Mid-Morning Look

Wednesday, January 17, 2024

U.S. stocks opened to the downside, adding to overnight losses, and tracking broad weakness in both Asia and Europe following a round of disappointing economic data. US Treasury 10-year yields climb to their highest this year, up around 4.12% after stronger U.S. December retail sales data (eases expectations of a Fed rate cut in March), while shorter term 2-year note yields jumped even higher (10-yr yield still only slightly higher on day +5.5 bps at 4.12%, but the shorter term 2-yr yield +13 bps to 4.359% and 3-yr +11.8-bps to 4.137%. U.S. listed China stocks dropped (BABA, BIDU, PDD, NTES, NIO) extending declines in 2024 (KWEB down -10% YTD) after disappointing economic data in China overnight (GDP, retail sales, and housing data) alongside a lack of major stimulus announcements sunk shares as the Shanghai Comp fell -2% and Hang Seng over 3%. Renewed inflation fears in the UK weighed on European markets as CPI sped up for the first time in 10 months in December, rising to 4.0% from November’s more-than-two-year low of 3.9%. Early sector decliners include Consumer Discretionary (XLY), Technology (XLK) and Communications (XLC), all down over 1% amid the bounce in Treasury yields and diminishing expectations of more aggressive rate cuts in 2024 by the Fed with each passing data point.

• Import Prices for December were unchanged vs. consensus (-0.5%) and vs November (-0.5%); Dec non-petroleum import prices unchanged, and y/y down (-1.5%). Dec export prices fell (-0.9%) vs. est. (-0.6%) and vs. Nov (-0.9%) and Dec year-over-year import prices -1.6%, export prices -3.2%.
• Industrial Output for December rose +0.1% vs. consensus unchanged and Nov unchanged while Capacity utilization rate in-line with prior month of 78.6% (vs. est. 78.7%); Dec manufacturing output +0.1% (vs. consensus unchanged) and vs Nov +0.2% (previous +0.3%).
• Business Inventories for November fell (-0.1%), in-line with consensus and vs Oct (-0.1%); Nov business sales +0.2% vs Oct -1.1% (prev -1.0%) and inventory/sales ratio 1.37 months’ worth vs Oct 1.37 months.
• NAHB Housing market index for January jumped to 44, above consensus 39 and vs. 37 in December; January index of current single-family home sales 48 versus revised 41 in December (previous 40); January index of home sales over next six months 57 versus 45 in December (previous 45).

• In IT Services: Citigroup said they remain cautious about enterprise IT spending for early 2024 but believe a modest spending recovery is likely as the year progresses. The firm downgraded DXC to Sell from Neutral citing uncertainty on the company’s strategy and expectations following the "abrupt" CEO departure in December 2023. Citi upgraded shares of EXLS to Buy from Neutral (tgt to $36 from $29) noting shares underperformed in 2023 despite consistent beat-and-raise quarters and industry-leading sales growth. Citi noted their top IT Services ideas are ACN, CTSH, EXLS, GDYN, and GLOB.
• In Autos: Ford (F) was downgraded from Buy to Neutral at UBS with $12 tgt saying they see more limited upside to estimates over 2024 and 2025 than prior (UBS’s 2024/25E EPS is $1.70/$1.65 or -4/-12% vs consensus).RIVN was downgraded from Buy to Hold at Deutsche Bank and cut tgt to $19 from $29 as thinks there could be downside risk to 2024 expectations around Rivian’s volume and gross margin, and while the planned R2 unveil could help sentiment, there remains many other questions post the announcement. TSLA slashed prices for Model Y Long Range and Model Y Performance in Germany by 5,000 euros to 49,990 euros ($54,340) and 55,990 euros respectively, representing a discount of 9% and 8.1% compared to the previous prices. It also cut the price of Model Y rear-wheel drive models by 1,900 euros, or 4.2%, to 42,990 euros, according to data on its website.
• Bank earnings this morning: CFG Q4 EPS $0.85 vs. est. $0.71; Q4 revs $1.99B vs. est. $2B; Q4 net interest income down -2% q/q given lower NIM, partly offset by a modest increase in interest earning assets and sees Q1 NII down about -3% vs. Q4; Q4 provision for credit losses of $171M; ACL/loans ratio up 4 bps QoQ to 1.59%. USB Q4 profit fell after a $734M charge tied to the fee it has to pay to the FDIC to refill the fund, said net interest income (NII) fell (-4.2%) to $4.14B in the quarter and average total deposits at the bank fell (-1.9%) from the third quarter to $502.78B. In SMID/regional banks: FULT Q4 operating EPS $0.42 vs. est. $0.40; sees FY24 NII $790M-$820M, noninterest income $235M-$250M; FY24 provision for credit losses $45M-$65M, with noninterest expense $670M-$690M; HWC Q4 adj EPS $1.26 vs est. $1.19 on NII $272.3Mm vs est. $271.31Mm, credit loss allowance -336.8Mm.

• EOLS +14%; said Q4 revs was about $61M above ests $59.3M; said saw enrollments in its consumer loyalty program rise 55%, boosted by a record 170,000 total redemptions in the quarter.
• NTRA +4%; after better-than-feared jury verdict after the company provides update on Ravgen Trial; no willful infringement, damages significantly less than what Ravgen was seeking.
• PI +10%; after issuing prelim Q4 revs above $70Mm above est. $67.02Mm and prior guide $65.5-68.5Mm, sees adj EBITDA to exceed $2.5Mm vs est. ($0.247Mm) and prior guide ($0.9)-$0.7Mm.
• UNH +1%; early strength in managed care stocks, HUM, CI as well.

• ALLK -8%; extends Tuesday’s 60% plunge after the drug developer was downgraded to hold at Jefferies following two mid-stage trials that failed to meet their main goals.
• BABA -1%; after disappointing economic data in China overnight (GDP, retail sales, and housing data) alongside a lack of major stimulus announcements sunk US listed China stocks (BIDU, PDD, NTES, NIO).
• BGFV -9%; after Q4 net sales of $196.3M were below the $209.23M estimate as comp sales declined (-17.7%), merchandise margin -43bps y/y and guided Q4 EPS loss ($0.40) – ($0.38) vs est. loss ($0.28).
• CVGW -14%; after delaying the publication of its fiscal fourth quarter and full-year results, expected after the market closed, following an internal audit process.
• DH -10%; after below-consensus revenue guidance for 2024 and named founder and executive chairman Jason Krantz as interim CEO to succeed Robert Musslewhite.
• PLXS -4%; said that it will not meet its Q1 revenue guidance of $990M-$1.03B, GAAP operating margin of 4.8% to 5.3% and GAAP EPS of $1.15-$1.33.
• SAVE -22%; extends Tuesday’s decline after $3.8B M&A deal with JBLU was blocked yesterday by a federal judge.
• SCHW -2%; Q4 adj EPS of $0.68 tops $0.64 estimate as revs fell -19% y/y to $4.46B (est. $4.49B), said Q4 revenue per trade fell (-11%), and clients daily average trades fell (-4%).
• TSLA -2%; slashed prices for Model Y Long Range and Model Y Performance in Germany by 5,000 euros to 49,990 euros ($54,340) and 55,990 euros respectively, representing a discount of 9% and 8.1% vs. previous prices.