Mid-Morning Look

Thursday, August 01, 2024

U.S. stocks showed strength back-to-back days to start the day, but quickly seeing those gains evaporate as Treasury yields collapse to near 2024 lows (10-yr just broke below 4%) as market expectations grow for September rate cuts from the Fed after dovish commentary by Chairman Powell sent stock markets soaring on Wednesday. The S&P 500 and the Nasdaq rose after posting their best days since February 22. Semiconductors take a breather behind weakness in ARM, QCOM, LRCX post earnings and after the Philadelphia SE Semiconductor index (SOX) logged its best one-day gain of 7% since November 2022. The Dow Transport index strong early behind better earnings from CHRW in trucking sector. Among early sector leaders, interest rate sensitive sectors such as Utilities and REITs, while Communications (XLC) rises behind META earnings results, while Energy and Industrials decline. The Bank of England (BoE) surprised with a 25-bps cut to interest rates to 5%, in a split 5-4 vote, while BoE Governor Andrew Bailey said the bank needed to be careful not to cut rates too quickly or by too much. The BoE stated that policymakers will ensure the bank rate is restrictive for sufficiently long until the risks of inflation returning to 2% have dissipated further. Gold prices jumped further after hitting $2,500 yesterday for the first time ever, as yields and the dollar slid. Chemical names FMC, APD advance on earnings helping lift Materials (XLB). More earnings recap headlines below. Markets now await results from AAPL and AMZN tonight after the bell and then the monthly nonfarm payroll jobs report tomorrow morning.

• Weekly Jobless Claims climbed to 249,000 in the latest week above consensus 236,000, while the 4-week moving average climbed to 238,000 from 235,500 prior week; continued claims climbed to 1.877M from 1.844M prior week (and above est. 1.856M) while the U.S. insured unemployment rate unchanged at 1.2%.
• ISM U.S. manufacturing activity index 46.8 in July (vs. consensus 48.8) vs 48.5 in June, while the prices paid index 52.9 in July (vs. consensus 51.8) vs 52.1 in June, new orders index 47.4 in July vs 49.3 in June, manufacturing employment index 43.4 in July (consensus 49.0) vs 49.3 in June.
• June construction spending fell -0.3% vs. consensus +0.2% to $2.148 trln, vs May -0.4%; June private construction spending -0.3%, public spending -0.4%.
• U.S. S&P Global July final manufacturing PMI at 49.6 (vs flash 49.5).
• U.S. Challenger job cuts for July actual: 25.885k vs 48.786k previous.

• In Medical Equipment: TMDX Q2 print featured a $15.5M revenue beat and 18% sequential growth and marked the first quarter with positive FCF while raised its 2024 revenue guidance to $425M-$445M (+76-85%) from $390M-$400M (+61-66%). BDX Q2 revs of $4.99B below est. $5.1B as organic growth of 5.2% below 6.3% est. and lowered organic growth guide but raising low end of EPS guide. ATEC shares tumbled as posted a slight revenue beat and strong adj. EBITDA expansion, the company increased expectations for FY24 cash burn $25M given higher-than-expected days sales outstanding and inventory needs (posts strong EOS momentum, but some surgical growth hiccups in Q2). GKOS shares fell as Q2 sales beat by $7MM ($96MM versus consensus $89MM) and raised FY24 guidance by $12MM at the midpoint, but an estimated $4.3MM in Q2 iDose sales potentially didn’t meet expectations.
• In Insurance: AIG posted Q2 EPS miss of $1.16 vs. consensus of $1.32 as both the General Insurance and corporate missed were weak (Bofa said miss in corporate is likely unsurprising given noise surrounding the deconsolidation of the Corebridge life insurance operations during the quarter) and miss in property & casualty operations was primarily due to lower-than-expected alternative investment income. ALL Q2 EPS $1.61 results came in ahead of Street consensus of $0.26 amid better underwriting margins; auto insurance underlying combined ratio (excluding catastrophes and reserve development) of 94.4% was over 100bps better than Bofa forecast, and in homeowners’, the underlying combined ratio of 66.1% was over 250bps better than Bofa view. MET Q2 EPS of $2.28 topped Street consensus of $2.12 as principally driving the variance was stronger underwriting results in Group Benefits and modestly higher variable investment income driven by improving private equity returns. VOYA downgraded to EW from OW at Morgan Stanley saying while overall results came in above expectations, underperformance in Health Solutions is likely to serve as a headwind for some time.
• In Distribution: WCC shares fell as guided FY24 EPS $12-$13 below estimate $14.18 and lowered its sales outlook to down -1.5% to up +0.5% from prior view of up 1%-4% (followed a Q2 EPS/sales miss); GWW lowered its 2024 sales forecast to $17B-$17.3B from prior view $17.2B-$17.7B due to slower-than-expected demand (provides hand tools, power tools and industrial products to home improvement retailers, construction businesses and aerospace manufacturers); shares of FAST, WSO also active in sympathy

• CHRW +17%; Morgan upgraded to Overweight with $110 tgt after results, citing the structural improvements it highlighted as a reason to own the stock into the print came through and drove another earnings beat.
• CMI +5%; Q2 top and bottom line easily topped consensus ($5/26/$8.8B vs. est. $4.81/$8,34B) and now sees 2024 revenue flat to down 3%, better than prior view of down 2%-5%.
• CVNA +14%; after forecast FY core profit above analysts’ expectations helped by demand for used vehicles, improved inventory management as now expects 2024 adj. EBITDA in the range of $1B-$1.2B, compared with consensus estimates of $890.97M.
• EXAS +19%; shares jumped on results as Cologuard beat by ~1%, EBITDA beat by 57%, & ’24 guide was reiterated and CEO Conroy expressed confidence in coming EXAS blood data.
• LLY +4%; reported late-stage trial data that showed its weight loss drug Zepbound reduces the risk of hospitalization, death and other outcomes for obese adults with a common type of heart failure. The drug, also known as tirzepatide, reduced the risk of a composite of heart failure urgent visit or hospitalization by 38% vs. a placebo.
• META +9%; shares jumped after beating on Q2 revenue and earnings but misses on capex while guides Q3 revs above consensus $38.5B-$41B vs. est. $38.3B/Meta increased its minimum spending guidance for 2024, and its capital expenditures surged about 33%.
• RCM +8%; agreed to be taken private by TowerBrook Capital Partners and Clayton Dubilier & Rice for 414.30 per share, in a deal that valued at about $8.9B.
• SHAK +18%; shares soared as Q2 profit jumped 39% topping estimates for revs and operating income more than doubled to $10.8M
• TMDX +13%; Q2 print featured a $15.5M revenue beat and 18% sequential growth and marked the first quarter with positive FCF while raising its 2024 revenue guidance to $425M-$445M (+76-85%) from $390M-$400M.

• ARM -9%; Q1 revs rose 39% y/y to $939M beating the $905M estimate saying License and other revenue increased 72% to $472M y/y, but only affirmed its yearly profit and revenue outlook, disappointing investors.
• ATEC -27%; as posted a slight revenue beat and strong adj. EBITDA expansion, the company increased expectations for FY24 cash burn $25M given higher-than-expected days sales outstanding and inventory needs (posts strong EOS momentum, but some surgical growth hiccups in Q2).
• CROX -6%; as guided Q3 EPS $2.95-$3.10 vs. est. $33 and revs to be down -1.5% to up +0.5% vs. est. +3.3% growth.
• ETSY -6%; reported Q2 results ahead of guidance on higher take-rate, weaker Q3 guidance and removal of FY GMS outlook suggests no near-term visibility as was downgraded at Oppenheimer following 16% increase since 7/8.
• HSY -2%; Q2 sales fell -17% y/y to $2.07B below the $2.31B estimate while adj EPS $1.27 misses $1.44 consensus noting N.A. Q2 confectionery net sales $1.58B, -21% y/y; also lowered FY sales view to low end of prior range of 2%-3%.
• MBLY -21%; cuts its full-year revenue forecast to $1.60B-$1.68B from prior view $1.83B-$1.96B after reporting a Q2 revenue beat of $439M above consensus $424.8M; said a more significant than anticipated softening of business conditions in China is expected to lead to challenges in the second half.
• MRNA -14%; cut its full-year sales outlook to $3B-$3.5B, below prior view of $4B despite delivering nearly double the sales expected in Q2; guidance comes as Moderna launches its second-ever product, a vaccine for RSV.
•  TDOC -5%; shares tumbled as Q2 revs of $642.44Mm missed consensus est. $649.7Mm and said it was withdrawing outlook for 2024 and three-year outlook.