Mid-Morning Look

Monday, October 30, 2023

U.S. stocks open higher, looking to rebound after tumbling more than 2% each of the last 2-weeks ahead of a potentially huge catalyst rich driven week. More than 30% of the S&P 500 report earnings this week (and we are about halfway done through last Friday) – but there are also several key macro events to watch including Treasury refunding announcements (which remains a key reason for spike in yields). Tonight, we get the Bank of Japan policy meeting with expectations that the BoJ leaves policy settings unchanged, not tweaking Yield Curve Control, or making changes to asset purchases and forward guidance (JPY/USD about 100-bps off last week highs down to 149.25). There are several other central bank meetings this week including the FOMC policy meeting Wednesday and press conference from Powell. Jobs data this week includes ADP payrolls and JOLTs Job Openings Wednesday morning, then the Nonfarm payrolls on Friday. The Bank of England meets Thursday November 2 with expectations to hold policy steady, leaving the bank rate at 5.25%.

Lastly, and a big importance is the Treasury Department’s update on its expected financing need for the current quarter after gov’t last quarter surprised the market with a much bigger-than-expected debt need. The Treasury said in July that it expected to borrow $1.007 trillion in Q3, $274 billion more than it had predicted in May which sparked a selloff in bonds on concerns about the rapidly growing U.S. debt and widening budget deficit. The Treasury will give its overall financing estimate for Q4 today (3:00 PM today) and will offer more details on the breakdown of the issuance on Wednesday. It is expected to boost the size of its auctions for bills, notes, and bonds. Note total outstanding U.S. debt has grown to $33.7 trillion, from $31.5 trillion in June and has surged from $23.2 trillion in early 2020. Treasury yields at highs of day currently above 4.91% for the 10-yr, and stocks quickly paring opening gains after failing just below last Friday high print.

Sector Movers Today

·     There were two M&A deals in the REIT sector: In Commercial REITs: Realty Income Corp. (O) agreed to acquire Spirit Realty (SRC) in an all-stock transaction valued at about $9.3B, where Spirit shareholders will receive 0.762 newly issued Realty Income common shares for each Spirit common share they own. SRC shareholders would receive about $37.34/share, which is 15.4% premium https://tinyurl.com/45cfnyx4 . In Healthcare REITs: Healthpeak Properties Inc. (PEAK) and Physicians Realty Trust (DOC) said they would combine in an all-stock merger of equals valued at about $21B where DOC shares will be converted into 0.674 of a newly issued share by PEAK https://tinyurl.com/3jvv3krx

·     In Truckers/Freight: XPO Q3 adj EPS $0.88 vs. est. $0.63; Q3 revs $1.98B vs. est. $1.93B; the uptick y/y was driven by higher tonnage per day and yield, excluding fuel, in the North American less-than-truckload business, which more than offset lower fuel surcharge revenue. SAIA was upgraded from Peer Perform to Outperform at Wolfe Research saying while near-term expectations got a bit ahead of themselves, SAIA should still be the biggest beneficiary from YELL’s bankruptcy over time with the biggest volume tailwind.

·     In Insurance: AON was downgraded to underweight at Wells Fargo as thinks the price performance will be muted vs peers at least until they see a rebound in organic growth; noted Q3 organic growth was 6%, below all insurance broker peers (broker average was 8.2%). Loews (L) Q3 EPS $1.12 on revs $3.93B vs. (9c)/$3.46B last year and book value per share, excluding AOCI, increased to $79.92; Revenue at the company’s Boardwalk pipeline business rose to $363M from $339M while the hotels unit posted revenue of $196M, up from $180M last year.

Stock GAINERS

·     CHRS +14%; said the FDA late Friday approved its combination therapy as a first line treatment for adults with a certain type of cancer called NPC.

·     DCPH +17%; said the company’s Phase 3 study of vimseltinib met the primary endpoint and all key secondary endpoints; also reported Q3 rev beat of $43.3M vs. est. $39.4M.

·     JKS +16%; after Q3 revs rose 59% y/y to $4.36B topping expectations of $4.18B on better gross margins 19.3% vs. 15.7 y/y and said solar module shipments 21,384 mw vs. 10,286 y/y.

·     MGTX +34%; said it has received a $30Mmn investment from French pharmaceutical company SNY and said the company has been approached by multiple parties about certain assets.

·     SOFI +3%; rises as Q3 EPS loss of (-$0.03) was smaller than the consensus loss (-$0.08) on better revenue of $537M vs $511.13M estimate and raised its rev guidance to $2.045-$2.065B from its prior guidance of $1.974-$2.034B.

·     VYNE +19%; said that it saw positive data from its Phase 1b trial evaluating once-daily dosing of VYN201 in patients with nonsegmental vitiligo.

·     WDC +7%; on news that its Board of Directors has unanimously approved a plan to separate its HDD and Flash businesses in 2H’24 by creating two independent, public companies with market-specific, strategic focus; also reported larger Q1 EPS loss of (-$2.17) on better revs $2.75B.

·     XPO +12%; Q3 adj EPS $0.88 vs. est. $0.63; Q3 revs $1.98B vs. est. $1.93B; the uptick y/y was driven by higher tonnage per day and yield, excluding fuel, in the North American less-than-truckload business, which more than offset lower fuel surcharge revenue.

Stock LAGGARDS

·     ALGN -6%; adds to last week losses after weaker guidance last week in Med Tech sector.

·     CHKP -2%; Q3 adj EPS $2.07 vs. est. $2.02; Q3 revs rose 3.2% y/y to $596M vs. est. $591.51M; Products and licenses and security subscriptions revenue rose 4.2% to $362.5M and software updates and maintenance revenue was up 1.8% at $233.8M.

·     COMM -32%; guided prelim Q3 revs to $1.6B (core $1.35B), below consensus $1.98B and reports preliminary Q3 core adjusted EBITDA $246M saying the weaker macro backdrop and customer inventory digestion continues to negatively impact revenues.

·     FSLR -7%; as solar weakness continues after recent SEDG, ENPH lower guides last week sunk the space; NOVA, SPWR, SHLS weak.

·     ON -18%; reported a mixed Q3 with EPS missing ests by $0.05 but revs $2.18B topped estimates but guided Q4 results below estimates – sees Q4 EPS $1.13-$1.27 vs. est. $1.36 and sees Q4 revenue $1.95B-$2.05B below the consensus $2.18B. (weighs on WOLF, NXPI).