered by strong adoption of Temu, and more price-conscious customers on its Chinese discount e-commerce site Pinduoduo.

• BZFD +55%; shares jumped after Vivek Ramaswamy disclosed a 7.7% stake in the digital media company, according to a securities filing.
• DY +5%; on earnings as Q1 EPS $2.12 vs. est. $1.51; Q1 revs $1.14B vs. est. $1.09B; says for Q2, expects organic contract revenues to grow by high-single digits as a percentage of contract revenues y/y.
• RXLT +31%; after saying its study of a potential eye-disease treatment met its primary endpoints; said that RZ402, a potential Diabetic Macular Edema treatment, had met its primary endpoints of change in macular edema and a good safety profile in the Phase 2 proof-of-concept study.
• SHOP +2%; was upgraded to Buy from Neutral at Goldman Sachs and raise tgt to $74 noting shares are down 23% YTD due to an investment cycle weighing on margin expansion in 2024 and more mixed consumer spending data point.
• WOOF +16%; reported better-than-expected 1Q results and gave a forecast for 2Q net revs slightly ahead of estimates.
• WSM +10%; after Q1 adj EPS $3.48 topped consensus of $2.70 on better adjusted operating margin 19.5% vs. 12.9% y/y, estimate 13.7% and boosted its annual operating margin forecast to 17%-17.4% from prior view 16.5%-16.8% on the back of better merchandise margins, lower supply chain costs and robust demand for brands.

• CAE -9%; shares tumbled after prelim Q4 revenue C$1.26B was below consensus C$1.29B and said it is re-baselining its defense business which included mgmt changes (was downgraded to Hold at Canaccord).
• LFST -19%; as 20M share Spot Secondary priced at $6.25.
• LULU -7%; fresh 52-week lows after announcing multiple adjustments to its product team, most importantly the departure of Chief Product Officer Sun Choe.
• MOD -8%; after mixed Q4 results (EPS beat, revs miss) and guides FY net sales +5-10% vs est. +7.32%, adj EBITDA $365-385Mm vs est. $355.18Mm and adj EPS $3.55-3.85 vs est. $3.81.
• PLAB -12%; shares slumped on results and guidance as revs fell -5% to $217M saying results were impacted by “business headwinds primarily related to temporary soft demand following the Chinese New Year holiday and the impact from earthquakes in Taiwan.”
• TGT -7%; Q1 sales fell -3.1% y/y to $24.14B vs. est. $24.13B and EPS $2.03 vs. est. $2.05; sees Q2 adj eps $1.95-$2.35 vs. est. $2.19 and still sees FY adj eps $8.60-$9.60 vs. est. $9.44; said Q1 comp sales fell 3.7% in three months ended May 4, the fourth straight quarter of declines.
• VSAT -13%; as Q4 revenue (+5% y/y) and EBITDA came in above consensus, driven again by strong gov’t sales, but its FY25 guidance calls for flat y/y pro-forma revenue and 3-6% y/y EBITDA growth, below consensus and impacted by increasing competitive pressure.