Mid-Morning Look

Tuesday, November 21, 2023

U.S. stocks taking a little breather, as the S&P 500 and Nasdaq slip for the first time in 6-days after having gained 14 of the last 16, now heading into the seasonally best time of the year for stock markets. Few potential market catalysts today with the Minutes from the November FOMC meeting at 2:00 PM and NVDA results after the close in semiconductors. Treasury yields edged lower on Tuesday (10-yr below 4.4%) while the dollar (DXY) extends losses to 2 ½ month lows (103.30) as the yen gains. Existing home sales crashed to slowest since 2010, hit record low in the West; the 3.79 million annual rate is even below the lowest level of sales during the 2020 covid shutdowns (4.01 million). Morning action dominated by earnings in the retail space with likes of BURL, CAL, DKS, and HIBB rising on results, but the decliners far outweigh early with AEO, ANF, BBY, KSS, LOW falling on results. Volumes continue to dry up heading into the Thanksgiving Day Holiday on Thursday and half day Friday (stock markets close 1:00 PM). Oil prices are dipping as WTI crude around $77 per barrel while gold pushes back above $2,000 amid the weakness in the dollar/yields.

Economic Data

·     Existing Home Sales for October fell (-4.1%) to 3.79M unit rate from Sept 3.95M (and below consensus 3.95M) prev 3.96M); Oct inventory of homes for sale 1.15M units, 3.6 months’ worth; U.S. Oct national median home price for existing homes $391,800, +3.4% from Oct 2022.

Sector Movers Today

·     In Utilities: Few Wall Street analyst calls as Mizuho downgraded EXC to neutral from Buy and cut tgt to $40 from $45 due to concerns over the Illinois regulatory environment noting the recent decision for Illinois gas utilities and the subsequent below-average ROEs. Mizuho upgraded BKH to Neutral from Underperform, as the company’s balance sheet has improved considerably over the past year. Also, ETR was upgraded to Buy at Bank America after a positive financial update at this year’s Edison Electric Institute (EEI) financial conference.

·     In Sporting Goods Retailers: a standout group to upside early behind better results from DKS and HIBB: DKS Q3 adj EPS $2.85 beat by $0.40 on better sales $3.04B vs. est. $2.94B and boosted its FY23 adj EPS view to $12.00-$12.60 from $11.50-$12.30 and comp store sales growth 0.5%-2% vs. prior view flat to up 2%. HIBB Q3 EPS $2.05 vs. est. $1.18; Q3 sales $431.9M vs. est. $416.7M; Q3 comp sales (-2.7%) vs. est. (-6.18%), but down from y/y +9.9%; E-commerce sales as share of total sales 17% vs. 15% y/y; still forecasts 2024 comp sales down low-single digit.

Stock GAINERS

·     A +8%; Q4 adj EPS of $1.38 beats by 4c per share on better revs $1.69B vs. est. $1.67B saying lower costs and improvement in demand for laboratory instruments and consumables helped but offered lower FY revenue/EPS guidance.

·     BURL +15%; as profit beat expectations in Q3 and said gross margins rise 200-bps while Merchandise margin improved 150-bps and freight expense up 50-ps while raises FY23 revenue view to up 11% from 3%-4%.

·     CRH +3%; boosted its full-year EBITDA guidance to $6.3B from $6.2B prior given in August and said expects positive pricing momentum to continue; also announces a $2.1B acquisition of building materials assets in the high-growth Texas market from MLM

·     DKS +10%; Q3 adj EPS $2.85 beat by $0.40 on better sales $3.04B vs. est. $2.94B and boosted its FY23 adj EPS view to $12.00-$12.60 from $11.50-$12.30 and comp store sales growth 0.5%-2% vs. prior view flat to up 2%.

·     MDT +3%; Q2 profit and revenue estimates topped consensus and raised its annual earnings forecast as sees EPS $5.13-$5.19 vs. prior view $5.08-$5.16 and increased its FY24 organic revenue growth forecast to 4.75%, versus the previous expectation of 4.5%.

·     SYM +36%; after Q4 beat on both Revenue and EBITDA, which included the Company’s first quarter of positive adjusted EBITDA and a shift to gross profitability with the Software segment.

Stock LAGGARDS

·     AEO -16%; Q3 revs rose 4.9% y/y to $1.30B above est. $1.28B on slightly better EPS of $0.49 but shares fell as guides Q4 operating income $105M-$115M vs. est. $114M (but raised the low end of year op income outlook to $340M-$350M from $325M-$350M.

·     AMZN -2%; after CNBC’s David Faber reported Jeff Bezos possibly selling more shares.

·     KSS -11%; Q3 EPS 53c vs est. 35c on lighter revs, comps worse down (-5.5%) vs est. (-4%) on better margins 38.9% vs est. 37.9% and raised year EPS but cut its sales growth outlook to negative 2.8% to 4.0% from negative 2% to 4%.

·     LOW -4%; mixed Q3 as EPS $3.27 topped est. $3.03 but Q3 revs $20.47B miss est. $20.88B; Q3 comp store sales fell (-7.4%) vs. est. (-4.9%); cuts FY23 EPS view to $13.00 from $13.20-$13.60 (est. $13.32), lowers FY23 revenue view to $86B from $87B-$89B (est. $87.55B) and cuts FY23 comparable sales view to down 5% from down 2%-4%.

·     MOR -20%; said its experimental treatment for myelofibrosis, a rare type of bone marrow cancer, achieved the primary efficacy goal in a pivotal trial, but fell short in addressing patient symptoms, raising questions about its chances for approval.

·     MRNA -3%; after Reuters reported that BNTX said the European Patent Office has declared an mRNA patent invoked by Moderna in litigation as invalid.

·     ZION -4%; downgraded to neutral from buy at Citigroup citing valuation and said the firm now trades at the median of peers on its implied cost-of-equity.