Mid-Morning Look

Wednesday, December 18, 2024

Not a huge surprise, as U.S. stocks are very choppy, edging higher ahead of the FOMC policy meeting results at 2:00 PM ET (followed by Powell comments and dot plots) where a 25-bps interest cut is widely anticipated but investors await the outlook for future cuts in 2025. The Dow Jones Industrial Average rises early, trying to snap its 9-day losing streak (longest streak since 1978) as it has fallen 1,564 points during its losing run with nearly half of that coming from UNH, which contributed 761 points to the drop. UNH and other managed care stocks see a bit of a bounce early after its recent tumble. NVDA shares also recovering after falling 4-straight days and 8 of last 9 while TSLA slips after rising 9 of last 10 days to record highs. Food stocks slide behind GIS earnings results and lower outlook. Bitcoin profit taking ahead of the FOMC policy meeting, down about -4K off yesterday highs above $108,000. Treasury yields, the dollar, gold prices all little changed early awaiting the Fed signal. Not much to do initially as markets remain in wait and see mode. Energy, Utilities, Materials lagging (again) while technology, communications and financials leading.

• US Q3 current account deficit (-$310.9B), the largest negative balance on record as per CNBC and above est. (-$287.1B) and vs prior (-$266.8B)

• In Chemicals: Citigroup updated its estimates, price targets, and ratings in its 2025 Chemicals Outlook as they maintain its broadly neutral view on commodity chemicals with most chains having some form of supply overhang and 1H25 earnings looking very similar to 2H24. WLK was upgraded to Buy as it believes it presents an attractive buying opportunity to get exposure to a strong building products business ahead of any US housing recovery. On the flipside, near-term choppiness in the macro and a high bar on both earnings growth and relative valuation has prompted a downgrade from Buy to Neutral for both AXTA and EMN.
• In Oil Services & Equipment: Barclay’s downgraded HAL to Equal Weight from Overweight (tgt to $33 from $43) and VAL to Equal Weight from Overweight (tgt to $49 from $59) while upgraded OII to Equal Weight from Underweight (tgt to $26 from $22) saying with the bearish oil macro environment weighing on global spending and investor sentiment, the firm downgraded the energy services sector to Neutral from Positive as the cycle is slowing, and global spending is projected to be flat in 2025 with downside risk. In Drillers, RIG was upgraded to Overweight from Equal Weight with $4.50 tgt noting the offshore drilling sector has underperformed from a series of downward earnings revisions.
• In Media: Morgan Stanley said two years of restructuring, price increases, and password crackdowns eased competitive intensity and delivered streaming profits as they raise tgts on NFLX to $1,050 from $830 and SPOT tgt to $550 from $460 while increasing conviction in Overweight DIS, MSCO’s Top Pick. MSCO is raising estimates and its PT on FWONK and upgrading to Overweight ahead of a catalyst-rich year ahead – including the end of tracking stocks. The firm said it anticipates another strong year of advertising growth in the US in ’25 and expects YoY total US advertising up 6%+ or 8%+ excluding political and Olympic spending. Remains EW rated on WBD and FOXA, and UW PARA and AMCX.

• EXPE +2%; upgraded from Neutral to Buy at Bank America and raised the tgt to $221 from $187 on U.S. trend improvement, easy comps in 2025, mgmt. changes, and growing valuation discount.
• JBL +7%; reported better Q1 results as EPS $2.00 topped the $1.88 consensus on revs $6.99B vs. est. $6.61B and forecasts FY net revs $27.3B, above prior forecast $27B and consensus est. $27.06B.
• NTGR +14%; after the WSJ reported U.S. authorities are investigating whether a Chinese company whose popular home-internet routers have been linked to cyberattacks poses a national-security risk and are considering banning the devices. https://tinyurl.com/54s36mnf
• OLLI +2%; double upgraded to Buy from Sell at Citigroup with a $133 TP saying it is well-positioned to win in the uncertain retail landscape. Long-term, believe the recent success through higher sales volume and store count is proof the model is scalable across the U.S.
• WOR +14%; as Q2 adj EPS $0.60 topped consensus est. $0.52, adj EBITDA $56.2Mm topped est. $52.6Mm as revs fell -8% y/y to $274Mm but above est. $273.77Mm.

• GIS -3%; as Q2 sales $5.24B topped the $5.14B estimate but lowered its annual adjusted EPS view to decline between 1% and 3% compared with prior range of down 1% to up 1% and expects FY25 organic net sales at the lower end of prior range of flat to up 1% due to increased promotional investment (weighs on CPB, KHC, HSY in food).
• HEI -8%; posted Q4 sales of $1.01B, below consensus ests of $1.03B, while EPS of $0.99 per share topped views; its Electronic Technologies Group (ETG) segment’s Q4 sales declined 2% from a year ago.
• TSLA -2%; on profit taking after rising 9 of last 10 days to record highs.
• VKTX -9%; after MRK acquires pre-clinical oral GLP-1 drug from China’s Hansoh Pharma (has been mentioned as a potential target for one of the larger bios)