Mid-Morning Look

Friday, September 08, 2023

U.S. stocks rebound to start the day but remains on track for weekly losses across major averages on technology weakness after multiple press reports highlighted the risk of demand headwinds in China stemming from policy initiatives potentially limiting the use of iPhones or other foreign-branded devices in government offices. Smallcaps lag again as the Russell 2000 remains on track for a weekly drop of -2.5%. This week saw reports that China extended its ban on Apple iPhones last month while Huawei also announced the Mate 60, a high-end smartphone targeted at the China market, in late August at price points similar to iPhones. A Bloomberg report noted Huawei’s new phone has set off “alarm bells” in DC, w/ calls for investigations and new sanctions. The report noted the Commerce Department is working to get more information on a “purported” 7-nanometer processor discovered within the Mate 60 Pro. Coming into today, Apple shares tumbled 6.4% over the last two days, wiping $190 billion from its market capitalization. Treasury yields and the dollar both pulling back after good gains this week while oil prices resume upward momentum. Another storm brewing in the Atlantic as Hurricane Lee is not expected to make a U.S. landfall as of Friday, but dangerous surf and rip currents were forecast for most of the U.S. East Coast starting Sunday in the seasons first Category 5 storm. Lee had winds of up to 165 miles per hour (270 kilometers per hour) and was moving west-northwest at 14 mph (22 kph). Lee is expected to keep strengthening and reach winds of up to 180 mph (290 kph).

Economic Data

·     U.S. July wholesale sales +0.8% (consensus -0.2%) vs June -0.8% (prev -0.7%); U.S. July wholesale inventories revised to -0.2% (consensus -0.1%) from -0.1%; U.S. July stock/sales ratio 1.39 months’ worth vs June 1.41 months.

Stock GAINERS

·     ACI, KR +3%; KR missed Q2 sales of $33.85B vs. est. $34.17B and comp sales rose 1% ex-fuel below est. 1.5% while EPS of $0.96 beats; KR to sell more than 400 stores to C&S Wholesales in $1.9B in connection with ACI merger.

·     ADBE +1%; upgraded to Buy from Neutral at Mizuho and raised tgt to $630 from $520 saying its web traffic continues to accelerate, expect good upside to Q3 and Q4 annual recurring revenue (ARR) from digital media segment.

·     FSLR +2%; was upgraded to Buy from Hold at Deutsche Bank following analyst day saying the company had recently announced further production capacity to come online in the US by 2026.

·     GILD +3%; upgraded from Neutral to Buy at Bank America and raised tgt to $95 from $88 as it thinks Gilead’s accelerating growth and expanding pipeline is underappreciated by inventors.

·     SMAR +12%; quarter was better across the board, highlighted by upside to billings, upside to operating and FCF margins, and generally steady customer metrics; sees FY revs $950-953Mm vs est. $945.8Mm, adj op Inc $62-67Mm vs est. $48.79Mm.

·     SWBI +13%; results beat both top and bottom-line expectations as units and ASP were above expectations with new products driving sales.

Stock LAGGARDS

·     CHPT -6%; extends yesterday’s losses after quarter miss and lower guidance.

·     DOCU -4%; beats by $0.06, beats on revs; guides Q3 revs above consensus; guides FY24 revs above consensus; increases stock repurchase program by $300M; Q2 billings growth of 10% was flat with prior 2 quarters and net retention of 102%, down from 105% last quarter.

·     HPP -6%; after the REIT suspends qtrly dividend on its common stock, pointing to impact of ongoing Hollywood strike.

·     PL -15%; delivered mixed results featuring a top line miss and bottom-line beat while lowering its revenue guidance.

·     RH -10%; after guiding Q3 revs to be between $740M-$760M below ests $772.3M and said expects the luxury housing market and broader economy to remain challenging throughout 2023.

·     ZUMZ -5%; as reports Q2 EPS loss (-$0.44) vs consensus (-$0.67) on better revs but guides Q3 EPS ($0.25)-($0.15) vs consensus $0.29 and revenue $211M-$216M vs consensus $217.8M as Q3-to-date comps (8.6%).