Mid-Morning Look

Friday, May 31, 2024

U.S. stocks mixed on final day of trading in what has been a strong month of returns, with major averages higher initially (before fading) as monthly PCE inflation data was reported in-line with estimates and prior month readings, though tech stocks slip following a second straight day of softer earnings/guidance in the software/AI space weighs on sentiment. U.S. Treasury yields fall (10-yr lows sub 4.5% after Wednesday hit highs of 4.64%) after data showed U.S. inflation for April came in line with expectations, suggesting that the Fed could keep rates unchanged for some time. The personal consumption expenditures (PCE) price index rose 0.3% last month, data showed, matching the unrevised gain in March. The data also pushed the dollar lower and lifted gold prices. Chicago May PMI falls to lowest level since May 2020, reported at 35.4 vs. est. 41.1 and marks the third reading under 40 in 20 months and only 1 reading above 50 (Nov of last year) during that stretch – CNBC reported. Tech stocks slipped, led by DELL overnight on guidance/margin commentary as they invest heavily in AI, which followed lowered guidance from software giant Salesforce (CRM) the day prior. The Nasdaq is still on track for a 6% gain this month, its best monthly return since November thanks to 10.7% jump MTD in the Semiconductor index (SOX), paced by 27% advance for NVDA in May, 19% for ARM and 23% for QCOM among leaders. Monthly gains across the board but weekly advances in jeopardy as the S&P 500 and Nasdaq Composite are both on track to end five-week win streaks.

• Chicago PMI falls to lowest levels since May 2020, reported at 35.4 vs. est. 41.1 and marks the third read under 40 in 20 months and only 1 read above 50 (Nov of last year).

• In Pharma: IONS announced positive results from the Phase 3 OASIS-HAE and OASIS plus studies of Donidalorsen in patients with hereditary angioedema (HAE) demonstrating significant and sustained reduction in mean monthly HAE attack rates and continued attack rate improvement; PFE long-approved Pfizer drug Lorbrena showed the daily pill decreased disease progression in non-small cell lung cancer by 81% over five years. RARE said its potential treatment for glycogen storage disease type 1a, DTX401, had resulted in a statistically significant and clinically meaningful reduction in daily cornstarch intake after 48 weeks, which was the study’s primary endpoint; said the Phase 3 trial also reached its key secondary endpoints. REGN and SNY said the FDA extended the target action date for the priority review of the supplemental biologics license application for its lung disease treatment Dupixent by three months.
• In Beverages: Jefferies said taking estimates broadly lower following poor/extreme weather during the Memorial Day weekend, noting this past weekend saw severe weather across the central and eastern US, totaling 61% of the country. As a critical consumption weekend, accounting for 4.6%+ of all volumes in ’23, we anticipate volumes were negatively impacted. We tweak our US estimates lower for C2Q across our Beer (TAP, STZ, SAM) and Soft Drink (KO, PEP, KDP, MNST, CELH) coverage. But continue to favor PEP, STZ, MNST, CELH and KDP.

• ASAN +5%; shares rose with Q1 $3.9M top-line beat on 13% y/y growth with upside driven by SMB stability and technology seat expansions; quarterly revenue jumps 13% to $172.4M and forecasts FY25 revenue between $719M-$724M, vs. the mid-point of estimates of $719.3M.
• GPS +22%; after Q1 results topped views (Q1 revs $3.39B vs. $3.29B) and raised its annual sales forecast, boosted by top-line inflections at Banana Republic and Athleta with continued strength at Old Navy; lifts its fiscal 2024 margin forecast.
• PENN +6%; shareholder the Donerail Group highlights the opportunity for significant value creation for shares saying believes the company’s misguided interactive strategy and poor capital allocation have destroyed shareholder value.
• ULTA +2%; posted top-and-bottom-line beat on in-line comps, lower margins, but better SG&A but was followed by a lower guide as cuts FY24 EPS view to $25.20-$26.00 from $26.20-$27.00 (est. $26.33), cuts FY24 revenue view to $11.5B-$11.6B from $11.7B-$11.8B.
• VFC +9%; shares jumped after the company named Sun Choe as global brand president of Vans, beginning in late July (Choe joins from Lululemon, raising hopes of a turnaround at the brand).
• ZS +16%; shares jumped as reported billings of $628m (+30%) above the Street at 21%, and revenue of $553m (which increased 32% y/y) versus prior revenue guidance of $535m.

• GILD -2%; as announced that Phase 3 TROPiCS-04 (Trodelvy versus chemo in 2L metastatic urothelial cancer missed its primary endpoint of overall survival (OS).
• MDB -25%; shares tumbled as delivered revenue and margins (including Atlas growth of +32% Y/Y) ahead of consensus, but the beat was much lower and lowered its FY25 growth to 12-13% (vs consensus of 15%) as saw weaker-than-expected workload growth.
• MRVL -9%; Q1 sales were slightly above consensus on AI strength with EPS in line, while FQ225’s sales and EPS guide were slightly above; Carrier/enterprise/consumer (~23% sales) down ~70% Y/Y combined in FQ1 (Apr).
• S -12%; shares declined as reported 1Q FY25 results of $186.4M and break-even EPS of $0.00 topping Street estimates for $181M and an EPS loss of $0.05 while gross margins to 78.9% from 77.1% in 4Q FY24 and 75.1% in the year ago period but offered 2Q revenue guidance of $197M which was below street.
• VEEV -10%; Q1 revenue and EPS were above guidance, but FY25 revenue growth guidance was lowered modestly to 10%-11% from 12%, primarily to reflect lower services revenue.