Closing Recap

Thursday, September 05, 2024

What looked like another strong stock market rally initially, as the Nasdaq rose 1% to kick off the day amid big gains in mega cap tech (AAPL, AMZN, TSLA, NVDA), turned out to be a head fake as major averages reversed course, settling mostly lower ahead of the key nonfarm payroll August jobs report tomorrow morning. Note the SPY, IWM, and QQQ are all trading/holding around key technical support/resistance levels heading into the jobs report Friday, with SPY, IWM dipping back below 50 day moving averages and the QQQ (already below 50dma) below its 100dma. Investors are hoping that tomorrow’s data will provide details about the economy/jobs market (after weaker ADP today) and give further insight as to whether the Fed will cut rates 25 or 50 bps in 2-weeks at its policy meeting. Consumer Discretionary (XLY) outperformed (thanks to TSLA, AMZN strength), though most other sectors were in the “red” with Financials (XLF), Industrials (XLI) and Healthcare (XLV), underperforming. In addition to the jobs tomorrow, we also get semiconductor/AI earnings tonight with Broadcom (AVGO) results expected.  In Political news, Republican presidential candidate Donald Trump said on Thursday he would establish a government efficiency commission headed by billionaire supporter Elon Musk if he wins the Nov. 5 election, during a wide-ranging speech in which he laid out his economic vision for the country. Lastly, the NFL season kicks off tonight with the Baltimore Ravens playing the defending Super Bowl Champions Kansas City Chiefs.

• Weekly Jobless Claims fell to 227,000 in the latest week vs. consensus 230,000 and down from 232,000 prior week; the 4-week moving average fell to 230,000 from 231,750 prior week and continued claims fell to 1.838M from 1.860M prior week; the U.S. insured unemployment rate unchanged at 1.2%.
• U.S. Q2 non-farm productivity revised to +2.5%, in-line with consensus and vs. previous +2.3%, while U.S. Q2 non-farm unit labor costs revised to +0.4%, below consensus +0.8% and prior +0.9%.
• ISM report on U.S. non-manufacturing sector shows PMI 51.5 in August vs. consensus 51.1 and vs. 51.4 in July; segment breakdown showed business activity index 53.3 in August vs 54.5 in July, ISM non-manufacturing prices paid index 57.3 in August vs 57.0 in July, ISM non-manufacturing new orders index 53.0 in August vs 52.4 in July, and ISM non-manufacturing employment index 50.2 in August vs 51.1 in July.
• S&P Global Aug. Services PMI at 55.7 vs 55 last month and S&P Global Aug. Composite PMI at 54.6 vs 54.3 prior.

• Oil prices rose early on reports OPEC+ has reached an agreement to delay an oil output increase scheduled to start in October after oil prices hit their lowest in nine months, two sources from the producer group told Reuters. The move comes as oil prices have been falling on concerns about a weak global economy and particularly soft data from China.
• Gold prices rose $17.10, or over 0.65% to settle at $2,543.10 an ounce; Treasuries rallied as yields fell following mixed economic data and ahead of the key nonfarm payroll report tomorrow. Today’s ADP data dimmed the prospects for a -50 bp rate cut on September 18. However, implied rates are still primed for -108 bps in cuts over the rest of the year. The 2-year yield slipped -2bps to 3.745% and the 1-yr -4bps to 3.725%.

• In Auto Research: Wolfe research made several changes in the auto space, assuming coverage in GM with a Peer Perform rating (down from Outperform) as sees 2025 earnings for the Detroit 3 automaker’s down versus this year, as downgraded STLA as well to Peer Perform (Ford remains PP as well). In auto suppliers, GT was assumed lower with Peer Perform (from OP) along with MBLY and MGA while TEL was upgraded to Outperform with $187 tgt. XPEV was upgraded to OW from Neutral at JP Morgan on the expectation that its upcoming new models in Q424 – Mona M03 and P7 plus (both sedans) – should increase quarterly delivery from ~45k units in Q324 (guidance 40- 45k) to ~80k in Q424.

• In Specialty Retail: MOV lowered its FY25 EPS guidance to $0.90-$1.00 from prior $1.20-$1.30 and lowered year sales view to $665M-$675M, from about $700M-$710M on lower op income view $23M-$26M, from $32M-$35M.
• Online Retail: AMZN expects to help Indian exporters sell about $5B worth of small-ticket items through its platform this year in markets such as the United States and Britain, up from nearly $3B in 2023, a company official said – Reuters.
• In Leisure Products: MODG announced it’s settled on pursuing a spin. This news comes on the heels of MODG announcing its intention to pursue either organic or inorganic strategic alternatives last month amid softer SVS trends at Topgolf and general frustration from mgmt/investors with the share price.

• In Home Improvement Retail/Lawn: TTC shares dropped after results and lower guidance; Q3 earnings missed expectations and lowered its full-year EPS guidance range to $4.15-$4.20 from $4.25-$4.35 citing slowing demand from homeowners and dealers as the summer progressed; Q3 sales grew 6.9% to $1.16B but missed ests of $1.26B.

• In Airlines: JBLU shares climb on improved Q3 revenue outlook as sees Q3 revs -2.5% to +1%, above prior view of -1.5% to -5.5% as notes operational performance over summer improved y/y; still forecasts Q3 CAPEX about $365M, vs. est. $362.2M. GOL was upgraded to Hold from Reduce and AZUL downgraded to Hold from buy in Brazilian airlines at HSBC Holdings saying the Brazilian airline industry continues to be battered by post pandemic debt issues; last is Azul – CEO rules out Chapter 11. BRL weakness is an ongoing concern, gov’t recent aid package partial remedy. JP Morgan updated estimates for Mexican airports and downgrading Grupo Aero Gap (PAC) to Underweight (from Neutral) on valuation, while maintaining ASUR at Overweight and OMA at Neutral.
• In Freight/Truckers: ODFL reported certain less-than-truckload ("LTL") operating metrics for August 2024. Revenue per day decreased 5.2% as compared to August 2023 due to a 6.1% decrease in LTL tons per day that was partially offset by an increase in LTL revenue per hundredweight. The change in LTL tons per day was attributable to a 5.0% decrease in LTL shipments per day and a 1.1% decrease in LTL weight per shipment. XPO LTL tonnage per day -4.6% in August y/y; decrease in shipments of 4.5% and tonnage down 0.1%. FDX shares fell for a 3rd straight day after having risen 14 of the last 15 trading days prior into earnings later this month (9/19); Dow Transports holding above 50dma support 15,615.
• In Chemicals: CE downgraded to Neutral from Overweight and tgt to $150 from $180 at Piper, updating its estimates after earnings, guidance updates and its own recent channel checks which seem to indicate a more prolonged set of headwinds in two of CE’s key operating regions, China and the EU.
• In Mining: First Majestic Silver to buy silver miner GATO for $970M in an all-stock deal as First Majestic to offer 2.55 shares for each GATO share, implying an offer price of $13.49 per share, a 16% premium from yesterday close. In gold miners, HMY shares slumped after declaring a lower-than-expected dividend payout and provided a conservative guidance for the current fiscal year as now sees producing between 1.4M-1.5M ounces of gold, a slight decline from the 1.56 million ounces it dug out in fiscal 2024 and said expects mining costs to increase.
• In Industrials: FTV announced plans to split the company in 2 and focus at least 75% of FCF to buybacks until the split is done in late 2025. As part of the transaction both the CEO and CFO will be retiring – CFO in early 2025 and CEO when deal is concluded

• In Crypto: APLD shares jumped after announced $160 million private placement financing priced at market, from a group of institutional and accredited investors, NVDA and Related Companies, the most prominent privately-owned real estate company and leader in complex infrastructure and data center development.
• In Payments/Processing: Morgan Stanley downgraded Brazilian digital payments companies PAGS and STNE to Underweight from Equal Weight saying the market has likely reached saturation and is cutting its EPS estimates for the next six years, by as much as 45-55% in 2030, as it incorporates slower TPV growth, price compression.
• In REITs: Mizuho upgraded EGP to Outperform (PT to $200 from $175) and downgrade TRNO to Underperform (PT $62) while remain at Outperform on FR and Neutral on PLD and REXR saying the Industrial REIT narrative has recently turned net positive, as many investors believe the worst is behind us. Mizuho however said the numbers, however, tell us a different story – core growth will keep slowing.
• Commercial Real Estate: STWD, KREF, NMRK all upgraded to Outperform from Market Perform at KBW Inc in commercial real estate sector saying the market is nearing a bottom on key indicators like prices, volumes, loss reserves, and the Federal Reserve signaling interest rate cuts, the backdrop will improve in Q4.

• COR raised its FY24 adj EPS view to $13.60-$13.70, up from prior $13.55-$13.65, citing continued strong results, and warned about recording lower-than-expected growth in the following year; said FY25 adj op income and EPS growth are now set to be at the bottom of its long-term growth target ranges of 5% to 8%, and 8% to 12%, respectively.
• INAB suspended patient enrollment of two experimental drugs to treat a type of brain cancer as it explores potential partnership opportunities; INB-200 was being tested in an early-stage study while INB-400 was in mid-stage.
• LLY announces positive topline data from the QWINT-1 and QWINT-3 Phase 3 clinical trials evaluating once weekly insulin efsitora alfa in adults with type 2 diabetes
• MCK shares dropped sharply, breaking below its 200dma following debt offering and news that it announces sale of Rexall and Well.ca Businesses to Birch Hill Equity Partners and presented at Wells Fargo conference where Leerink noted the co lowered its FY25 EPS estimate to $32.05 from $32.25, but maintains its FY26 EPS estimate of $36.03.
• NVS downgraded from Buy to Neutral at Goldman Sachs, driven by solid recent share price performance, earnings upgrades as consensus have caught up to estimates, and they see limited value driving innovation catalysts in the n-t.
• PHR reported a slight top-line beat but healthy profit beat to achieve adjusted EBITDA margins of over 6.4% and drive the first positive free cash flow quarter. Importantly, while PHR maintained its FY revenue outlook, it raised its adjusted EBITDA guidance to reflect ~7% margins
• VYGR enters license agreement with NVS for next-generation Capsid, bringing partnered portfolio of TRACER-enabled gene therapies to 14; Voyager to receive upfront consideration of $15 million and is eligible to receive up to $305 million in potential associated milestone payments and royalties.
• ZBH shares tumbled after presenting at a Wells Fargo conference, stating an unexpected revenue growth headwind related to ERP issues, which Truist said puts revenue and earnings achievability at risk.

• In Telecom: VZ has agreed to buy FYBR in an all-cash deal worth $20B. Verizon’s $38.50-per-share offer to expand its fiber network was a 37% premium to Frontier’s close Tuesday, the day before reports in the WSJ about the potential transaction surfaced. Frontier jumped 38% on Wednesday. ASTS shares dropped after the company said it may offer, sell shares of Class A common stock of up to $400M from time to time (follows recent surge in share price). SATS hits 52-week highs, outperforms on day after Bloomberg reported DISH is in talks with a group of creditors to resolve a lawsuit tied to a controversial transfer of assets.

• BASE delivered a mixed Q2 with in-line revenue/EPS but soft Q3/FY25 ARR guidance as the company saw an uptick in churn/downsells in Q2, impacting NNARR; also guided below Q3 ARR estimates.
• CXM shares dropped as quarterly subscription revenue missed consensus estimates, and the full-year expectation is coming down, while total and current bookings, even adjusting for the credit charge that removed $5M from the RPO metrics, fell significantly to -39.7% and -9.7%, respectively.
• HPE earnings were mixed with in-line F3Q24 results and a downgrade on F2024 EBIT guidance (low-end of 0-2% growth vs. 0-2% prior) due to gross margins pressure from AI systems; HPE expects F2024E Server margins to be at the low-end of its 11-13% target range with margin improvements over time.
• SMAR shares jumped after Reuters reported Vista and Blackstone in talks to acquire software maker Smartsheet, a U.S. maker of workplace collaboration software with a market value of about $7 billion https://tinyurl.com/z258vv96
• VRNT missed Q2 total revenue and EPS as an unbundled SaaS deal was pushed out, but management did reaffirm the FY25 targets for revenue and EPS and affirmed that the results were not impacted by macro or AI disruption.
• OpenAI executives have discussed higher-priced subscriptions for upcoming large language models, such as its reasoning-focused Strawberry and a new flagship LLM dubbed Orion, the Information reported on Thursday. In early internal talks at OpenAI, subscription prices ranging up to $2,000 per month were discussed, the report said.