Mid-Morning Look

Monday, December 18, 2023

U.S. stocks kick off the week before Christmas with yet more gains, looking to make it an 8^th straight week of advances as major averages at fresh 52-week highs. The Dow Jones Industrial Average making a 4^th straight all-time intraday record high along with another record for the Nasdaq 100 Index. The S&P 500 closing in on its record and Smallcap Russell 2000 adds to last week +5% outperformance. Treasury yields rebounding with the 10-yr up 3 bps to 3.96%, near highs of morning while the dollar edges lower. Oil prices bounced around 4%, adding to last week gains after snapping its 7-week losing streak on Friday. S&P broad sector strength early, led by gains in Energy, Communications, Financials, and Staples. Only a handful of impactful earnings this week (FDX, MU, NKE), while economic data heavy at the tail end of week with GDP and PCE inflation reports. Early on, just seeing a continuation of stock market strength on hopes/expectations the Fed will ease quickly and aggressively in 2024 after indicating last week at their FOMC policy meeting was the next move for rates is to the downside.

Sector Movers Today

·     In Steel sector: Japan’s Nippon Steel to buy U.S. Steel (X) in a deal worth $14.9B, including debt; the per-share offer of $55 represents a 40% premium to U.S. Steel’s closing stock price on Dec. 15 https://tinyurl.com/4t3ue5zx; CLF shares rose after saying it will re-focus capital allocation priorities towards more aggressive share buybacks under existing share repurchase authorization after Japan’s Nippon Steel agreed to buy U.S. Steel (X).

·     In Agribusiness/Protein sector: BMO Capital said in a reversal from where we started last year, they are more optimistic about our Protein coverage saying PPC is their favorite ag/protein idea, and raise target to $32, more optimistic about the chicken margin outlook. The firm downgraded ADM to Market Perform, lower 2024 EPS, and reduce the target to $80 as soy crush and ethanol margins face greater headwinds than we anticipated and lower tgt and ests on BG

·     In Insurance: Wells Fargo provides 2024 outlook, saying top picks are ACGL, RNR, EG and PGR on the P&C side, AJG on the brokers and RGA and CRBG within life, continue to favor P&C over life; upgrade PGR to overweight tgt $176 as believes they should return to PIF growth in 2024; and downgrade CB to equal weight due to a more cautious approach on commercial lines sector.

·     In Lodging: BVH announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the previously announced agreement for the Company to be acquired by HGV for $75.00 per share in cash. Also, WH asked its shareholders to reject CHH’s $7.8B takeover offer announced in October, citing regulatory review of up to 24 months and lower valuation. Last week, Choice launched a hostile bid for Wyndham after the New Jersey-based hotel repeatedly rebuffed the overtures.

·     In Solar: SPWR shares tumbled after saying it has substantial doubts about its ability to continue as a going concern, according to a filing by the company. In Research, Goldman Sachs upgraded CSIQ to neutral from Sell with $16 tgt, downgraded SPWR to Sell from Neutral predicated upon its view that ASP declines, driven by increased competition from MAXN, will pressure margins and set up SPWR for a challenging 2024, SEDG downgraded to Sell with $77 tgt based upon its view that the correction in the European solar market is just beginning and upgraded NOVA to Buy and higher $17 tgt amid growth inflection in 2024 in the resi solar market.

Stock GAINERS

·     ADBE +2%; and Figma mutually agree to terminate their merger agreement, originally announced on September 15, 2022, as both agree based on a joint assessment that there is no clear path to receive necessary regulatory approvals from the EC and the UK CMA.

·     ARQT +33%; said the FDA approved another formulation of Zoryve to treat seborrheic dermatitis in patients 9 years and older.

·     BLNK +2%; after billionaire Kenneth Griffin’s Citadel hedge fund takes a 0.4% stake in BLNK, according to a regulatory filing.

·     CLF +8%; said it will re-focus capital allocation priorities towards more aggressive share buybacks under existing share repurchase authorization after Japan’s Nippon Steel agreed to buy U.S. Steel (X) in a deal worth $14.9B, including debt.

·     NIO +5%; after entering into an agreement to receive $2.2 bln in cash from Abu Dhabi-based investor CYVN Holdings, which has already invested over $1 bln https://tinyurl.com/yjwbw4m5

·     PGTI +9%; announced an agreement to be bought by DOOR in a cash and stock deal valued at $3 billion. Where PGT shareholders will receive $41 for each share held, made up of $33.50 a share in cash and $7.50 a share worth of Masonite stock. https://tinyurl.com/vwutz3yw

·     SNAP +4%; upgraded to Buy from Neutral at Guggenheim and raised tgt to $23 from $9 saying expects overall digital advertising demand will accelerate in 2024.

·     TROX +7%; upgraded to Outperform from MP at BMO Capital with $18 tgt saying they expect 2024 will mark the inflection point for TROX with the end of destocking and at least modestly improving demand for the industry and potentially more for Western producers.

·     X +26%; Japan’s Nippon Steel to buy U.S. Steel (X) in a deal worth $14.9B, including debt; the per-share offer of $55 represents a 40% premium to U.S. Steel’s closing stock price on Dec. 15 https://tinyurl.com/4t3ue5zx

Stock LAGGARDS

·     AFRM -4%; downgraded to Underweight at Morgan Stanley citing the +79% appreciation over the last month and +383% YTD, saying risk-reward appears skewed to the downside at current levels.

·     CKPT -56%; shares tumbled after the FDA issued a complete response letter to a biologic license application for cosibelimab, its experimental treatment for a type of skin cancer.

·     EBIX -45%; shares tumbled after filing for Chapter 11 bankruptcy protection in North Texas court; the company lists both estimated assets and liabilities in the range of $500M-$1B.

·     GPCR -50%; after saying that its experimental GLP-1 pill demonstrated a 1% lowering of blood glucose and slightly more than 3% weight loss relative to a placebo in a 12-week study involving participants with type 2 diabetes — results didn’t match that of rival LLY drug.

·     LNTH -18%; and PNT shares fall amid results of SPLASH study on prostate cancer; the results of a Phase 3 readout for PNT2002, a lead candidate as a second-line option for prostate cancer met its primary endpoint https://tinyurl.com/2fn495a9

·     MIRM -16%; shares fall after saying its experimental adjuvant therapy, Livmarli, to treat a type of liver disease did not meet main and secondary goals in mid-stage study.

·     SPWR -22%; after saying it has substantial doubts on its ability to continue as a going concern, according to a filing by the company.

·     VFC -7%; after saying it is investigating “unauthorized” activity on some of its information technology (IT) systems detected on Dec. 13 that stole personal data of customers.