Mid-Morning Look

Tuesday, April 11, 2023

U.S. stocks treading water ahead of Wednesday’s consumer price index (CPI) inflation report. The rotation-based market continues with NYSE breadth strong today, as advancers lead decliners by more than 3:1 margin, but the Nasdaq and S&P are weaker, paring some of Monday gains as large cap tech slips (AMZN, AAPL, MSFT, AMD, NVDA). That has been the story so far in 2023, with large cap tech seeing the biggest moves to the upside (and hold biggest weightings in major averages), carrying the broader market on its back while financials, energy, and defensive utilities and healthcare have lagged on rising recession fears. Today profit taking in mega cap tech, while Small Caps (IWM) outperform a second day. Market action is very slow and steady into key catalysts this week: CPI tomorrow, PPI Thursday, Retail Sales, and bank earnings (JPM, Citi, WFC) on Friday. Investors remain focused on interest rates ahead of the Fed’s meeting concluding May 3. After last week’s strong labor-market data, traders think the central bank is likely to raise rates by a further quarter of a percentage point, according to CME Group, but a softer CPI reading tomorrow could mix things up and boost stocks further. Bitcoin rose more than 3% to over $30,000, a level it hasn’t breached since June. The cryptocurrency has risen more than 80% in 2023, after starting 2023 changing hands at about $16,600.

Economic Data

·     NFIB’s headline small business sentiment slid -0.8 pts to 90.1 in March – a gloomy level, below its 2020 Covid panic bottom. Owners expecting better business conditions over the next 6 months remained flat m/m at -47 – well below all prior recession bottoms (back to 1986). Small business credit availability is the worst since late 2012, with 9% of owners who frequently borrow, saying it’s harder to get a loan.

Sector Movers Today

·     In auto retail: KMX posted a near 57% drop in Q4 profit after sales were dragged down; mixed results as Q4 EPS of $0.44 topped ests $0.20 (but below $0.98 y/y) as sales of $5.72B misses the $6.08B estimate, down -26% y/y; 4Q used vehicle sales $4.53B vs. est. $4.8B. In auto dealers: Wells Fargo previews quarter saying they are below consensus on AN Q1 EPS. While pricing has held in, new retail volumes are ~flat y/y, interest rates are up, and both screens poorly on brand mix. Despite low valuations, remain EW, as consensus EPS likely needs to come down.

·     Medical devices: SWAV rises after CMS issued its proposed fiscal 2024 payment ruling for hospital inpatient procedures, Piper noted SWAV was a big winner as the proposal included (1) three new codes specific to coronary IVL; and (2) an overhaul of the broader PCI code structure; WST was upgraded to Overweight at Stephens and ZBH upgraded to Outperform at Evercore ISI

·     In Internet: BABA unveils ChatGPT Rival with Chinese and English Capabilities; in the content delivery network sector, Piper upgraded AKAM from Neutral to Overweight w/ $93 PT saying they believe the pull-back in shares presents an opportunity to own this contrarian name into earnings and over the NTM. The WSJ reported GOOGL said YouTube to charge as much as $449 a Year for Sunday Ticket NFL Package; cost of Sunday Ticket NFL Package will be $349 a year for people who pay $72.99 a Month for YouTube TV’s base video service package.

·     In software: MANH downgraded to neutral from buy at Rosenblatt Securities ahead of the application software company’s quarterly results; SNOW cautious analyst commentary as research boutique out w/ negative checks, downgrading to Neutral w/ less conviction in upside to LT targets; Q1 feedback points to continued headwinds. SNOW also downgraded to Neutral from Buy at UBS stemming from deteriorating conviction in long-term upside potential due to continued headwinds via a Q1 feedback survey. For MSFT, UBS lowered Azure estimates again, with AI enthusiasm limiting the downside risk in the stock.

Stock GAINERS

·     CLF +2%; guided Q1 revs $5.2B and steel shipments of 4.1 million net tons (in-line with ests on revs) and intends to offer to sell $750 million of senior unsecured notes.

·     COIN +8%; strength in crypto related stocks (MSTR, RIOT, MARA) as Bitcoin trades above $30,000, its best levels since June ahead of CPI data.

·     KMX +9%; after mixed results as Q4 EPS of $0.44 topped ests $0.20 (but below $0.98 y/y) as sales of $5.72B misses the $6.08B estimate, down -26% y/y; 4Q used vehicle sales $4.53B vs. est. $4.8B

·     MHK +3%; upgraded from Hold to Buy at Loop Capital saying the long-term margin outlook is improving as see raw materials and logistics costs reverting to historical norms.

·     RGNX +4%; said the FDA granted “fast-track” designation for its experimental therapy RGX-202, a potential one-time gene therapy for treatment of Duchenne muscular dystrophy.

·     SWAV +7%; CMS issued its proposed rule for 2024 inpatient payment rates which included a positive update for the co and inpatient IVL coronary. CMS is proposing to establish brand new IVL specific codes/these new codes pay roughly $4k more than prior.

·     WW +47%; upgraded to Buy from Neutral and raised tgt to $13 from $3.80 at Goldman Sachs saying its subscriber base and earnings power has been shrinking but believe a catalyst for a turnaround has emerged with its new obesity drug on-ramp solution.

Stock LAGGARDS

·     ACI -1%; Q4 EPS $0.79 topped the $0.68 estimate and said quarterly digital sales rose 16%, while ID sales rose +5.6%; overall sales grew 5.1% to $18.27B topping estimates $18.22B.

·     ADTN -24%; guides prelim Q1 revenue to $322M-$326M, below prior $355M-$375M vs. consensus $364.11M and reports preliminary Q1 operating margin down 1% to up 2.5%; said revenue is expected to fall short of guidance due to customer inventory corrections.

·     MRNA -5%; after a final-stage study of its first experimental flu shot mRNA-1010 hasn’t accumulated enough data to determine efficacy ahead of today’s 8am Vaccine Day.

·     MSFT -2%; UBS lowered Azure estimates again, with AI enthusiasm limiting the downside risk in the stock.

·     SNOW -5%; downgraded to Neutral from Buy at UBS stemming from deteriorating conviction in long-term upside potential due to continued headwinds via a Q1 feedback survey.

·     TLRY -6%; slips in cannabis space after qtrly revs miss estimates and acquires HEXO