Mid-Morning Look

Tuesday, May 28, 2024

U.S. stocks open mixed as the tech heavy Nasdaq extends last Friday/week gains, topping 17,000 early behind strength in semiconductor stocks (SOX new record highs), while the S&P 500 index is flattish (SPX holding just above 5,300), and the Dow slips below 39K after topping 40K for the first time ever 2-weeks ago. The Philly semi-index (SOX) rises 1% making new all-time highs above 5,280 (above prior 5,255 on 5/23) led by usual suspects with NVDA, AMD, ARM among leaders and chip equipment names. Precious metal prices jump early with silver rising 5% and gold up over 1% and energy complex also strong as oil prices jump over 2% in rebound for commodities. Few economic data points this morning with better confidence data and housing, but focus remains on inflation data with the PCE figures later this Friday (GDP data on Thursday as well). Several Fed speakers out today/this week as Fed’s Kashkari keeps window open on possibility of further rate hikes if needed. Also, a handful of key earnings results in the retail (ANF, COST, BBY, GPS)/software sector this week. Volumes and volatility little light as investors return from 3-day Holiday weekend. Bitcoin prices fall to start the week, -2.5% below $68,000 while the dollar is down slightly.

• U.S. home prices +0.1% in March from February and U.S. home prices +6.7% in 12 months through March.
• U.S. S&P CoreLogic 20-City home price index climbed 1.6% to 325.1 in March, stronger than forecast, after rising 0.9% to 320.1 (was 320.0) in February. This is a new record high, eclipsing that set in February. The 12-month pace accelerated to 7.4% y/y from 7.3% (was 7.3%) y/y. The 10-City composite index rose 1.7% to 341.8 in March after the 1.0% increase to 336.2 (was 336.0) previously.

• In Crypto sector: RIOT announced that it has made a proposal to BITF to acquire the Bitcoin miner at a price of $2.30 per common share and announced that it has accumulated a 9.25% stake to become its largest shareholder. Bitcoin prices were weak early after reports that failed exchange Mt. Gox began a long-awaited transfer of more than $9 billion in the digital asset to creditors. More than 140,000 bitcoin was transferred from Mt. Gox-linked wallets to a new wallet as of early Tuesday, according to Arkham, a research and analytics firm.
• Casinos/Gaming: in online betting, shares of DKNG and FLUT declined after Illinois senators approved a 2025 budget that includes raising the state’s sports betting tax and implementing a progressive tax rate for operators based on revenue. BTIG noted under the new five tier schedule, BTIG expects DraftKings and Flutter will now pay ~36/37% tax rates on gross gaming revenue next year vs 15% this year. In Casinos, JMP Securities said the Mirage and Tropicana closing three months apart provides Las Vegas Strip operators, mainly MGM and CZR, generating 62% and 49% of property-level EBITDAR (2023) from the region, respectively, the opportunity to operate in a tighter hotel market and generate incremental earnings for the bottom line.
• In Apparel/Department Retail: GPS reiterated Sell at UBS with $9 tgt saying checks suggest markdowns have been much heavier than expected in Q1 and the firm anticipates it will cause a Q1 EPS miss while noting the market is expecting a beat on sales but is missing impact of heavier discounts on margins. In Footwear, ONON was upgraded to Buy from Hold at Truist and raised tgt to $46 from $34 saying company trends have remained robust despite some broader discretionary pressure and upgraded DECK to Buy from Hold and raise tgt to $1,200 from $1,011, saying its best-in-class momentum & ample growth oppty drive more LT upside potential.

• AGIO +22%; after agreeing to sell its rights to its 15% royalty on potential US net sales of Servier’s vorasidenib to Royalty Pharma for $905M in upfront cash contingent on U.S. FDA approval of vorasidenib.
• ARCT +18%; after an inhaled, mRNA-based drug from the company improved lung function in patients with cystic fibrosis, according to a preliminary result from a Phase 1 study.
• BITF +7%; after RIOT announced that it has made a proposal to the Bitfarms Board to acquire the Bitcoin miner at a price of $2.30 per common share and announced that it has accumulated a 9.25% stake to become its largest shareholder.
• CORT +12%; after saying that that GRACE, the Phase 3 trial of its proprietary selective cortisol modulator relacorilant in patients with hypercortisolism (Cushing’s syndrome), met its primary endpoint.
• DUOL +7%; upgraded to OP from MP at JMP Securities with $260 target as believes a broader rollout of Max, optimization of subscription tiers and Family Plan, and the launch of a conversational experience are material catalysts.
• INSM +106%; shares surged after their experimental drug successfully reduced lung problems among patients with an airway disease in a closely watched Phase 3 trial; said phase 3 study achieves primary endpoint for both dosage strengths of brensocatib; said brensocatib well-tolerated at both dosage strengths.

• AY -5%; to be acquired by Bidco, a firm controlled by Energy Capital Partners, in an all-cash transaction of $2.56B, says Bidco will acquire 100% shares of AY for $22 per share in cash, a 6.2% discount to last close.
• DKNG -9%, FLUT -6%; shares of online gaming names declined after Illinois senators approved a 2025 budget that includes raising the state’s sports betting tax and implementing a progressive tax rate for operators based on revenue. BTIG noted under the new five tier schedule, BTIG expects DraftKings and Flutter will now pay ~36/37% tax rates on gross gaming revenue next year vs 15% this year.
• MRNA -7%; on track to snap 10-day winning streak, off 52-week highs.
• SE -6%; shares dropped after Indonesia’s antitrust agency accused e-commerce platform Shopee’s local unit of violating anti-competition rules by directing customers to use certain delivery services.
• TSLA -3%; after Glass Lewis this weekend recommended that shareholders reject a proposal to reinstate CEO Elon Musk’s pay package worth some $56 billion when it was awarded in 2018.
• ZS -4%; downgraded from Buy to Neutral at Rosenblatt with $190 tgt ahead of earnings this week and believes current FY25 consensus billings and revenue estimates May be too high and have adjusted its projections accordingly.