Mid-Morning Look

Friday, September 27, 2024

U.S. stocks on track for a 3^rd straight week of strong gains, with the Nasdaq trying for a 5^th consecutive winning session as investors continue to cheer sharp interest rate cuts by the Fed (cut 50bps last week with more cuts widely expected the remainder of this year and next), as well as stimulus measures announced this week in China, boosting Asian markets all week and lifting US listed China stocks here (BABA, BIDU, PDD, JD) as well as metals, mining, industrials, casinos, and consumer discretionary spending sectors. Inflation data this morning was mostly in line for core PCE and showed a decline from prior month. A great week thus far and markets on track for monthly gains despite tumbling the first few days of the month (like August trading action). Greater China once again strong overnight (Shanghai +2.88%/Hang Seng +3.55%) as the PBOC implemented several rate cuts that were announced on Tuesday (cut 7 day reverse repo rate to 1.5% from 1.7% and RRR by 50bps). Along the same lines, Reuters reported that China is planning to issue $284bn in sovereign bonds this year as part of the stimulus measures and that top tier cities are removing home purchase restrictions. Japan was also strong (Nikkei +2.32%) but after the local close, Shigeru Ishiba was named as the next PM, who is seen “hawkish” and the yen strengthened against the US dollar, rising 1.5% to around 142.50. Bitcoin extends advance, topping $66,000 while gold pulls back off record highs. Stock markets boosted this week from materials (XLB +3.6% WTD), Discretionary (+2.25% WTD) and more than 1.6% weekly advances for Industrials (XLI) and Technology (XLK). Energy (XLE the big drag -2.4% for week and Financials (XLF) and Healthcare (XLV) each down about 1% on week so far.

• University of Michigan surveys of consumers sentiment final Sept 70.1 vs. consensus 69.3 and vs. prelim Sept 69.0 and final Aug 67.9; current conditions index final Sept 63.3 vs prelim Sept 62.9 and final Aug 61.3 while expectations index final Sept 74.4 vs prelim Sept 73.0 and final Aug 72.1
• University of Michigan surveys of consumers 1-year inflation outlook final Sept 2.7% vs prelim 2.7% and final Aug 2.8%; and University of Michigan surveys of consumers 5-year inflation outlook final Sept 3.1% vs prelim 3.1% and final Aug 3.0%

• In Hardlines & Wellness Conviction List: TD Cowen said they prefer ORLY, HD, PLNT as ORLY remains #1 pick as a high-quality compounder that is well positioned to continue DIFM share growth despite a slower backdrop. HD remains #2 as a high-quality way to own the home improvement & housing recovery. PLNT moves into #3 as we are positive on the turnaround & like the risk-reward. RH now #4 with a favorable N-T setup. Price tgt changes for: AAP $40 (from $55), BOOT $185 (from $145), FND $120 (from $100), HD $440 (Prior $420), LOW $270 (Prior $265), ORLY $1,300 (Prior $1,275), RH $380 (Prior $350), TSCO $285 (Prior $270), and WSM $165 (Prior $160).
• In Food & Beverages: Citigroup opened a negative 30-day catalyst watch on PEP (maintained Buy) saying they believe the Q3 earnings release on October 8 could be a negative catalyst for the stock as they forecast an organic sales growth miss, driven by weakness in North America and also expects a guidance cut. CPB was downgraded to Neutral from Buy at DA Davidson saying they see near term volume pressure and minimal price contribution weighing on the top line, while marketing and selling reinvestment constrains margins, and doesn’t see a near in catalyst. For CELH, RothMKM lowered Q3’24 estimates as it now expects the impact of PEP inventory reductions to be at the top end of the range previously given by mgmt ($100M- 120M) and expect promotions to weigh on GM and AEBITDA for the upcoming quarter.

• BMY +2%; won FDA approval for its new Schizophrenia drug Cobenfy, previously known as KarXT. The FDA said, “this drug takes the first new approach to schizophrenia treatment in decades.” Rival ABBV is currently testing a drug, emraclidine, which works in a similar fashion. Topline data is expected later this year.
• ESTA +14%; after announced that is has secured FDA market clearance for its Motiva SmoothSilk Ergonomix & Round implants in primary and revision breast augmentation surgeries. Mizuho said it could re-rate 20-25% on a positive outcome to clearing event.
• IONQ +18%; said it signed a $54.5M contract with U.S. Air Force Research Lab (AFRL), to be delivered over four years; said focus of partnership is to design, develop, and deliver technology and hardware.
• WYNN +4%; was upgraded to OW at Morgan Stanley and raised tgt to $104 from $97 saying the combination of near low valuation, an underappreciated growth opportunity in UAE, and optionality around Macau provide a favorable risk-reward & re-rating potential

• COST -2%; reported mixed results as reported FQ4 EPS of $5.29 above consensus $5.08 due to margin strength though slightly missed on the top line ($79.7B vs. est. $79.9B).
• HPQ 4%; downgraded to Neutral from Buy at Bank America predicated on the view that any EPS growth will come purely from share buybacks as potential upside from PCs, including AI PCs, should be offset by lower print margins
• MTN -4%; missed quarter (EBITDA -$116MM vs. -$108MM consensus) with guidance below as well (EBTIDA $827-889MM vs. $875MM consensus) though season pass sales did improve.
• SAVA -8%; shares fall as the drugmaker and two of its former executives agreed to pay more than $40 million to settle SEC charges that they made misleading statements about the results of an Alzheimer’s drug trial.
• TVTX -3%; announced it was pausing enrollment of the pegtibatinase phase 3 HARMONY study to address manufacturing issues; co says the update is “an admitted setback to the commercial portfolio,” with Travere estimating a trial re-launch by 2026 at the earliest.
• UDMY -3%; downgraded to Underweight at Morgan Stanley and cut tgt to $7.50 from $10 saying growth deceleration to continue due to weak web traffic and consumer conversion to paid, tighter enterprise budgets, macro & impact to GTM from strategic shift.