Mid-Morning Look

Monday, January 08, 2024

U.S. stocks are mixed early, as the S&P and Nasdaq push sharply higher behind strength in large cap Technology and Consumer Discretionary sectors, while the Dow Jones Industrial Average slips behind weakness in Boeing (BA) in the wake of Max 9 groundings and energy stocks fall on oils decline. The S&P 500 fell -1.5% last week but closed with mild gains on Friday to avoid a 5th straight day of losses after stronger nonfarm payroll data. The weekly loss for the market broke a 9-week winning streak which was the longest stretch going back to January 2004. Small Cap stocks, which had surged into year-end fell every day for the week and posted losses of nearly -3.7%. A jump in treasury yields (10-yr rose about 16bps from the end of 2023) back above 4% was partially to blame for last week’s weakness as stronger data pushed out some of the pricing on rate cuts 9yield is now back below 4% helping rate sensitive names/sectors). There were three M&A deals announced this morning in the Healthcare/MedTech sector this morning, a blitz of retailer and healthcare company guidance updates ahead of this week key ICR Exchange/JPMorgan healthcare conference presentations the next few days, but the biggest story was weakness in Dow component Boeing (BA), sinking as carriers ground the 737 Max 9 model after a fuselage section on a brand-new Alaska Airlines jet blew out during flight late Friday. Oil prices (and Energy stocks) declined after Saudi Arabia cut official selling prices for all regions amid persistent weakness in the market. No major US economic data today.

• In Solar: Wells Fargo upgraded ENPH and NXT to Overweight and downgraded SPWR to Underweight and cut FSLR and ARRY to EW from OW as the broker said it expects solar to rebound in 2024 driven by Fed easing, higher battery attaches rates, clarity on IRA, and steady utility scale demand growth. Wells Fargo said they prefer residential to utility scale solar given greater rate sensitivity as top picks: RUN & ENPH. Downgrade FSLR to Equal weight on valuation, upgrade NXT to overweight on share gains and backlog, downgrade ARRY to Equal weight on mkt share losses and downgrade SPWR to underweight on liquidity related headwinds.
• In Airlines: ALK was downgraded from Buy to Hold at Melius; ULCC was downgraded from Overweight to Equal Weight at Morgan Stanley and cut tgt to $8 from $10 noting for the past few quarters the airline has been impacted by aircraft delays and ATC constraints. LUV was downgraded to Underperform with $24 tgt at Bernstein saying the discount airline model is disadvantaged in the new world of airline marketing, and the company faces both secular and idiosyncratic cost pressures that will keep earnings power well below pre-pandemic levels near term.
• In Consumer Services/Lending: DFS, SLM, OMF named top picks in 2024 at TD Cowen; also, OP rated on SYF, Underperform-rated on CACC and NAVI (which they downgraded today) as TDCowen expects industry balance growth of 13-14% in 2023 and ~5% in 2024, with private label growing ~10% and ~5%. Account originations remain above pre-pandemic levels, though have moderated. Oppenheimer raised its price target on TREE to $45 from $25 and making it a top small cap pick into ’24 on an improving Insurance segment, lower rates benefiting Consumer/ Homes segments, and refinancing the ’25 Convertible before going current.

• AMAM +98%; after JNJ agreed to buy the drug developer for $2B to gain access to its portfolio of targeted cancer therapies. http://tinyurl.com/2s38b93w .
• AXNX +19%; as BSX announced it will acquire AXNX for the purchase price is $71 in cash per share, reflecting an equity value of approximately $3.7B and an enterprise value of approximately $3.4B. http://tinyurl.com/4h43kuyb .
• CLRB +16%; said its therapy to treat Waldenstrom’s macroglobulinemia met the main goal when tested in patients who received at least two different therapies in relation to disease progress.
• CMC +4%; reported top and bottom-line results above consensus ($1.49/$2.00B vs. est. $1.45/$1.89B) saying recent price announcements should support an inflection and improved margins going forward.
• CROX +15%; raises its Q4 revenue outlook to over 1% y/y (vs. prior view -4% to -1%) citing successful holiday season with market share gains for both brands and sees prelim FY23 Rev $3.95B vs. est. $3.94B.
• HARP +110%; MRK to acquire HARP in proposed deal for equity value of $680M, paying $23.00 per share in cash as the board of directors of harpoon has unanimously approved transaction http://tinyurl.com/2tbbys3e .
• NVDA +4%; hitting new all-time highs ahead of CES presentations this week and on reports the company plans to begin mass production in the second quarter of 2024 of an AI chip it designed for China to comply with U.S. export rules.
• TWLO +7%; after announcing CEO and board chair Jeff Lawson will step down from his roles effective Jan. 8 and expects to report revenue and non-GAAP income from operations for Q4 above its previous guidance.

• DADA -36%; as announced that in course of its routine internal audit, certain suspicious practices were identified; said suspicious practices may cast doubt on some revs and notes Q4, FY guidance should no longer be relied upon after audit headlines (JD shares fell as well as DADA is a subsidiary of JD).
• DTC -35%; after guided FY revs $490M-$500M, below prior $520M-$540M view and lowered FY adj Ebitda forecast to 14%-15%, from prior 17%-18%.
• GCO -6%; falls as reports Q4 comp sales -6%; said sales decelerated in the weeks approaching Christmas as cuts FY23 adj EPS $0.65-$0.85 from prior $1.50-2.00 citing less interest in boots.
• HAL -4%; Oil related companies declined (APA, EOG, COP, FANG, PXD, XOM) after Saudi Arabia on Sunday cut the February price of its flagship Arab Light crude to Asian customers to the lowest level in 27 months.
• PRTA -24%; shares tumbled following the company update saying remained on track with programs.
• RGNX -14%; said U.S. district court issues decision on Regenxbio and University of Pennsylvania NAV technology patent infringement lawsuit saying they “are disappointed by decision and believe court got it wrong" on court decision on patent infringement lawsuit decision by court.