Mid-Morning Look

Monday, December 09, 2024

U.S. stocks open slightly weaker after strong returns last week, led by a decline in Utilities, Communications, and Financials while last week decliners (energy, materials) are seeing an early bounce. No big stock market bets being taken this morning ahead of key consumer price index (CPI) inflation data on Wednesday and PPI on Thursday as well as a handful of central bank policy decisions (ECB, Bank of Canada and the Swiss National Bank this week ahead of FOMC next week). There are several macro related concerns in Syria, South Korea, France, but none of those have translated to concerns in the U.S. thus far as major U.S. stock averages remain at or near all-time highs. U.S. listed China stocks (BABA, BIDU, PDD, KWEB) jumped after China said it will adopt an appropriately loose monetary policy next year, saying they will step up “unconventional” counter-cyclical adjustments, focusing on expanding domestic demand and boosting consumption. There are a few M&A stories moving stocks today (MDLZ/HSY, OMC/IPG), but overall market volumes remain very light. Syrian President Bashar al-Assad’s government has fallen after a surprising territorial advance by opposition groups over the past few days. The toppling of the longtime ruler is sending shockwaves through the Middle East and will be a major blow to Russia and Iran, his main foreign backers. Oil gained as the market weighed the fallout of the Syrian government. Bitcoin prices fell below $98,000 from $103,900 highs last week, Treasury yields rebound and gold spikes.

• Heavy Duty Machinery: CMI was upgraded to Neutral at JP Morgan and raise ests with $420 PT to reflect higher sales growth rates in both the Distribution and Power Systems segments, although it didn’t reflect the full potential to err on the side of conservatism due to capacity constraints. Citigroup upgraded XYL to Buy given what it views as good growth potential over time and relatively modest valuation vs historical levels; it downgrades FTV to Neutral despite good value as minimal catalysts ahead of a planned separation could limit N-T upside. PWR is CITI’s overall top pick; amongst Multis top picks include ROK, FLS, VRT, DOV, VNT, and IR
• In Fintech/Payments: PYPL was upgraded from Neutral to Buy at Bank America and raised tgt to $103 from $86 noting a year after C-level mgmt change, PYPL is demonstrating increased turnaround progress, warranting a higher valuation multiple. BAML sees potential ’25 acceleration in underlying TP growth. KBW Inc. downgraded FOUR to Market Perform citing leadership transition as may take until 2H’25 for CEO to settle in and think a meaningful premium from current levels may be hard to attain on the back of an unsuccessful strategic sale process earlier this year as well as the increase in share price YTD. KBW also cut PAYO to MP from OP noting the stock has had a solid run in 2024 with a 104% return YTD as has been one of the key beneficiaries of higher interest rates, and a reversal in rates is likely to limit EBITDA margin expansion.
• U.S. listed China stocks jump, big moves for tech names (BABA, BIDU, PDD, JD, NTES, etc.) after China said it will adopt an appropriately loose monetary policy next year and will step up “unconventional” counter-cyclical adjustments, focusing on expanding domestic demand and boosting consumption.
• In Crypto: RIOT announced $500M 6-year convertible bonds to buy more Bitcoin. Note other bitcoin miners have recently issued convertible securities recently, capitalizing on their rising stock prices, including MARA, CORZ, BTDR. MSTR revealed it acquired 21,550 bitcoins from Dec. 2 to Dec. 8. Note Bitcoin has stormed past $100,000 on hopes of friendlier regulatory environment for digital assets under Donald Trump administration.

• APO +6%; will replace QRVO in the S&P 500, and Qorvo will replace KELYA in the S&P SmallCap 600.
• BABA +8%; U.S. listed China stocks jump, big moves for tech names (BABA, BIDU, PDD, JD, NTES, etc.) after China said it will adopt an appropriately loose monetary policy next year and will step up “unconventional” counter-cyclical adjustments, focusing on expanding domestic demand and boosting consumption.
• DOW +3%; agreed to sell a 40% equity stake in some U.S. Gulf Coast infrastructure assets to a fund managed by Macquarie Asset Management for $2.4B. DOW’s new partnership with Macquarie Asset Management has a 6-month option to increase its equity stake to 49% within six months of deal closing.
• HSY +15%; shares popped after Bloomberg reported MDLZ noted to have made preliminary approach for Hershey, noting that deliberations are in an early stage, and a deal is not certain https://tinyurl.com/chhkba5z
• IPG +10%; as OMC agreed to acquire IPG in a $13.25B stock deal, confirming reports from the WSJ overnight as IPG shareholders will receive 0.344 Omnicom shares for each share held, or $35.58 based on Omnicom’s last close. This represents a premium of 21.6% to Interpublic’s closing on Friday.
• M +3%; after activist investor Barington Capital urges co to cut spending and consider the separation of a real-estate unit, the WSJ reported. Barington Capital was working with property-owner Thor Equities to build a position and is pushing strategic alternatives for its Bloomingdale’s and Bluemercury chains. https://tinyurl.com/3ddsz4n2
• RDDT +6%; was upgraded to Overweight from Equal Weight at Morgan Stanley and raised tgt to $200 from $70 as RDDT’s engagement and advertising pipelines to drive industry leading user, time spent and ad rev growth.
• REAL +36%; upgraded from Equal Weight to Overweight at Wells Fargo and raised tgt to $15 from $4 as raise 2025 revs/EBITDA above Street and PT to $15 saying the story has changed, and the market has not fully caught up yet.
• SMCI +3%; after saying late Friday it has been granted an extension from Nasdaq that gives the server marker until Feb. 25, 2025, to file its latest annual report; said its stock would remain listed on the Nasdaq during the exception period as long it remains in compliance with listing rules.
• WDAY +6%; will replace AMTM in the S&P 500, and Amentum Holdings will replace SVC in the S&P SmallCap 600.

• APP -9%; follows S&P 500 index announcements late Friday where APO and WDAY were added to the index (replaced AMTM, QRVO); other names that were seen as possible index additions such as COIN, APP fall.
• BIOA -72%; shares tumbled after halting obesity drug trials on safety concerns. BioAge announced it was discontinuing its Phase 2 study of azelaprag following some participants in the trial developed liver transaminitis.
• CMCSA -5%; following comments at UBS conference as CEO notes competition remains intense in the fourth quarter; and looking at broadband subscriber loss in Q4 of just over 100,000.
• NVDA -2%; shares slipped early on headlines China’s market regulator opened an investigation into Nvidia over suspected violation of the country’s antimonopoly law.
• RIOT -8%; announced $500M 6-year convertible bonds to buy more Bitcoin. Note other bitcoin miners have recently issued convertible securities recently, including MARA, CORZ, BTDR