Mid-Morning Look

Friday, September 20, 2024

U.S. stocks have enjoyed a strong week thus far, building upon last week’s monster gains as the Fed delivered what Wall Street had been asking/hoping for…aggressive interest rate cuts (50bps) and an outlook for more in coming months/the following year. Markets opening a bit lower to start Friday, a small pullback in what has been another solid month of returns thus far. Transportation stocks dented this morning (DJ Transports -3%) after Fed-Ex (FDX) shares fell -15% on earnings miss and lower outlook, while homebuilder Lennar (LEN) dropped on softer margin guidance. In Pharma industry, shares of NVO, CRBP fall on obesity data results, while boosting LLY, VKTX. Oil prices eased on Friday but were on track to register gains for a second straight week following a large cut in U.S. interest rates and declining global stockpiles. No major U.S. economic data today after busy week and central banks. Speaking of, the Bank of Japan, as expected, kept rates unchanged, following the move by the Bank of England yesterday, while the FOMC remains the talk of the week with its outsized 50-bps rate cut on Wednesday. Gold prices are making new all-time highs again today despite a bounce in the dollar and Treasury yields (10-yr up about 15bps to 3.75% off weekly low). Bitcoin slight dip after bouncing above $63,000 this week (up over 6% this month).

• In Refiners: Piper downgraded shares of VLO, PARR to Neutral and downgraded PBF to Underweight saying they prefer names with non-refining streams such as PSX, DINO. Piper said the combination of incremental refined product capacity and weaker-than-expected demand (led by distillate) have led them to adjust their 2025 refined product outlook, where it now expects global S/D balances to be roughly flat with 2024. Given macro headwinds, Piper has lowered its 2H24/FY25 refining margin outlook and lowered Q324/FY24/FY25 EPS estimates by 232%/57%/52%.
• In Mortgage REITs/Specialty Finance: Wells Fargo upgraded AGNC, NLY to Overweight from EW on new rate outlook and downgraded ACRE, CMTG to Underweight from EW and VEL cut to Underweight from OW largely on valuation. Wells said after underperforming through the rate hike cycle, now sees a favorable risk/reward for the shares, including double-digit div yields. For commercial real estate (CRE), Wells says has been the unintended consequence of Fed hikes as for Claros (CMTG), has a larger weight to construction loans and its 4/5-risk rated loans are 35% of the portfolio, well above peers and Ares (ACRE) has the largest office exposure at 37% versus peers at 10%-26%.
• In Telecom: In Latin America telecom, Scotia upgraded shares of TIGO, TIMB to Buy and downgraded TEO to Sell saying as broadband penetration in LatAm hits saturation levels in key markets such as Argentina, Brazil, Chile or Mexico, organic growth will increasingly rely upon taking customers away from rivals, which entails a risk to competitive dynamics. Scotia’s preference is for carriers with exposure to the wireless segment as consolidation trends are leading to (some) price restoration and CAPEX rationality in countries such as Brazil, Chile and Colombia.
• In Semis: AMKR initiated with an Overweight, $38 PT at Keybanc as thinks the co should deliver HSD-LDD growth in the next several years, which should translate into DD% EPS growth and solid share price returns. ASML was downgraded to EW from Overweight at Morgan Stanley and trim PT to EU800 from EU925 given late cycle dynamics. The firm said in Europe, sees semis capital equipment names such as ASML exposed to a spending slowdown. Analog semiconductor stocks (TXN, MCHP, NXPI, ON) saw early weakness after Mercedes (MBGGY) profit warning, guidance cut yesterday the day prior which weighed on STM, IFNNY shares overnight in Europe. Mizuho cut tgts and ests for semi equipment names; AMAT to $225 from $245, LRCX to $950 from $1050, but maintain Outperform on both.

• CRWD +5%; after Jim Cramer of CNBC said CrowdStrike retained almost every piece of business following July’s disastrous software upgrade that led to a global IT outage. CEO George Kurtz told Cramer on “Mad Money” that Crowdstrike is now working with MSFT.
• NEM +1%; strong in gold miners again (GOLD, AEM) as gold prices hit new all-time highs
• NKE +5%; as John Donahoe (current CEO) will step down from his role on October 14^th in which he will be replaced by Elliott Hill, a Nike veteran who has 32 years’ experience at Nike, and retired in 2020.
• VKTX +4%; and LLY benefitting from NVO safety data in obesity trial (more below)

• ASML -4%; downgraded to EW from Overweight at Morgan Stanley and trim PT to EU800 from EU925 given late cycle dynamics. The firm said in Europe, sees semis capital equipment names such as ASML exposed to a spending slowdown.
• CHWY -4%; after 16.67M share Spot Secondary priced at $30.00
• FDX -14%; shares tumble, weighing on Dow transports (which dropped over 3%) after Q1 adj EPS of $3.60 missed consensus by roughly 25% and the package delivery giant trimmed its FY25 outlook to range now $20-$21 vs prior view of $20-$22); said expects 2Q to be below seasonality (shares of UPS down in sympathy).
• LEN -4%; reported Q3 EPS of $4.26 above consensus estimate of $3.64 and total revenues increased 4% YoY to $9.0B +7% YoY, forecast; shares slipped on Q4 gross margin miss versus consensus, the F4Q24 guidance for a flat sequential gross margin to F3Q24.
• MLKN -16%; the second office furniture retailer to report weak earnings/guidance in as many days Q1 adj EPS $0.36 misses the est. $0.40 and revs $861.5M below consensus $889.3M and guided Q2 EPS $0.51-$0.57 vs. consensus $0.61.
• NVO -5%; after reported data from its Monlunabant phase 2a obesity trial. NVO reported 7.1 kg weight loss after 16 weeks treatment, from a baseline of 110 kgs. STAT news noted, “mild to moderate neuropsychiatric side effects, primarily anxiety, irritability, and sleep disturbances, was more frequent and dose dependent with monlunabant compared to placebo”. Shares of CRBP fell (Corbus is developing CRB-913, which belongs to the same class as Novo’s monlunabant), while LLY VKTX rose on data.