Mid-Morning Look

Thursday, August 10, 2023

U.S. stocks surging to start the day, with the S&P 500 taking out yesterday highs following in-line inflation data and as jobless claims rise to the highest level in a month, lowering expectations of further rate hikes by the Fed. Consumer prices (CPI) for July were mostly in-line with consensus views, but worth noting that after 12 consecutive months of declining inflation rates from an over four-decade highs of 9.1% in June 2022, the annual increase in the CPI saw a fresh uptick from 3% in June 2023 to 3.2% in July 2023 (but was still below the 3.3% estimate!) Nick Timiraos of the WSJ noted “”For the Fed, core inflation has been a big focus; the improvement on core CPI in July came despite still strong shelter inflation; Chunky declines in goods prices and softer non-housing services prices delivered a second month of milder core inflation.” Treasury yields dip slightly after the data while the dollar falls. The S&P 500 and Nasdaq look to break recent downtrend, with both coming into the day down 6 of last 7 days, starting with weakness last week after the USA had its rating cut by Fitch. In corporate news, big deal in luxury retail as Michael Kors owner Capri to be acquired by Coash parent Tapestry (TPR) in $8B deal. All eleven S&P sectors are higher at the moment, led by 2023 winners Tech, Communications and Consumer Discretionary in oval broad-based strength. 

Economic Data

·     Headline Consumer Prices (CPI) for July m/m rises +0.2%, in-line with consensus and prior while on a y/y basis rises 3.2% vs. 3.3% and expected and 3.0% prior. On a core basis, ex food & energy, July CPI m/m rises +0.2%, also in-line with consensus and prior reading and +4.7% y/y vs. est. +4.8% and prior month, and real average weekly earnings unchanged in July.

·     Weekly Jobless Claims rose to 248K in the latest week vs. est. 230K while the prior week unrevised at 227K; the 4-week moving average rose to 231K from 228,250 the prior week; continued claims fell to 1.684M from 1.692M prior (est. 1.710M).

Sector Movers Today

·     In Luxury retail: Michael Kors owner CPRI shares surged over 50% after Coach brand parent TPR agreed to acquire the company in a deal valued at $8.5B, with CPRI holders to receive $57 per share in cash, a 65% premium to Wednesday’s closing price. https://tinyurl.com/2p9bwp6p . In earnings, RL reported Q1 adj EPS $2.34 on revs $1.5B, both above consensus of $2.13/$1.48B but says sees Q2 revenue flat to up slightly constant currency and LSD FY 24 rev growth. LVMH led luxury stocks higher in Europe as China lifted a ban on group tours, boosting the case for travelers spending money on high-end watches and fashion.

·     Utilities and Power: ENS beat the F1Q24 adj. EPS consensus estimate, as stronger margin performance offset lower sales, and guided the F2Q24 adj. EPS midpoint modestly above the Street est. 24.7%; AQN announced that it will pursue a sale of the Renewable Energy Group. PLUG posted wider Q2 EPS loss of (-$0.40) vs. est. (-$0.26) on better revs and disclosed it was in the 2^nd round of diligence for ~$1B in funding from the DOE’s LPO, targeting a Nov-Dec close.

·     In Asset Managers: Monthly assets under management (AUM) data out: 1) APAM reported that its preliminary assets under management as of July 31, 2023 totaled $146.4 billion; 2) BEN preliminary month-end assets under management of $1.45 trillion at July 31, 2023, compared to $1.43 trillion at June 30, 2023; 3) IVZ preliminary month-end assets under management of $1,570.7 billion, an increase of 2.1% versus previous month-end; 4) VCTR assets under management of $165.9 billion as of July 31, 2023, and average assets under management for July of $163.2 billion; 5) LAZ preliminary assets under management as of July 31, 2023 totaled approximately $244.4 billion; 6) TROW prelim month-end assets under management of $1.43 trillion as of July 31, 2023. Preliminary net outflows for July 2023 were $5.4 billion.

Stock GAINERS

·     ALRM +17%; Q2 results top views while increased FY23 subscription revenue guidance by 1.1% at the mid to $562.5mn (consensus $556.3mn) and raised non-GAAP FY23 EBITDA guidance by 5.7% to $129.5mn at the mid (consensus $122.7mn).

·     APP +26%; reported 2Q revenue and Adj. EBITDA above the Street and provided a 3Q outlook ahead of Street estimates; sees Q3 revenue $780M-$800M above consensus $741.41M.

·     BABA +5%; as Q1 adj EPS $2.40 vs. est. $2.02; Q1 revs $32.29B vs. est. $31.2B; 1Q Taobao, Tmall group revenue $15.85B, up 12%, Q1 int’l digital commerce group revenue $3.05B, up 41%.

·     CPRI +57%; surged over 50% after Coach brand parent TPR agreed to acquire the company in a deal valued at $8.5B, with CPRI holders to receive $57 per share in cash, a 65% premium to Wednesday’s closing price. https://tinyurl.com/2p9bwp6p

·     DIS +2%; reported Q3 revenue relatively in line with the Street as adj. EPS came in 6% above the Street, while segment operating income beat consensus estimates by 4%.

·     WYNN +4%; on quarterly earning beat as Wynn Macau hotel saw revenue of $301.6 million, up from $58.6 million a year ago, helping lift the company’s revenue.

·     YETI +16%; as Q2 adj EPS $0.57 vs. est. $0.47; Q2 revs $402.6M vs. est. $411.64M; raises FY23 adjusted EPS view to $2.23-$2.32 from $2.12-$2.23 and raises FY23 adjusted sales to increase between 4%-5%.

Stock LAGGARDS

·     GRTX -82%; reduces workforce by about 70% and announces restructuring that includes a wind-down of commercial readiness efforts and headcount reductions across several departments after receives Complete Response Letter (CRL) from U.S. FDA for avasopasem manganese.

·     INVZ -17%; as 26M share Spot Secondary priced at $2.50.

·     MGNI -30%; shares slid as reported an in-line quarter but disappointing 3Q guide calling for a material slowdown in CTV contribution ex-TAC.

·     ORGO -16%; after the company withdrew its previously announced 2023 guidance due to the uncertainty from the potential impact of the recently published local coverage determinations on some of its devices.

·     PLUG -10%; posted wider Q2 EPS loss of (-$0.40) vs. est. (-$0.26) on better revs and disclosed it was in the 2^nd round of diligence for ~$1B in funding from the DOE’s LPO.

·     TASK -17%; as 3Q23 outlook missed expectations and 2023 outlook was lowered due to macro-related pressures on existing client volumes and an elongated sales cycle.

·     WWW -18%; reported in-line EPS of $0.19 on better revs of $589M but drastically lowered its guidance for year, cutting its adj EPS outlook to $0.45-$0.55 (below est. $1.42).