Mid-Morning Look

Wednesday, May 29, 2024

U.S. stocks giving back some recent gains, as the Nasdaq Composite drops back below 17,000 after closing above for the first time ever Tuesday and the Philadelphia semi-index (SOX) also pullback on profit taking off record highs. A combination of profit taking, higher Treasury yields, and some concern after Fed comments yesterday (ahead of Beige Book today) is causing the early market weakness. Benchmark 10-year U.S. Treasury yields hit four-week highs above 4.6%, (though two-year yields declined) after consumer confidence unexpectedly improved in May and the Treasury Department saw soft demand for auctions of two-year and five-year notes, ahead of its $44B 7-year auction later today. Minneapolis Federal Reserve Bank President Neel Kashkari also said yesterday the U.S. central bank could potentially hike interest rates if inflation fails to come down further. Transport stocks slid following a lower guide from airline AAL, sending shares down -14%, while retailers get strong results from ANF in apparel, CHWY in online retail, and DKS in sporting goods. Gold prices, Bitcoin, oil all seeing modest weakness as the dollar index edges higher. No major economic data until tomorrow with GDP then the PCE and core PCE figures for May on Friday. Stocks are already paring losses with the Nasdaq bouncing 100-points off lows, though the Dow Jones Industrials down nearly 1% or 300 points, and off 1,500 points from recent record closing highs above 40,000.

• In Crypto: BITF responds to unsolicited proposal from RIOT saying they are committed to maximizing value for all shareholders; strategic alternatives process underway and reaffirms confidence in business and guidance of 21 EH/s and 21 w/TH in 2024 (yesterday RIOT offered to buy BITF for $2.30). Canaccord raised its price tgt on MSTR to $2,047 from $1,590 saying MSTR remains one of the best ways most equity investors can get exposure to Bitcoin and main drivers of new PT are continued appreciation of BTC and some revaluation up for the software business. BLK’s iShares Bitcoin Trust (IBIT) has become the world’s largest fund for the original cryptocurrency, racking up nearly $20 billion in total assets since listing in the U.S. at the start of the year, Bloomberg News reported overtaking Grayscale Bitcoin Trust’s (GBTC) $19.65B, report said, citing data compiled by Bloomberg.
• In Metals & Mining: Anglo American (NGLOY) rejected BHP’s last-ditch request for more time to discuss a $49 billion takeover offer, dismissing it as highly complex and likely ending a five-week pursuit by the bigger rival. Anglo had granted BHP a one-week extension to its original May 22 deadline to submit a binding offer. EGO was upgraded to OP from Sector Perform at RBC Capital and raised tgt to $20 from $14 saying production, margins, FCF coming. TFPM downgraded to Sector Perform from Outperform at RBC Capital but raised tgt to $19 from $15. In copper sector, RBC Capital noted after starting the year stuck in a range around $3.75/lb., the dam finally burst in mid-March when Chinese smelters acknowledged they did not have enough concentrate and announced plans to reduce, sending copper up 22% to $4.65/lb. and recently made new all-time highs over $5.00/lb. on the Comex exchange.

• BOX +8%; shares rose on qtr beat as Q1 adj EPS $0.39 vs est. $0.36 on revs $264.7Mm vs est. $262.04Mm, adj op mgn 26.6%; sees Q2 revs $268-270Mm vs est. $270.77Mm, but year revs little light as sees FY revs $1.075-1.08B vs est. $1.083B, adj op mgn approx 27%, adj EPS $1.54-1.58 vs est. $1.58.
• CHWY +26%; shares jumped on results and authorized a share buyback program of up to $500M stock; Q1 adj EPS $0,31 topped the $0.16 estimate and vs. 0.20 y/y while saying during the quarter, Chewy says its Autoship customer sales increased by 6.4% from last year to $2.23B.
• DKS +15%; rises on results and better guidance as Q1 $3.30/$3.02B tops ests $2.93/$2.94B on better comps 5.3% vs. 2.5% est., gross margins 36.3% vs. est. 35.8% and raises FY24 comp sales guidance to a range of 2.0% to 3.0%, up from 1.0% to 2.0% previously and boosted EPS view to $13.35-$13.75, from $12.85-$13.25 previously.
• HOOD +2%; announces $1B share repurchase program; currently expects to execute program over a two-to-three-year period starting in Q3 2024.
• MRO +8%; as COP agreed to acquire MRO in an all-stock transaction with an enterprise value of $22.5 billion, inclusive of $5.4 billion of net debt. Under the terms of the agreement, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips, representing a 14.7% premium to yesterday’s closing price.
• NABL +8%; after Reuters reported the software is exploring a sale after attracting acquisition interest, noting one of its suitors is cybersecurity company Barracuda Networks, which is owned by KKR.
• OOMA +16%; after results and guidance, to best levels since early March.
• PLMR +4%; raised FY24 adjusted net income view to $122M-128M as announced the successful completion of certain reinsurance programs incepting June 1.
• SRDX +20%; announced this morning it is going to be acquired by private equity firm GTCR for $43 per share, for a total equity value of $627M. The transaction is expected to close in 2H24.

• AAP -5%; shares slide on results/guidance as Q1 EPS $0.67 vs. est. $0.68; Q1 revs $3.4B vs. consensus $3.43B; Q1 comparable store sales for the fourth quarter 2023 decreased (-0.2%); backs FY24 EPS and comp store sales view, while raised upper end of its FY rev outlook (co said saw negative impact from weather, challenged consumer).
• APPS -16%; shares dropped after Q4 revs missed ($112.2M vs. $117.7M) as U.S device headwinds persisted & drove 4FQ miss said Bank America, flat device run rate vs March Q likely assumed in FY25 guide.
• BHVN -20%; shares fell after saying that a new type of experimental medicine reduced levels of a disease-causing immune molecule by up to 37% in an early-stage study of human volunteers — a result that the company called “positive” as a proof of concept but that also fell short of investor expectations. shares of ARGX and IMVT both rallied on the news as they both have competing products).
• CAVA -7%; posted results that beat better-than-expected 1Q same-store sales growth of 2.3% and boosted its outlook for FY comps to +4.5-6.5% vs prior +3.0-5.0%, restaurant level margin 23.7-24.3% vs prior 22.7-23.3%, but some analysts noted the high expectations for comp sales results.
• OZK -12%; double downgraded to Sell from Buy at Citigroup and cut tgt to $37 from $57 saying they have newfound, but substantial concerns with what it believes to be OZK’s largest individual loan (totaling $915M), a multi-use project in Atlanta (“Echo Street West”; $135M Loan), and Life Science construction lending in general.