Mid-Morning Look

Monday, June 10, 2024

U.S. stocks slipping in the onset of trading week, adding to modest losses last Friday following strong jobs number, as attention turns back to technology today as NVDA 10 for 1 stock split takes effect and Dow component AAPL kicks off its World Wide Developers Forum this week. Apple Inc.’s developers conference will show whether the iPhone maker can become a major player in the growing artificial intelligence, marking a critical moment for a company forced to adapt to a new era. Markets could see more “chop” ahead of key potential macro catalysts as well mid-week with the FOMC rate decision Wednesday afternoon as well as consumer price (CPI) inflation data earlier that day. Then Thursday, the May Producer Price Index (PPI) and Tesla (TSLA) shareholder meeting takes place. Few earnings results of note this week including AVGO in the semi/AI space and ADBE in retail. The yen-year Treasury yields ticked up, after settling below 4.43% Friday. European stocks retreated, led by weakness in France while the euro weakened against the U.S. dollar and the British pound. Japanese stocks rose while markets were closed for a holiday in Hong Kong and China. Several stocks moving following S&P index additions/deletions announced late Friday to coincide with the upcoming quarterly rebalance. Seeing early strength in Utilities, Energy, Industrials, and Consumer Discretionary while Financials the biggest drag. Overall modest losses after major averages finished near all-time highs for the S&P and Nasdaq last week. In regards to Apple, influential Wall Street analyst Gene Munster said today: “Today Marks $AAPL‘s biggest day in 6,362 days, the day the iPhone was announced. Since then, the stock is up about 4,400%.

Today is more important to Apple’s future than other new legs to the story: Vision Pro – June 2023, Services (Apple TV+, News, Arcade) – March 2019, Apple Watch – September 2014, iPad – January 2010, App Store – July 2008. Even though AI won’t initially be a direct revenue segment, infusing AI across the product line is essential for the existing products to thrive.” The euro drops over 0.5% vs. the dollar, if holds would be first back-to-back -0.5% decline since September.

• In Solar & Utilities: ENPH was upgraded to Buy from Hold at HSBC with $166 tgt; SEDG announces appointment of new SVP finance and CFO transition plan as Ronen Faier to transition out of his role as CFO and be succeeded by Ariel Porat. FSLR price tgt raised to $311 from $224 at BMO Capital as acknowledges that much of the policy changes it expected are increasingly reflected in FSLR’s current share price including potential for AI-related demand growth. PCG upgraded to OW at JP Morgan and raise its PT to $22 ahead of the company’s June 12 Investor Day.
• S&P index changes moving several stocks: CRWD, KKR, and GDDY will replace RHI, CMA, and ILMN in the S&P 500 respectively, and Illumina will replace GoDaddy in the S&P MidCap 400 effective prior to the open of trading on Monday, June 24, to coincide with the quarterly rebalance. TPL, BMRN, WMG, NXT, ALTR and RBA will replace WERN, IART, PENN, GO, LEG and HTZ in the S&P Midcap 400 respectively. Leggett & Platt, Hertz Global Holdings, Grocery Outlet Holding, Penn Entertainment, Integra Lifesciences and Werner Enterprises will replace MEI, CLDT, NFBK, XPER, RGP and ATNI in the S&P SmallCap 600 respectively.

• DNUT +5%; upgraded from Hold to Buy at Truist and raise tgt to $15 from $13 after recently traveled with the company CEO and CFO saying investors are undervaluing the potential of the recently announced partnership with MCD.
• DO +10%; NE to acquire the oil driller for $15.52 per share in cash, stock; As part of the transaction, Diamond shareholders will receive 0.2316 shares of Noble, plus cash consideration of $5.65 per share for each share of Diamond stock, representing an 11.4% premium to closing stock prices on June 7, 2024.
• ICCH +37%; after the insurance holding company agreed to be acquired by peer Mutual Capital Group in a $73.8 million deal, with Mutual Capital saying it would pay $23.50 a share in cash for ICC, a nearly 47% premium.
• KKR +9%; will be added to the S&P 500 index on June 24^th to coincide with the quarterly rebalance.
• LUV +7%; shares rose following a report by The Wall Street Journal that Elliott Investment Management has built a stake of nearly $2 billion in the company and plans to push for change aimed at reversing the airline’s underperformance.
• OXY +1%; after Warren Buffet’s BRKA purchased 2.6 million shares in recent days, lifting its stake to 250.6 million shares, or a 28% interest in the big U.S. energy company. Berkshire bought the stock, valued at more than $150 million, on Wednesday through Friday and paid just under $60 a share, according to a Form 4 filing.
• PLNT +2%; upgraded to Buy from Hold at Jefferies and raise tgt to $100 from $62.
• WMT +1%; was upgraded at JP Morgan to Overweight as believe the stock adds a strong balance of defense and offense on both the top and bottom lines in a soft (to softening) consumer backdrop with a highly uncertain 2H24 ahead.

• DK -2%; downgraded to Sell from Hold at TD Cowen and lower PT to $20 from $25 as may generate limited FCF at mid-cycle cracks, apparent from recent results and guidance.
• HBAN -5%; said it expects annual net interest income (NII) to decline between 1% and 4%, compared with $5.48B a year ago (Reuters est. to fall -0.3%) and compares to April forecast between 2% decline and 2% rise.
• NVDA -2%; little pullback after 10 for 1 stock split takes effect this morning.
• PERI -26%; after the company cut its revenue guidance for Q2 to $106M-$108M from $118M-$122M (est. $120.03M) and cuts Q2 adjusted EBITDA view to $6.5M-$7.5M from $10M-$12M; also lowers FY24 revenue view to $490M-$510M from $590M-$610M (est. $601M) and cuts FY24 adjusted EBITDA view to $48M-$52M from $78M-$82M.
• SEDG -2%; announces appointment of new SVP finance and CFO transition plan as Ronen Faier to transition out of his role as CFO and be succeeded by Ariel Porat.
• SKYE -13%; announced that its Phase 2a clinical trial of SBI-100 Ophthalmic Emulsion in patients with primary open-angle glaucoma or ocular hypertension did not meet its primary endpoint for lowering intraocular pressure.