Mid-Morning Look

Monday, August 07, 2023

U.S. stocks open higher and add to gains ahead of another busy week of earnings (though season begins to wind down by Thursday) and key inflation data later this week (CPI, PPI). First big “Merger Monday” in a while with at least four M&A announcements this morning (see details below) and some big movers in the biotech space after trial and FDA news (SAGE, ALPMY, VTGN all big movers). Smallcap Russell 2000 underperforms early while large cap leads higher. Last week, the Dow fell 1.1% and the S&P 500 shed 2.3%, ending a string of three straight weekly gains while the Nasdaq Composite declined 2.9% after the U.S.A. had its AAA rating cut by Fitch and a jump in Treasury yields. The 10-year is flat now at 4.06% (down from earlier highs of 4.12%) and the two-year is also flat at 4.793%. Yields jumped initially as Fed Governor Bowman said Saturday that additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2% target. On Thursday, July core annual CPI is expected by economists polled by WSJ to accelerate to 3.3% from June’s 3%. On Friday, monthly July PPI ex-food and energy is forecast to accelerate to 0.2% from 0.1%. Markets are pricing no more rate hikes and cuts starting in 1H 2024, which some pundits consider unlikely as inflation remains sticky.

Sector Movers Today

·     In Autos: TSLA shares slid after disclosed that CFO Zachary Kirk horn was stepping down, after four years in the role and 13 years with the company; named Chief Accounting Officer Vaibhav Taneja as CFO. In used cars (KMX, CVNA): the Manheim used car index for July came in -1.6% M/M, a slowdown vs. the 4.18% slump posted on a sequential basis in June. On a Y/Y basis, the drop was 11.6%, an acceleration vs. -10.3% Y/Y in June.” In EV sector: LCID reduced the price of the Air Pure by $5,000 to $82,400 from $87,400 and cut prices of the Touring and Grand Touring versions by $12,400 to $95,000 and $125,600 – Reuters.

·     In Aerospace & Defense: JOBY and ACHR mentioned positively in Barron’s this weekend saying the companies are about to begin production of electric vertical takeoff and landing aircraft. For investors, the upside could be in the billions. ASTR announced a strategic reallocation of its workforce from its Launch Services organization to its Astra Spacecraft Engines business and has reduced its overall workforce by approximately 25% since the beginning of the quarter. ATI announces proposed $400m senior notes offering.

Stock GAINERS

·     BKI +4%; after the FTC agreed to dismiss a federal court case against ICE’s $11.7 billion proposed acquisition of the company, clearing a major hurdle for the dela to proceed. https://tinyurl.com/yc4eawyp

·     DVA +6%; upgraded from Neutral to Buy at UBS and raise tgt to $142 from $100 supported by materially positive revisions to its 2024 EBIT and EPS forecasts.

·     ELAN +6%; after Q2 top and bottom-line results top consensus and raised FY23 adjusted EPS view to 80c-89c from 76c-83c and revs to $4.35B-$4.41B from $4.31B-$4.4B.

·     FRGI +6%; to be acquired by Authentic Restaurant Brands for $8.50/share. Upon closing the transaction, Fiesta will operate as a privately held company and Pollo Tropical will remain based in Miami, FL https://tinyurl.com/bdhpktfe

·     SOVO +24%; CPB agreed to acquire SOVO the parent company of food brands including Rao’s, in a deal valued at about $2.7B as holders will receive $23 per share in cash https://tinyurl.com/3adh3hjz

·     TRHC +30%; agreed to be acquired by private-equity firm Nautic Partners in a deal valued at about $570 million, including debt, with holders to receive $10.50 a share in cash, a 34% premium to Friday’s closing price of $7.83. https://tinyurl.com/mr4ctth5

·     VRTV +19%; to be acquired by CD&R for $170 per share in cash https://tinyurl.com/2ytzs2jy

·     VTGN +600%; shares rose as much as 3,471% pre mkt ($60 per share) before pulling back after saying the Phase 3 study of its fasedienol nasal spray as a treatment for social anxiety disorder met its primary endpoint as well as meeting its secondary endpoint and was well-tolerated.

Stock LAGGARDS

·     ADTN -20%; after Q2 revs were $327.4M, below consensus $329.8M; Q3 GAAP revenue is expected to be between $275M-$305M and between 20% and 11% below analyst consensus and guidance for Q3 op margin expected to be between -5%-0%.

·     APLS -10%; after Astellas (ALPMY) medicine for geographic atrophy, called Izervay, was approved by the FDA on Friday – Wedbush noted that Izervay will compete directly versus APLSSyfovre in the GA market.

·     BNTX -8%; Q2 revs declined to €168M ($184M), lower than the €692M projected and well below the €3.2B in sales from a year earlier saying the write-offs by Pfizer “significantly reduced” profit share and hence earnings.

·     GOGO -15%; after Q2 results and lowered FY revenue view to $410M-$420M from prior $440M-$455M view (est. $440M) while reaffirmed FY Ebitda outlook.

·     IEP -7%; extend losses after tumbling -23% on Friday after cutting dividend.

·     SAGE -49%; after the FDA approved Zurzuvae as the first pill to treat postpartum depression, but the agency rejected the drug for major depressive disorder, a much larger opportunity, saying the companies didn’t provide substantial evidence of effectiveness and calling for additional studies.

·     TSN -7%; after Q3 results missed consensus, reporting a loss amid impairment charges; Q3 adj EPS of $0.15 missed the $0.26 estimate citing lower prices of chicken and pork, and weak demand for beef; guided year revs to low end of prior guidance.