Closing Recap

Friday, April 26, 2024

U.S. stocks were on cruise control higher all day, led by gains in technology/communications after GOOGL and MSFT earnings results/AI commentary/cloud revs were well received and helped boost semis (SOX +2.6%) and software stocks. Market gains were mostly broad-based (energy and utilities led declines), but tech was the clear leader. Inflation data did not show an easing of prices as the U.S. personal consumption expenditures (PCE) price index increased 0.3% last month, in line with forecasts, a development that is unlikely to change expectations that the Federal Reserve will hold off cutting interest rates until September. U.S. Treasury yields slipped after the data was released, but the dollar rose, mostly on gains against the Japanese yen after the Bank of Japan failed to intervene in forex markets as the yen tumbled further. It was a non-stop rally all day for major averages as the Nasdaq climbed over 300 points or 2% while the S&P (SPX) rallied over 1% back above 5,100, with all major averages posting strong weekly returns (for the week, the S&P 500 gained 2.69%, the Nasdaq climbed 4.23%, and the Dow climbed 0.67%%). FactSet noted so far for Q1 2024 (with 46% of S&P 500 companies reporting actual results), 77% of S&P 500 companies have reported a positive EPS surprise and 60% of S&P 500 companies have reported a positive revenue surprise. After the 6-day losing streak for the S&P and Nasdaq was snapped last Friday, fear has been erased once again with the CBOE Volatility index (VIX) back down below the 15 level after topping 21 last Friday. Stocks did pullback off highs in the final minutes with the S&P closing right around the 5,100 level.

• PCE Inflation readings were mostly in-line: March overall PCE price index M/M +0.3%, in-line with consensus and prior Feb reading and March core PCE price index M/M also rises +0.3%, and in-line with consensus and prior Feb reading as well. On a Y/Y basis, the headline PCE rose +2.7% (vs. Feb +2.5%) and slightly above expectations of +2.6%, while the core PCE rose +2.8% vs. est. +2.7% and in line with February.
• University of Michigan surveys of consumers 1-year inflation outlook final April 3.2% vs prelim 3.1% and final March 2.9% and 5-year inflation outlook final April 3.0% vs prelim 3.0% and final March 2.8%. University of Michigan surveys of consumers sentiment final April 77.2 (est. 77.9) vs preliminary April 77.9 and final March 79.4 as conditions index final April 79.0 vs prelim April 79.3 and final March 82.5 and expectations index final April 76.0 vs prelim April 77.0.

• In Consumer Products: CL raises 2024 organic sales growth view to 5%-7% from 3%-5% while keeping EPS growth at +mid-singles though, due in part to F/X now being a -MSD impact vs prior -LSD; posted Q1 EPS beat by a nickel on better revenues and organic came in well above at +9.8% vs Consensus +5.1%. In tobacco (MO, BTI, PM), the Biden administration on Friday delayed its plan to ban menthol cigarettes.
• In Retailers: Kering (PPRUY) downgraded from Buy to Hold at TDCowen citing the stock on risk that the Gucci transition could lead to lower-than-expected earnings in the near term (Gucci represents 70% of KER EBIT), while key concerns: a continuation of negative traffic, customer reception of new product, cautionary China backdrop. SKX posts Q1 beat EPS $1.33 vs. est. $1.10 driven by Wholesale (reason for weakness last qtr), Inventory -10% q/q, GMs strong while Q2 guide is light but FY was raised by more than the beat; raised its FY24 sales guidance ~1% to $8.725-$8.875B and EPS guidance ~7% to $3.95- 4.10; COLM EPS beat ($0.71 vs. $0.34 consensus) on better revs/margins and FY24 guidance increased to $3.65-$4.05 (vs. $3.45-$3.85 prior and $3.66 consensus).

• In Car Rental: HTZ was downgraded from Neutral to Underperform at Bank America and slash tgt to $3 from $9 after Q1 results were well below the Street (with adj. corporate EBITDA of (-$567mm) vs consensus at (-$92mm)) driven by higher fleet costs, which are unlikely to meaningfully subside in the near-term.
• In Auto Parts: ALV Q1 adj operating profit rose to $199M vs. $131M y/y and vs. est. $185M, but the company only reiterated its guidance after beat saying sees a FY adj operating margin of around 10.5% and organic sales growth of around 5%.

• In the E&P Sector: SLCA entered into a definitive agreement to be acquired by funds managed by affiliates of APO in an all-cash transaction that values the Company at an enterprise value of about $1.85B. https://tinyurl.com/4yv4y492 ; RRC was downgraded to Sector Perform from Outperform at RBC Capital saying they remain constructive on the outlook, but reduced its rating given recent strong relative outperformance to peers, a persistent weak natural gas market, and its recently lowered natural gas price outlook.
• In Refiners: PSX shares weighed on the group after posting Q1 adj EPS $1.90, missing the $2.17 estimate on lower margins, which fell ~47% y/y to $10.91 per barrel.
• In Utilities and Solar: HE shares fell after reports that late yesterday Hawaii lawmakers deferred a bill that would have helped Hawaiian Electric Industries Inc. recover costs tied to the Maui wildfires, making the measure unlikely to pass in this session.

• In Insurance: HIG Q1 core EPS $2.34 vs. est. $2.45; Q1 revs $6.419B vs. est. $6.51B; said Q1 Property & Casualty written premiums rose 9%, driven by Commercial Lines and Personal Lines premium growth of 8% and 13%, respectively; PFG Q1 adj operating EPS $1.65 vs. est. $1.73; Q1 pretax operating profit $472.2M, below est. $505.1M; said remains on track to deliver 2024 outlook; raises dividend to $0.71. AON shares tumbled to the lowest levels since October 2022 after Q1 EPS/revs missed consensus.

• CUBE kicked off Self Storage REIT earnings with a Q1 miss vs consensus (-$0.01/share), though management affirmed its FY24 FFO guidance and maintained all assumptions underlying its full-year outlook; SSREV growth decelerated 40 bps in the quarter and was roughly unchanged on a y/y basis.
• CUZ reported Q124 FFO of $0.65, ahead of consensus of $0.64 and raised FY24 FFO guidance by $0.015 to a range of $2.60-$2.67 ($2.57-$2.67 prior), primarily driven by higher parking revenues and termination fees; SSNOI growth accelerated sequentially to 6.6% vs. 3.5% in Q423 and cash rental rates increasing to 5.3% (vs. 0.8% in Q423)
• DOC Q1 FFO consensus (+$0.01/share) and management increased 2024 guidance by over 1% at the midpoint; revised guidance is ~1% above consensus.

• APLS said European regulators have agreed to "reset" the review of its eye drug Syfovre, following a prior negative decision and the company expects European regulatory advisers to render a new recommendation on the drug by July.
• GILD reported mixed 1Q results with top-line upside but a weaker bottom-line largely from IPR&D charges that were not fully reflected in consensus according to Bank America; Q1 adj EPS ($1.32) vs est. ($1.49) on revs $6.69B vs est. $6.34B; while reported a beat on higher-than-expected Veklury sales, shares were flat on the back of a broadly in-line 1Q EPS, with the HIV business ($4.34B) better.
• PFE said the FDA approved its hemophilia B gene therapy, the second one-time treatment authorized for the rare bleeding disorder, joining a therapy developed by QURE and CSL Behring.

• In Managed care: CNC 1Q results were ahead, with strong revenue performance across Medicaid, Commercial and Medicare, while HBR was in-line with consensus at 87.1%; Q1 EPS $2.26 vs. $2.11 consensus; now expects annual profit of more than $6.80/shr compared with previous forecast of more than $6.70/shr.
• In Insulin/Diabetes names: DXCM shares declined as Q1 revs beat ($921M vs. $910M) and rev guidance raise at the low-end ($4.2B to $4.35B vs. $4.15B to $4.35B prior), but shares fell amid high expectations (Raymond James said was hoping for a bit more upside, but DexCom added a record number of new users in Q1).
• In Medical Devices: LMAT was upgraded from Hold to Buy at Stifel and raise target price to $75, from $59 as sees multiple top-line growth-enhancing and margin-expanding initiatives as indicative of the company’s now more-evolved, compelling, and sustainable growth and profitability outlook.
• Sleep Apnea: RMD reported Q3 revenue growth was ahead of expectations, driven by upside in Devices; Q3 adj EPS $2.13 vs est. $1.91 on revs $1.2B vs est. $1.167B, adj gr mgn 58.5%.
• Health Services: TDOC reported a solid top- and bottom-line beat driven by better Integrated Care segment revenues and stronger margins driven by G&A efficiencies, while for Q2, issued below the Street guidance both on the top and bottom lines driven by weaker BetterHelp contributions (6% y/y rev declines at 9.5% margins at the midpoints).

• In Chemicals: EMN reported 1Q24 EPS of $1.61, compared to consensus of $1.43 while on an EBITDA basis, reported $401M compared to consensus of $387M as mix was positive, with healthy beats in specialties and weaker commodity earnings; but maintained its 2024 EPS guide of $7.63 at the midpoint despite healthy Q1 beat. DOW was upgraded from Neutral to Overweight at JP Morgan saying it is capable of outperforming because it is a beneficiary of higher oil prices, it has a durable 5% dividend yield, its value is sensitive to acceleration in global economic activity.
• In Industrials: TEX reported 1Q24 EPS of $1.60 vs. cons $1.37 on revenue of $1,293B vs. est. $1,235B while gross margin of 23.0% beat by 150 bps, while SGA of 10.8% was 20 bps higher, leading to 12.2% operating margin; TEX took $1,024M in orders, down 21% y/y, and backlog decreased to $3.1B, which was down 24% y/y.

• In social media: a much better showing for the group today after SNAP reported strong Q124 results whereby revenue came in ~7% ahead of consensus and EBITDA came in ~$100M above the high end of guidance as Snap’s ad models are driving better returns for advertisers; Q1 DAUs for Snapchat grew to 422M above ests. 419.6M.
• In Media: ROKU reversed overnight gains, sliding this morning after warning that streaming rivals’ push towards ad-supported offerings could weigh on its growth this year (the outlook overshadowed better Q1 results and Q2 revenue forecast as Q1 revs $881.47M topped ests $848.62M and sees Q2 revs $935M vs. est. $932.4M).
• In Telecom/Cable: TMUS reported service revenue growth of 3.5% with overall revenue flat on a 12.6% decline in negative margin equipment revenue. EBITDA growth of 8% beat Opco 6.8% estimate, and ramping, with reported EPS up 26%. TMUS reported +532K postpaid phones and +405K broadband adds in 1Q24; the phone adds were a 32K beat, broadband a 20K miss on a $10 price increase. CHTR lost -72K internet customers in Q1, more than the -57K loss estimate (after adding 76K y/y); Q1 revs $13.68B in-line with ests. and EPS $7.55 missed the $7.92 estimate; also posted lower FCF of $358M vs. ests. $519M.

• Stifel said shares of ALAB, CRDO, MRVL, MTSI and MXL primary names that MSFT commentary is incrementally positive for with relatively higher Data Center/AI exposure (secondary names MPWR SMTC). MSFT Intelligent Cloud revenue grew +21% y/y to $26.7B, driven by Azure & Other Cloud Services growth of +31% y/y. MSFT Mar Q capital expenditures grew +66% y/y to $11.0B (cash paid for PP&E) to support demand for MSFT’s cloud and AI offerings.
• APPF posted solid Q1 results, beating revenue and OI expectations by 8.7M and $9M, respectively while boosted its 2024 revenue growth outlook to ~24%, and more importantly, OM guidance is moving higher to 23.5%.
• TEAM Q3 results were overshadowed by their co-Founder and co-CEO, Scott Farquhar stepping down effective end of August; delivered a strong +8.3% beat vs. consensus on top-line revenue driven by a final burst of Server migrations to Datacenter driving 64% YoY growth, while Cloud results and F4Q guidance were only in line.
• EPAM was upgraded from Underweight to Equal Weight at Morgan Stanley as expectations and valuation appear more reasonable, while maintaining its Cautious view on the broader IT Services industry. Negative read-through commentary from peers has weighed on the stock and MSCO sees a more balanced risk/reward.

• INTC tumbled as reported 1Q results in line and guided 2Q lower. In-line results were driven by growth in INTC Products (DCAI, CCG, NEX) and offset by declines in MBLY, ALTR, and 5G; Q2 rec guidance was lower than expected with outlook of $13B, at the midpoint, below the consensus of $13.6B & gross margin expected to decline.
• KLAC reported 3Q results that were modestly higher than consensus, and guided 4Q a similar amount above and said market conditions have stabilized, it expects business to improve through CY24 (followed good results from LRCX and TER the day prior in semi-equipment makers).