Mid-Morning Look

Thursday, June 08, 2023

U.S. stocks are trading mixed in a complete flip of yesterday’s trading action. The S&P 500 and Nasdaq resume upward momentum after falling yesterday on rising Treasury yields and some profit taking after massive run to start 2023, with investors having rotated into Smallcaps (RTY +8% in June coming into the day) as well as industrials, materials, energy, and defensives. Breadth yesterday was positive in the S&P despite averages ending lower. Today, breadth is negative by 1.5:1 margin but major averages move higher as Smallcaps fall the most. Smoke from the Canadian forest fire blazes clouded New York City in recent days, delaying flights, cancelling games, and sending workers to their home offices – signs of improvement today, but still affecting much of the Northeast. Weekly Jobless Claims data came in worse than expected boosted Treasury buying and pushing yields lower as the 10-yr note yield falls to lows of 3.75%, down about 3-bps; the 2-yr yield down -6.5 bps to 4.48%. Gold prices rise on dollar dip.

Economic Data

·     Weekly Jobless Claims rose to 261K in the latest week vs. consensus 235K and vs 233K prior; the 4-week moving average rose to 237,250 from 229,750 prior week; continued claims fell to 1.757M from 1.794M prior and est. 1.8M; US insured unemployment rate unchanged at 1.2%.

·     Wholesale inventories for April revised to (-0.1%) vs. consensus (-0.2%) from -0.2%; April wholesale sales +0.2% (consensus +0.4%) vs March -2.7% (prev -2.1%) and April stock/sales ratio 1.40 months’ worth vs March 1.41 months.

Sector Movers Today

·     After tumbling on Wednesday given profit taking and rebound in Treasury yields, tech shares (high growth) rebounded as Treasury yields softened following weaker jobless claims data; in research, Wells Fargo initiated AMZN at OW (top pick) along with UBER in Large Cap internet sector; Equal Weight on GOOGL, META, PINS, SNAP, DASH, EBAY and LYFT and Underweight on ETSY, ABNB, BKNG and EXPE. In online travel, TCOM Q1 results easily top consensus and raised 2Q23 and FY23 growth outlook.

·     In Industrials: CARR downgraded to Equal Weight from OW at Morgan Stanley saying the Viessmann acquisition and planned sales of Fire & Security and Commercial Refrigeration set up CARR for resi heat pump adoption in Europe and should be all-in accretive for 2025…but portfolio rerating takes time; REVG boosted its FY23 sales and adj earnings outlook saying higher prices helped push Q2 results well past analyst forecasts – guides year revs $2.45B-$2.55B vs. $2.41B; TTC cut sales to grow between 7%-8% vs 7%-10% growth forecast previously; adjusted EPS is projected to be between $4.70 and $4.80 vs earlier view of $4.70-$4.90.

·     In casinos & Gaming: WYNN downgraded from Buy to Hold at Jefferies as believes the set-up for the shares is more balanced at present levels and downgraded LVS to hold as well as believes the bull and bear cases are approximately balanced within the shares at present levels, and absent near term catalysts, it expects the shares to remain range-bound; IGT announced strategic alternatives headlines for its Global Gaming and PlayDigital divisions.

·     In autos: for electric vehicles, China’s commerce ministry announces an automobile purchase promotion campaign that will last from June to December (TSLA, RIVN, FSR shares active). LCID is set to enter China selling imported cars, its head of China operations Zhu Jiang said. In auto suppliers: APTV upgraded from Peer Perform to Outperform w/ $130 PT at Wolfe saying they see several upcoming catalysts, including a strong upward trajectory for margins and significant potential for upside to consensus estimates; ALV said it plans to cut around 8,000 jobs, and will be implemented by 2025 and will close several sites in Europe. In auto research: Wolfe with several changes as well: QS downgraded from Peer Perform to Underperform w/ $7 PT and FSR downgraded from Peer Perform to Underperform w/ $6 PT as continues to view Fisker as the most speculative OEM within its coverage.

Stock GAINERS

·     CAH +3%; said its board approved an additional $3.5B of share repurchases through 2027, boosting the company’s buyback capacity to $4.75B; sees FY adj EPS $5.65-$5.80, as bottom end raised from $5.60-$5.80 prior.

·     CVNA +24%; after saying it expects to report improving profit metrics in Q2; to post adjusted Ebitda of more than $50 million in Q2 and adjusted gross profit per unit is expected to be above $6,000, up 63% from a year ago.

·     EXPI +15%; will replace HSKA in the S&P SmallCap 600 prior to trading 6/14; Mars Inc. is acquiring Heska in a deal expected to be completed soon pending final conditions.

·     FDMT +13%; reported positive interim clinical data from a trial for the treatment of cystic fibrosis lung disease; said interim data from the study will be presented on June 8.

·     REVG +15%; boosted its FY23 sales and adj earnings outlook saying higher prices helped push Q2 results well past analyst forecasts – guides year revs $2.45B-$2.55B vs. $2.41B.

·     SMTC +19%; reported results that were better than expectations for the April quarter with mixed guidance for July as guides Q2 revs $233M-$243M as midpoint misses est. $242.7M.

·     TCOM +4%; as Q1 results easily top consensus and raised 2Q23 and FY23 growth outlook.

·     TSLA +1%; trying to make it an 8th straight day of gains; now up +30% in a month having risen to 7-month highs.

Stock LAGGARDS

·     GME -18%; fired CEO Matt Furlong and said Chairman Ryan Cohen will take on a new executive role; also reported Q1 sales of $1.24B, missing the estimates of $1.34B but posted narrower loss.

·     HCP -21%; posted a moderate F1Q24 top-line beat ($4.8M vs $11.6M Q/Q) as management highlighted continued large deal scrutiny, driving a reduction in FY24 guidance to 19% (vs 25% Q/Q) and an 8% RIF; sees year revs $564M-$570M vs. est. $593.46M.

·     RENT -17%; as Q1 beat overshadowed by weaker guidance as guides 2Q revs $77-79Mm vs est. $81Mm and adj EBITDA mgn 7-8%.

·     SIG -10%; reports lower Q1 EPS and sales and gives Q2 sales forecast that missed and cuts its FY24 sales forecast to $7.10B-$7.3B from $7.67B-$7.84B and lowered its year EPS forecast to $9.49-$10.09, from $11.07-$11.59.

·     SMAR -15%; reported revenue upside and much better profitability than expected in 1QF24 but mkts concerned about weak relative 2Q billings guidance (~11% vs 20% in 1Q) and increased risk to 2H billings which imply a steep jump versus 2Q.

·     WYNN -2%; downgraded from Buy to Hold at Jefferies as believes the set-up for the shares is more balanced at present levels and downgraded LVS to hold as well as believes the bull and bear cases are approximately balanced within the shares at present levels.

Syndicate:

·     Akoya Biosciences (AKYA) 8.7M share Spot Secondary priced at $5.00.

·     Atour Lifestyle (ATAT) 5.8M share Secondary priced at $14.80.

·     Blue Bird (BLBD) 4.5M share Secondary priced at $20.00.

·     Corebridge (CRBG) 65M share Secondary priced at $16.25.

·     GE HealthCare (GEHC) 25M share Secondary priced at $78.00.

·     Mobileye (MBLY) 38.5M share Secondary priced at $42.00.

·     Skyward Specialty Insurance (SKWD) 3.9M share Secondary priced at $23.00.

·     Sterling Check (STER) 8M share Secondary priced at $12.25.