Mid-Morning Look

Friday, November 03, 2023

U.S. stock upside momentum continues, rising solidly for a 5^th straight day and on track for best weekly advances in over a year. This week we have seen a big boost to interest rate sensitive sectors given the 45-bps meltdown in the benchmark 10-year Treasury yield (off weekly highs of 4.93% just 2 days ago to 4.49% this morning) after Treasury refunding headlines, the Fed keeping rates unchanged, and tempered jobs/ISM data this week all raising hopes the Fed rate hike cycle is done. Regional banks rising +4.5% back above $44 level, up a 5th straight day to best levels since early September, while homebuilder (XHB) also surge a 5^th day behind the drop in yields/mortgage rates. The S&P 500 finished Thursday roughly 200 points from last Friday’s close, or ~5% in 4 trading sessions in what has been an absolute “perfect storm” of news flow this week for stock and bond markets – and that number improves with today’s performance. The flow of good news continued again on Friday with a moderate job gain, while wages were mixed, and unemployment ticked higher. Right now, bad data (miss, weaker jobs) is seen as market positive on expectations it will cool the rates from the Fed. At some point, however, bad news will be bad news – but for now investors are enjoying the momentum to the upside. Another barrage of earnings overnight highlighted by AAPL which beat on the top and bottom line as services revs jumped, iPhones in-line but Mac and iPad revs fell along with weakness in its China market and subdued guidance. The dollar is tumbling again along with yields, boosting precious metal prices and broader stock markets. The CBOE Volatility index (VIX) falls to 1-month lows around 15.

Economic Data

·     October Nonfarm payrolls headline weaker with downward revisions: +150K (vs. consensus +180K) vs September +297K (from +336K), August +165K (from +227K); the unemployment rate ticks higher to 3.9% from 3.8% (consensus 3.8%). Private sector jobs +99K below est. 158K and Manufacturing jobs fell -35K, more than the -10K estimate.

·     October average hourly earnings rose +4.1% from a year earlier (vs. consensus +4.0%) and Average Hourly earnings rose +0.2% vs. est. +0.3% (though prior month was revised up by +0.1%. U.S. October average hourly earnings all private workers +0.2% from prior month (cons +0.3%).

·     ISM non-manufacturing sector shows PMI 51.8 in October below consensus 53.0 and vs 53.6 in September; business activity index 54.1 in October vs 58.8 in Sept; non-manufacturing prices paid index 58.6 in October vs 58.9 in Sept and new orders index 55.5 in October vs 51.8 in September.

Stock GAINERS

·     DKNG +8%; strong results and raised its FY23 revenue growth outlook while significantly reducing its expected EBITDA loss, with strong customer retention & engagement remaining the primary drivers; introduced FY24 revenue and adj. EBITDA guidance above consensus.

·     DOCN +19%; shares jumped as total revenue of $177.1M grew 4.3% q/q with rapidly scaling Paperspace contributing $3M and adj. FCF margins jumped to 32% with mgmt reiterating its FY targets of 38.5% EBITDA margins and 21% adj.

·     EVH +16%; reported a strong quarter with 3Q23 adj EBITDA $49M above consensus $45M on better earnings and announced three new operating partnerships, bringing the number of 2023 signed partnerships to 9.

·     EXPE +18%; shares jump behind a $5B share buyback on mixed results, with slight misses on room-nights and gross bookings but modest beats on revenue and EBITDA.

·     PARA +12%; matched consensus for Q3 revenue but topped Street EBITDA by about $130M, says remain on path to achieving significant total earnings growth in 2024 and sees DTC losses in 2023 lower than 2022.

·     PODD +19%; posted a beat-and-raise quarter driven by a near-record new patient start number, with meaningful US upside and International also modestly outpaced expectations amid O5 launches in the UK and German.

·     SQ +12%; Q3 adj EPS $0.55 vs. est. $0.45; Q3 revs rose 24% y/y to $5.62B vs. est. $5.47B; Q3 adj EBITDA rises 46% y/y to $477.5M vs. est. $373.8M; Gross payment volume $60.08B, +10% y/y.

Stock LAGGARDS

·     AAPL -1%; top and bottom line beat but overall sales for a 4th straight quarter and all segments outside of services posts weaker than expected revs, including a sharp drop in Mac sales; sees Q1 revenue ‘similar’ to last year.

·     BILL -30%; downgraded to Sector Weight at Keybanc after the Company revised FY24 guidance lower (~6% below Street and prior guide midpoint) as headwinds to TPV picked up in late C3Q and persisted through October.

·     BOOM -12%; reported weaker-than-anticipated 3Q results with revenue and adjusted EBITDA landing 5.0% and 4.9% below ests and mgmt provided softer-than-expected guidance for 4Q.

·     CHD -6%; after Q3 EPS/sales beat but guided Q4 EPS $0.63 below ests $0.72 while lifted its year sales forecast but maintains year EPS view.

·     FND -5%; as Q3 results were slightly better than the lowered guidance given last period but views for Q4 were well below the Street as guides FY comps (8.5)%-(7.8)%, net sales $4.345-4.385B vs est. $4.473B, adj EBITDA $535-550Mm vs est. $562.7Mm.

·     FOXF -38%; Q3 miss on top and bottom line, while cuts FY23 adj EPS view to $4.20-$4.45 from $5.00-$5.30 (est. $4.95) and lowers FY23 revenue view to $1.43B-$1.47B from $1.67B-$1.7B.

·     FTNT -17%; as reported billings and revenue below expectations and cut full year billings and revenue guidance for the second quarter in a row saying weakness in the quarter was attributed to sales execution as well as softness in several verticals.

·     QSR -4%; missed Q3 estimates for sales ($1.84B vs. est. $1.88B) and Burger King division’s total same-store sales growth of 7.2% missed analysts’ estimates of 8.71% while Tim Hortons chain comp sales growth of 6.8%, topped estimates of 6.5%.