Mid-Morning Look

Tuesday, October 24, 2023

U.S. stock markets rebounding after the S&P declined for a 4^th straight day on Monday (snapping its streak of 15 straight “up” Monday’s) and trying to avoid its first 5-day losing streak since October of 2022. There have been three 4-day losing streaks for the S&P in the last 2-months, pressured by higher rate hike fears, spiking Treasury yields, and geopolitical concerns. Share prices are getting a boost Tuesday behind large cap earnings results (GE, MMM, KO, RTX, VZ) and ahead of big results tonight from MSFT, GOOGL, Visa, TXN. Treasury yields edge higher after yesterday’s 20-bps pullback off highest levels since 2007 of 5.02% (last 4.86%), while the dollar rebounds on better economic data. The S&P 500 index (SPX) is back above and trying to hold its key 200-day MA support of 4,235. Ten of eleven S&P sectors in the “green” to start the day, with Energy the lone laggard, while seven sectors are up over 1%.

Several Dow Jones Industrial components reporting earnings this morning (all better) including: 1) KO Q3 results topped estimates and boosted its annual sales and profit forecasts on strong demand and higher prices; 2) MMM Q3 adj EPS $2.68 vs. est. $2.34; Q3 revs $8.31B vs. est. $7.98B; raised its full-year adjusted profit forecast $8.95-$9.15 vs. prior forecast of $8.60-$9.10 per share; 3) VZ boosted its annual free cash flow (FCF) forecast to higher than $18B, an increase of least $1B from its prior forecast while added 100,000 net monthly-bill-paying wireless phone subscribers in Q3. Earnings tonight for Dow component MSFT, but also numbers from GOOGL and Visa (V).

Economic Data

·     S&P Global October flash composite PMI at 51.0 (vs 50.2 in September) and U.S. S&P Global October flash services PMI at 50.9 (vs 50.1 in September).

·     Richmond Fed services revenues index -11 in Oct vs +4 in Sept and Richmond Fed manufacturing shipments index +9 in Oct vs +7 in Sept.

Sector Movers Today

·     In the Oil E&P Sector: Raymond James upgraded AR to Strong Buy from MP, upgraded both CTRA and RRC to Outperform from Market Perform, downgraded BSM to MP from OP and lastly downgraded both PXD, HES after recent M&A deal in E&P changes. Said drilling inventory and service costs remain the most topical, along with the recent interest the majors have taken in the E&P sector with the XOMand CVX transactions occurring in back-to-back weeks. In Oil Services: HAL said Q3 revenue came in at $5.8B, slightly below estimates for $5.85B while earnings of $0.79 per share topped $0.77 estimate; said expects Q4 completion and production unit rev to fall by 3%-5% sequentially on lower N.A land activity due to holidays.

·     In Consumer Finance: AXP upgraded to Neutral at Piper saying the slowdown in EPS growth is priced-in and shares now trade below the XLF on FY24 P/E, a level rarely seen. Piper believes the stock is adequately discounting slower growth while trading at <12x consensus FY24E P/E. In earnings, SYF posted EPS miss due to higher provisions, but had higher NII. In FinTech: FI raised its FY EPS profit to $7.47-$7.52 from prior $7.40-$7.50 after Q3 topped estimates as CEO said they remain confident in our ability to add new clients, grow with our existing clients, and provide solutions that capture greater share of wallet.

·     In Multi-industry: GE Q3 EPS/sales top consensus handily as Q3 total orders of $17.9B, up 19%, with organic orders up 18% and raises FY23 adj EPS view to $2.55-$2.65 from $2.10-$2.30 and boosts FY23 free cash flow view to $4.7B-$5.1B from $4.1B-$4.6B. MMM said its spinoff of 3M’s Health Care unit is progressing and should be completed during the 1H’24 Q3 adj EPS $2.68 vs. est. $2.34; Q3 revs $8.31B vs. est. $7.98B; raised its full-year adjusted profit forecast $8.95-$9.15 vs. prior forecast of $8.60-$9.10 per share. Other results from DOV, PCAR, PNR this morning.

·     In Steel sector: CLF Q3 EBITDA of $614M tops Street $586M; EPS of $0.52 topped Street’s $0.43 view, largely due to a lower tax rate and revs ~$5.6B vs. $6.0B in 2Q and steel shipments were >4.1M tons; NUE Q3 EPS $4.57 vs. est. $4.22; Q3 sales $8.78B vs. est. $8.37B; Q3 average sales price per ton down 14%, and expects Q4 earnings to decrease compared to Q3 due primarily to lower pricing across all three operating segments; China’s biggest listed steelmaker Baoshan Iron & Steel reported a 127% surge in Q3 net profit on reduced costs and higher steel prices.

·     In Utilities: Group among early S&P leaders, boosted by better results from NEE which beat ($0.94/$7.17B vs. $0.88/$7.09B) and maintained financial guidance for NT and LT with record renewables originations, helping other utilities and shares of PWR which fell last month after NEE had issued a softer warning outlook.

Stock GAINERS

·     CADE +5%; agreed to sell its insurance unit for $749M to AJG

·     EDIT +7%; upgraded to buy from neutral at Citigroup noting since early September, shares have declined more than 30% in the absence of any fundamental changes to Editas’ outlook and sees potential for near-term share upside.

·     GE +6%; Q3 EPS/sales top consensus handily as Q3 total orders of $17.9B, up 19%, with organic orders up 18% and raises FY23 adj EPS view to $2.55-$2.65 from $2.10-$2.30 and boosts FY23 free cash flow view to $4.7B-$5.1B from $4.1B-$4.6B.

·     MARA +18%; along with gains in COIN, MSTR, RIOT as Bitcoin prices rocketed higher this morning, up over 10% hitting highs above $35,000 to its highest in nearly a year-and-a-half

·     MEDP +10%; strong operating results for 3Q, with revenue of $492.5M (vs. $475.8M est.), with net bookings growth of 29.4% and book-to-bill ratio of 1.24x and EBITDA beat of $90.2M (vs. $86.5M est.) and raised FY23 Ebitda to $353M-$361M from $340M-$358M.

·     RDFN +12%; announced that Apollo Capital Management has committed up to $250mn of financing. Redfin immediately borrowed $125mn with rest available to borrow over 12 months.

·     RTX +7%; said it is buying back $10 billion worth of stock under an accelerated repurchase program while reported a better-than-expected quarterly earnings and raised its FY outlook.

·     SPOT +10%; Q3 monthly active users and subscribers ahead of expectations as monthly active users rose 26% to 574M in Q3 topping analysts’ forecast of 565.7M; premium subscribers rose 16% to 226M topping ests 223.7M.

·     VZ +8%; boosted its annual free cash flow (FCF) forecast to higher than $18B, an increase of least $1B from its prior forecast while added 100,000 net monthly-bill-paying wireless phone subscribers in Q3, compared with expectations for 63,600 additions, and top/bottom Q3 beat.

Stock LAGGARDS

·     AAN -13%; Q3 adj EPS $0.01 vs. est. $0.07; Q3 revs $525.7M vs. est. $536.1M; narrows FY23 adj EPS view to $1.00-$1.20 from $1.00-$1.40 (est. $1.24) and lowers the top end of FY23 revenue.

·     GLW -5%; missed on the top and bottom line for Q3 while guided Q4 EPS $0.37-$0.42, below the consensus $0.50 and sales $3.25B vs. est. $3.56B.

·     HCA -8%; tumbles as posts Q3 adj EPS of $3.91, missing analysts’ estimate of $3.98 saying qtrly profit was hurt by an increase in staffing costs as company was impacted by its physician staffing joint venture Valesco (shares of CYH, UHS, THC declined in sympathy)

·     IONQ -8%; said its co-founder and chief science officer Dr. Chris Monroe, will leave the company.

·     TBI -17%; after Q3 earnings and Q4 revenue forecast fell short of analysts’ expectations, with the firm noting that the operating environment remains soft.

·     TRU -19%; after a miss on the top and bottom line for Q3, guided Q4 below views and cut FY23 adjusted EPS view to $3.24-$3.28 from $3.40-$3.62 (below est. $3.57) and dropped its FY23 revs view to $3.794B-$3.809B from $3.825B-$3.885B (EFX falls in reaction).