Closing Recap

Tuesday, February 20, 2024

Index	Up/Down	%	Last
DJ Industrials	-63.96	0.17%	38,564
S&P 500	-30.04	0.60%	4,975
Nasdaq	-144.87	0.92%	15,630
Russell 2000	-29.05	1.43%	2,003

 

 

 

 

 

 

 

 

 

U.S. stock finished lower (but off their worst levels), dragged down by weakness in technology and consumer discretionary sectors ahead of NVDA earnings Wednesday night in a bout of profit taking following a massive rally in shares behind the “AI” growth story. Zerohedge tweeted, citing Goldman Sachs, that “two years ago the S&P energy sector was 5x the size of Nvidia….today Nvidia is bigger than all the energy stocks in the S&P 500 combined” (kind of sums up the king of move NVDA has seen into earnings). Consumer Staples the lone bright spot today, boosted by better Wal-Mart (WMT) earnings (traded new record highs) helping the food/retail names.  There were no major U.S. economic data points today (light week overall) and no Fed speakers, as investors continue to digest the “hotter” CPI and PPI data points last week that snapped the 5-week win streaks for the S&P, Nasdaq, and Dow. Big M&A news in the credit card space as COF acquires DFS in $35B deal, weighing on shares of MA and Visa, while in another deal, WMT agreed to acquire TV maker VZIO in a +$2B deal. In Asia, China cuts key rate for mortgages as its central bank (PBoC) trims 5-year loan prime rate (LPR), reference rate for banks, from 4.2% to 3.95%, but failed to lift US listed China stocks.

 

Two Wall Street Strategists (UBS, Goldman) raised their S&P end of year targets: 1) UBS raised target from 5150 to 5400 and  increasing its 2024-25 EPS estimates from $235 to $240, and $250 to $255, implying 9.1% and 6.3% growth over the next 2 years while raising Financials from Neutral to Overweight, Health Care from Overweight to Neutral While Health Care remains UBS’s preferred group within defensives, it sees greater opportunity in cyclical sectors given continued economic strength. 2) Goldman Sachs raises year-end S&P 500 index target to 5200 from 5100 entirely driven by a higher 2024 top-down EPS forecast of $241 (vs. $237 earlier and consensus of $235) – reflecting GSCO’s expectation for stronger economic growth and higher profits in Info Tech and Comm Services sectors.

 

Are companies exercising caution? WallStHorizon tweets: "Buybacks announced in the first seven weeks of the year is rather light at 78. While this is still better than last year’s count of 61, it’s well below the 5-year average of 110…The number of dividend announcements at this point is also lighter than usual, although as we pointed out last week, the share of dividend increases is higher than it has been in a year."

 

Macro	Up/Down	Last
WTI Crude	-1.01	78.18
Brent	-1.22	82.34
Gold	15.70	2,039.80
EUR/USD	0.0031	1.0808
JPY/USD	-0.13	149.98
10-Year Note	-0.02	4.275%

 

• In Beverages: Heineken (HEINY) downgraded to Underperform from Sector Perform at RBC Capital and lowers tgt to $75 from $85 saying the company’s perennial unwillingness to raise marketing is damaging its brand equity, particularly when combined with category leading price increases.
• In Food: GIS reaffirmed its FY24 organic net sales between down 1%-flat, adj operating profit/EPS to increase 4%-5% in constant currency and free cash flow conversion is expected to be at least 95%; USFD was upgraded to Overweight from Neutral at Piper Sandler and raised tgt to $59. CAG shares rallied after saying at the CAGNY conference its frozen meals and snack businesses as well positioned as consumers increasingly use GLP-1 drugs for weight loss. Carrefour raises dividend after 2023 profit jumps.
• In Watch Retail: Bernstein noted Swiss watch exports began the year with a modest yet “positive” growth of 3.1% YoY and 12.1% over two years to CHF 1.9 billion, compared to the 5.5% growth observed in December, amid a tougher comparison base from the previous year. All major markets, except for Hong Kong, which saw a decline of 4.7% YoY, experienced growth. The United States continued to show resilience and growth, registering a 2.2% increase YoY.

• In Building products: earnings results for JELD as adjusted EBITDA margin were 8.5%, above forecast and up 190 bps y/y while guidance for 2024 was better due to better-than-expected EBITDA margin. DOOR Revenue and EBITDA were in line with the Street. The company previously entered into an agreement to be acquired by Owens Corning.
• In Housing Retail: BYON announced that on February 16, 2024, it appointed Marcus Lemonis as Executive Chairman of the board of directors, effective today. Lemonis has been a director of Beyond since October 2023 and the Chairman of its board since December 2023.

• In Boating/Leisure: BC was upgraded from Neutral to Buy at B Riley saying with shares down by ~11% since their early January downgrade, the consensus sell-side rating at the most “bearish” level over the past ten years, and positive indications from the MIBS around underlying demand trends, market share upside, prompts upgrade.
• In Auto Suppliers: DAN shares tumble after Q4 results missed for adj Ebitda, revs while guidance calls for about a 3% increase in sales, 10% increase in adjusted ebitda, $75 mln increase in free cash flow; VC Q4 revs missed as well and guided FY24 sales below consensus.

• In Machinery: CAT, IR, TKR all downgraded from Outperform to In Line at Evercore/ISI saying it is now prudent to take profits in the machinery space following the post-earnings rallies. The downgrade is not so much company specific as it is a call to take profits on the group.
• In Airlines: ALK, JBLU, LUV were all upgraded from Hold to Buy at Deutsche Bank saying the outlook for domestic capacity in 2024 has dramatically changed over the past four months. DB said they believe more moderate domestic ASM (available seat mile) growth for 2024 will have positive implications for domestic unit revenue performance, and by extension, should translate into solid top-line performance for the domestic-focused names. Bernstein upgraded LUV to Market-Perform from UP as conditions in the domestic market have improved.
• In Utilities: ALE Q4 EPS $0.89 vs. est. $0.97; Q4 revs $402.7M vs. est. $425.3M; updated its five-year capital expenditure plan to $4.3B, which is a $1B increase from its previous five-year plan; sees EPS $3.60-$3.90 vs. est. $4.08; CNP announces sale of its Louisiana and Mississippi natural gas assets to Bernhard Capital partners for $1.2B; the sale will not change company’s targeted utility non-Gaap EPS growth rate of 8% in 2024.
• In Energy: Reuters reported OXY is exploring a sale of WES, a U.S. natural gas-focused pipeline operator that has a market value of close to $20 billion, including debt, according to people familiar with the matter.

• TD Cowen said they believe Capital One’s deal for Discover could impact credit card policy. Notes Credit Card Competition Act is less likely in 2024 and requirement that banks can issue cards on multiple networks to get attention. White House to use deal to justify limits on credit card fees and interest rates.
• In Banks: BCS reported a Q4 net loss of $139.8M and announced an extensive strategic overhaul; announced a huge operational restructuring, including substantial cost cuts, asset sales and a reorganization of its business divisions.
• In Payments/FinTech: GPN said it is offering privately $1.75 bln 7-yr convertible bonds and plans to use $300M of net offering proceeds to repurchase stock from CB purchasers, remainder to repay debt under its commercial paper program and revolving credit agreement.
• In Insurance: TFC agreed to sell its remaining stake in Truist Insurance Holdings to an investor group led by Stone Point Capital and Clayton, Dubilier & Rice in a deal that values the insurance business at $15.5 billion.
• In Financial Services: SPGI announced an agreement to acquire Visible Alpha, the financial technology provider of deep industry and segment consensus data, sell-side analyst models and analytics from high-quality, exclusive sources. MSCI was downgraded to Sell from Neutral at Redburn and cut tgt to $470 from $620.
• In REITs: Barclays downgrades CPT and UDR to EW from OW in Apartment REITs, upgrades AVB to OW and stays OW on MAA and IRT driven by company-specific factors. Says due to high supply growth, inflationary cost pressures, the earnings growth outlook for apartment REITs is generally soft. In Office REITs, Wedbush is lowering HPP and HR to Neutral from Outperform, as both appear to be up against elevated investor scrutiny with a slim margin for error in the near-term, although it balances both observations with positive counterpoints.

• AXSM reported better Q4 results, but shares slid after saying they now expect to have the initial results from a Phase 3 Alzheimer’s study in the second half of the year, a delay from earlier guidance for the first half.
• AZN said that its lung-cancer treatment Tagrisso, together with chemotherapy, has been approved in the U.S. based on trial results which showed the therapy extended median progression-free survival by nearly nine months when compared with standard of care.
• IOVA said late Friday the FDA granted an accelerated approval for its cell therapy for adult patients with advanced melanoma Lifileucel, branded as Amtagvi, which will be sold in the U.S. at a list price of $515,000. IOVA also announced the pricing of 23M shares of its common stock at $9.15 per share.
• RAPT shares tumble after saying the FDA placed a clinical hold on its anti-inflammation drug, called zelnecirnon, following a case of liver failure in one patient enrolled in a mid-stage atopic dermatitis study. A separate study in asthma has also been placed on hold. Rapt is investigating the cause of the liver failure.

• MDT raises FY24 EPS view to $5.19-$5.21 from $5.13-$5.19 (est. $5.16) and increased its FY24 organic revenue growth guidance from the prior 4.75% to the new range of 4.75% to 5% after Q4 results beat aided by strong demand for its heart and diabetes devices; added that it decided to exit its ventilator product line, and retain and combine the remaining PMRI businesses into one business unit.

• LUNR successfully launched its IM-1 mission and subsequently deployed its lunar lander in space for its trip to the Moon’s surface. IM-1 represents the first US mission to the Moon’s surface in over 50 years.

• In Containerboard/Packaging: Bank America noted RISI pricing out last Friday a positive, as overall containerboard prices up – $40/ton domestic and flat across export mkts. Boxboard flat across 3 grades but in SBS (shares of IP, WRK, PKG, GEF among movers’ post data). BALL was upgraded from Sector Perform to Outperform at RBC Capital and raised tgt to $74 following the completion of the sale of its Aerospace business to BAE Systems for ~$4.5B.
• In chemicals: Piper said they believe that positive fundamental market signals are beginning to surface in commodity chemicals, particularly PE and investors should now feel a growing sense of urgency to own shares in companies strongly positioned in these products. The like OW rated LYB, DOW and WLK in that order. In gases, LIN rises following upbeat commentary from Air Liquide overnight which doubled its 2025 margin target after posting better-than-expected annual operating profit. MEOH shares fell after saying production at its new 1.8 million-tonne methanol plant in Geismar, Louisiana has been delayed due to issues during late stages of start-up process.

• In Comm & Networking: EVLV announced that it has received a request for information from the SEC after the market closed on 2/16 as the information request was classified as a "non-public, fact-finding inquiry."
• In Streaming: ROKU shares fell after news WMT bought VZIO in $2.4B deal as Wal-Mart represents a significant portion of Roku’s device revenue (Amazon, Best Buy, and Wal-Mart were 74% of device revenue in Q3 as per Piper last week) – could be potential headwinds.
• VHC shares tumbled after Bloomberg reported rejected by Supreme Court, Apple escapes $503M verdict.

• INTC shares rise after Bloomberg reported late Friday the Biden administration is in talks to award more than $10 bln in subsidies to Intel, citing people familiar with the matter. Negotiations are underway, and Intel’s award package will likely include both loans and direct grants, according to the report. http://tinyurl.com/5crryfpm
• GFS shares rose initially after the U.S. Department of Commerce announced $1.5B in planned direct funding for the company as part of the U.S. CHIPS and Science Act. The funding, outlined in a non-binding preliminary agreement, would flow to three separate projects.
• ENTG downgraded to Neutral from Buy at Mizuho with an unchanged price target of $140 as believes the current share price reflects the anticipated strong underlying industry fundamentals after rising 16% YTD.
• SMCI adds to Friday declines of about -20% (still up +182% YTD into today) despite Rosenblatt upping tgt to a street high $1,300 from $700 driven by continues momentum in AI computing; anticipates “these gains to reach double digits in the next couple of years, up from the current mid-single digits, with a particular focus on enterprise.” (shares however made a huge push from morning lows – over $100 point bounce off lows).
• SoftBank’s Masayoshi Son is reportedly seeking $100B to build a new AI chip venture, Bloomberg reported. Code-named Izanagi, the new venture would collaborate with ARM, the chip design company that SoftBank spun out as a public company last year.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.