Mid-Morning Look

Thursday, April 04, 2024

U.S. stocks starting the day strong, another Thursday rally ahead of Nonfarm payroll results tomorrow morning, as all eleven S&P sectors currently trading higher, led by REITs, Technology, Materials, and Financials. Another heavy slate of Fed speakers on tap today (seven in all), but their mild cautiousness lately has failed to dent market optimism (recall Bostic saying sees one rate cut in Q4 this year). Fed Chairman Powell stuck to the script yesterday still seeing three cuts for rates this year and that remains all that has mattered thus far for broader averages. Treasury yields dip slightly after big gains this week, while the dollar dips and Bitcoin +3% approaching $68K. In data today, weekly jobless claims hit two-month highs while the trade deficit widens in February. Better earnings in retail (LEVI), staples (CAG) help those sectors while large cap tech (AMZN, META, MSFT, NVDA) help boost broader averages. HUBS gives a boost to software stocks following media report of interest from GOOGL (more below).

• U.S. Feb exports +2.3% vs Jan +0.1%, imports +2.2% vs Jan +1.2%; U.S. Feb exports $263.01B vs Jan $257.18B, imports $331.91B vs Jan $324.79B; U.S. Feb capital goods imports $75.69B vs Jan imports $75.01B; U.S.-China Feb trade deficit $19.88B vs Jan deficit $23.72B.

• In Utilities: UBS with several ratings changes: ES upgrade to Buy from Neutral saying its 18% discount valuation on ’25 $4.85 EPS forecast ignores the renewed focus on the core delivery business and debt reduction. CWT upgraded to a Neutral from Sell to reflect regulatory clarity from the completion of the California rate case and top quartile 8.5% EPS growth. CMS downgraded to Neutral from Buy noting stock trades at a one of the highest premiums in its coverage at 11% or 16.5x versus the group average of 14.9x, and SO downgraded to neutral from Buy after stock re-rating as now trades at an 11% premium vs peers.
• In FinTech: SQ shares were downgraded from Equal Weight to Underweight at Morgan Stanley with $60 tgt as the new rating reflects limited additional opportunity for the company’s Cash App to expand banking/credit services. SYF was double upgraded to Outperform from Underperform at Wolfe Research and raised tgt to $50 from $36 as now sees "clear evidence" that Synchrony’s delinquency rate formations are rolling over. BFH also upgraded to Outperform at Wolfe Research as thinks Bread can mitigate lower late fees. UPST was reinstated coverage at Underperform and $22 tgt at Bank America as thinks Upstart has many hurdles to overcome to regain investor and lender confidence.

• BB +4%; better Q4 results as non-GAAP EPS $0.03 vs. est. loss (-$0.03); Q4 revs rose 15% y/y to $173M vs. est. $154.78M and CEO said the company was making good progress toward separating its divisions and driving profit (FY25 guidance was below consensus).
• CAG +5%; reported Q3 top/bottom line beat ($0.69/$3.03B vs. est. $0.65/$3.01B) and forecasts FY adj. operating margin about 15.8%, forecast about 15.6%while backs its FY24 adj EPS and organic net sales view.
• HUBS +9%; after Reuters reported GOOGL was in talks with advisers about a potential offer for HubSpot, an online marketing software company with a market value of $32B https://tinyurl.com/2k5txf6y
• LEVI +17%; delivers a better quarter and a guidance raise as Q1 EPS $0.26 vs. est. $0.20; Q1 revs fell -8% y/y to $1.56B vs. est. $1.55B; boosts FY24 EPS view to $1.17-$1.27 from $1.15-$1.25 (est. $1.21) and affirms FY24 revenue growth view of up 1% to 3%.
• META +3%; after Jefferies said in a note this morning following updated market share analysis, they believe Meta could capture 50% of incremental industry ad dollars in 2024.
• MGNX +30%; provided an update on the Phase 2 TAMARACK study of vobramitamab duocarmazine (vobra duo, previously known as MGC018) in patients with metastatic castration-resistant prostate cancer.
• STAA +12%; reported prelim Q1 revenue more than $77M, topping consensus $72M and said cash, cash equivalents and investments available for sale was approximately $248M.

• EFTR -82%; shares tumbled after saying it won’t continue developing its Tomivosertib lung cancer treatment after phase 2 trial data showed no significant differences versus placebo.
• LW -16%; after adj EPS $1.20 missed the $1.45 estimate as sales rose 16% y/y to $1.46B but below ests $1.65B and cut its FY24 EPS and sales outlook (net sales $6.54B-$6.60B, below forecast $6.8B-$7.0B).
• PARA -8%; after comments by David Faber on CNBC saying a David Ellison-led bid for Paramount would require a new equity raise of up to $3B. The equity raise would be part of an agreement with David Ellison’s Skydance, Faber said, who added that Ellison and his partners would step to purchase a "good amount" of that equity.
• SQ -2%; downgraded from Equal Weight to Underweight at Morgan Stanley with $60 tgt as the new rating reflects limited additional opportunity for the company’s Cash App to expand banking/credit services.