Mid-Morning Look

Tuesday, August 27, 2024

U.S. stocks open lower, but have since bounced, paring losses to little changed as the S&P 500 (SPX) holds the 5,600 level again, with investors waiting for more data to make bigger bets in either direction, ahead of NVDA an CRM earnings tomorrow night, GDP data on Thursday and important PCE inflation data on Friday. No big sector moves early outside of weakness in Consumer Discretionary (XLY) and Industrials (XLI), while the Smallcap Russell 2000 (IWM) underperforms. Economic data this morning was mixed (details below), and there are no Fed speakers on the calendar today. The dollar index (DXY) is little changed, Treasury yields rebound, gold prices down slightly and Bitcoin declines. Healthcare sector (XLV) among early leaders behind strength in LLY after launching single-dose vials of weight-loss drug. A quiet start to the day with more chop likely into the above-mentioned catalysts in coming days.

• US June 20-metro area home prices +6.5% (consensus +6.0%) from year ago vs revised +6.9% in May (previous +6.8%) — S&P CoreLogic case-Shiller. June home prices in 20 metro areas +0.4% seasonally adj (consensus +0.3%) vs revised +0.4% in May (previous +0.3%)- June 20-metro area home prices non-adjusted +0.6% vs May unrevised +1.0%.
• U.S. FHFA house price index dipped -0.1% to 424.5 in June after an unchanged 424.8 (was 424.6) in May, with the latter a record high level. It is only the second monthly drop, along with the -0.1% slip in January, since August 2022.
• August Richmond Fed factory index falls -19 vs. est. -14; Richmond Fed services revenues index -11 in Aug vs +5 in July and the Richmond Fed manufacturing shipments index -15 in Aug vs -21 in July.

• In Energy: Roth MKM initiated AR with a Buy and $32 tgt based on its expectation that natural gas prices are likely to slowly rise over the next few years and AR is one of the most levered gas names in the sector. Roth MKM also upgraded CTRA to Buy from Hold due to its relatively high natural gas exposure, which it expects to recover nicely in 2025, its solid balance sheet, high returns of capital to investors and its strong execution on the oil production side. RothMKM expects Henry Hub natural gas prices to recover from $2.30 per Mcf in 2024 to $3.00 per Mcf in 2025.
• In Banks: CFB said it will merge with and into BUSE in an all-common stock transaction valued at approximately $916.8M, based on Busey’s closing stock price of $27.39 as of August 26, 2024. The combined company, which will operate under the Busey brand, will have approximately $20B in total assets, approximately $17B in total deposits. In Canadian Banks: BMO Q3 adj EPS C$2.64 vs. est. C$2.75; Q3 provision for credit losses C$906M vs. est. C$745.2M; Overall revenue for the period increased to C$8.19 billion from C$8.05 billion last year; Net interest income for the period was 2.3% lower at C$4.79 billion, just ahead of the C$4.74 billion expected. BNS Q3 adj EPS C$1.63, vs. est. C$1.62; Q3 provision for credit losses C$1.05B, +28% y/y; Q3 revenue C$8.36B, vs. est. C$8.52B.

• JD +2%; as announces $5.0 Billion new share repurchase program
• LLY +2%; announced Zepbound (tirzepatide) 2.5 mg and 5 mg single-dose vials are available for self-pay for patients with an on-label prescription, significantly expanding the supply of Zepbound in response to high demand
• PODD +6%; announced its Omnipod 5 Automated Insulin Delivery System is now indicated for use by people with type 2 diabetes (ages 18 years and older) in the U.S.
• TCOM +9%; on results as Q2 adj EPS $1.00 topped est. $0.74 and Q2 revs $1.8B vs. consensus $1.79B; said looking ahead, dedicated to leveraging potential of AI to revolutionize the travel industry.
• TRIB +40%; after raising its FY24 sales view for its HIV test, TrinScreen HIV, to about $10M from $8M previously citing increased orders and scaling of production capacity for the test.

• CAVA -7%; after the company in a regulatory filing on Monday disclosed Artal International’s divesture of 6M CAVA shares worth around $732M. Also, CEO Brett Schulman filed to sell 201,504 shares, Director Xenohristos filed to sell 98,490.
• FDX -1%; Wells Fargo lowers ests to reflect weaker B2B trends on softer economic data; shares come into the day with 11-day win streak (earnings next month).
• HIMS -5%; fell after LLY said has begun selling single-dose vials for Zepbound, as 2.5 milligram and 5 mg vials, the two lowest available doses of Zepbound, will be available at respective list prices of $399 and $549 for a month’s supply – (HIMS offers compounded GLP-1 weight-loss injections at $199 per month).
• HSY -1%; downgraded to Sell from Neutral at Citigroup saying sees a challenging year for gross margin given HSY’s recently announced pricing plans for 2025 (+MSD) will likely not be enough to offset cocoa inflation
• LUMN -11%; after short seller Kerrisdale Capital noted they were short shares saying despite 400% stock rise in recent weeks, AI can’t save this dying, over levered legacy telecom. The newly announced deals won’t reverse worsening sales and margin trends amid a staggering debt burden.
• MSOS -10%; Cannabis sector pressured early (CRON, CGC, ACB, TLRY, GRWG) after the Drug Enforcement Administration said hearing on the proposal to reclassify marijuana to a Schedule III drug will take place on Dec. 2, after the U.S. presidential elections
• PARA -5%; after Edgar Bronfman Jr withdrew from the race for Paramount Global, clearing the way for Skydance Media to take control of Shari Redstone’s media empire.
• SMCI -4%; after short seller Hindenburg research notes they took a short position in shares citing fresh evidence of accounting manipulation https://hindenburgresearch.com/smci/