Mid-Morning Look

Monday, April 24, 2023

U.S. stocks are once again stuck in a narrow trading range, much like the rest of April as investors await a flurry of earnings results this week from some of the biggest companies in the world (roughly 1/3 of S&P 500 reporting this week), GDP and inflation data later this week (Thursday and Friday) and the FOMC policy meeting next week. Reminder the Fed is in their “blackout” period heading into the meeting, so no speakers this week. Since the open, the S&P 500 has moved about 10-points, currently near the bottom-end of its range and major averages are on track for a “flattish” month of returns but still up solidly year-to-date (Nasdaq +15% TTD, SPX +7.5% and Dow +2%), led by some of the biggest tech companies. Speaking of many of those names reporting this week (AMZN, GOOGL, META, MSFT) and could potentially break the S&P out of its current range (one way or another). A close eye on regional banks ahead of FRC results this afternoon, with many watching for deposit outflows following the big bank failures of Silicon Valley and Signature last month. Lone piece of economic data this morning, Dell Fed manufacturing was weaker than expected, adding to weak Philly data last week.

Sector Movers Today

·     In Banks: FRC earnings tonight after the close with close eye on deposit withdrawals following the aftermath of the Silicon Valley and Signature Bank failures last month; PACW active as Bloomberg reported late Friday the bank was exploring the sale of its Lender Finance unit. Credit Suisse said that 61 billion Swiss francs ($68 billion) in assets left the bank in Q1 and that outflows were continuing, underscoring the challenge faced by UBS in rescuing them. Moody Investors Service downgraded 11 regional Banks on Friday saying strains in the way banks are managing their assets and liabilities are becoming “increasingly evident,” and are pressuring profitability – downgraded 11 regional banks, including USB, ZION, WAL, BOH, others.

·     In online services: GETY shares rallied after Trillium Capital proposed to acquire Getty Images Holding for $10 per share in cash. https://bit.ly/3HwToF9 . In Digital Advertising and Dating: TRMR both downgraded to Hold from buy at Stifel but say they expect upside to ests for most of our group, with top Buys into the print TTD, GOOGL, CRTO, and META. Said given top-down view remains unchanged, they’ve made only minor adjustments to our PINS, CRTO, and DV models. In media: DIS reiterated Overweight, raise tgt to $147 at Wells Fargo calling it their best oppty in media as think DIS will use D+, Hulu and ESPN DTC to reach >$100bn in revs.

·     In Semiconductors, MU, Samsung, and Hynix shares slipped initially after the London’s Financial Times reported that U.S. officials have asked their counterparts in South Korea to urge chipmakers such as Samsung and SKY Hynix not to fill orders from China-based companies should a formal decision on Micron be handed down over the coming month. SMCI guides Q3 revs about $1.28B, below the Q3 mid-point of guidance of $1.47B due to key new component shortages for Supermicro’s transition to new generation product lines which have mostly been resolved.

Stock GAINERS

·     FRC +12%; ahead of its earnings results tonight.

·     GETY +35%; after Trillium Capital has proposed to acquire Getty Images Holding for $10 per share in cash. https://bit.ly/3HwToF9

·     IDYA +27%; said Phase II study of experimental combo therapy to treat eye cancer showed a partial or complete response to therapy in patients by 45%, and median patients’ length of survival without progression of disease to around 7 months.

·     KO+1%; top and bottom-line beat with EPS $0.68 vs. est. $0.65 on sales $11.0B vs. est. $10.8B and organic revs +12% vs. est. +9.62%; sees FY adj. organic revs +7% to +8%, vs. est. +7.84%.

·     MDT +3%; upgraded to Overweight at Wells Fargo saying they think MDT will benefit from an improvement in the underlying MedTech markets; the pipeline is improving; and valuation.

·     PHG +14%; as Q1 adj EPS EU0.22 vs. EU0.15 y/y on better sales EU4.17B and said it had set aside $631M related to lawsuits over its recall of respiratory devices.

·     SQM +6%; rebounds after falling -18% Friday after Chile’s President said he would nationalize the country’s lithium industry; ALB, LTHM shares also rebound.

Stock LAGGARDS

·     ABR %; downgraded to Neutral at JPMorgan following the recent default on a large multi-family development and believe the company may begin to build reserves more aggressively.

·     AI -9%; downgraded to Underperform from Peer Perform at Wolfe Research as points to company’s transition to a consumption model as a drag, and forecasts FY24 rev growth of 11% (vs. est. around +20%).

·     BBBY -22%; filed for bankruptcy this weekend and said it plans to wind down the business and close all stores, ex a sale of remaining assets; W and OSTK shares edge higher.

·     FHTX -16%; company is pausing enrollment of its FHD-609 study in synovial sarcoma and SMARCB1-delete tumors due to a grade 4 QTc prolongation event in a synovial sarcoma patient at the second highest dose.

·     FSLR -5%; was downgraded to Sell from Neutral at Citigroup saying solar module supply-demand fundamentals indicate a challenging long-term outlook.

·     SMCI -5%; guides Q3 revs about $1.28B, below the Q3 mid-point of guidance of $1.47B due to key new component shortages for Supermicro’s transition to new generation product lines which have mostly been resolved.

·     TNDM -1%; downgraded to Market Perform from Outperform at Raymond James saying they believe MDT’s 780G approval (slightly earlier than expected) adds more risk to estimates.