Mid-Morning Look

Monday, March 18, 2024

U.S. stocks off to an impressive start, looking to make it 5-straight month of gains ahead of several key macro events this week (central bank meetings), and news in tech space (NVDA/GOOGL/AAPL). The Smallcap Russell 2000 underperforms large caps (SPX +1% and QQQ +1.5%) as the benchmark 10-yr Treasury yields still above 4.30% after posting its largest weekly increase (~23bps) since last October last week. NYSE breadth only slight lead for advancers over decliners despite S&P and Nasdaq outperformance. Mega-cap technology names leading behind AAPL/GOOG pact (see below) and ahead of NVDA’s GTC conference which is lifting semis and AI related names early. Also seeing moves in currency markets and Asian markets overnight (Japan’s Nikkei surged over 2%) ahead of the Bank of Japan monetary policy meeting where a rate hike is expected for the first time in 17-years as odds reflect about 60% probability, but the forward guidance will matter too. Note Friday’s declines for SPX (-65bps) and NDX (-115bps) meant that both have put in their first back-to-back weekly losses since last October as well with increased volatility after options expiration and index rebalances boosted volumes. Of course, all eyes will be on global central banks with 14 rate decisions led by the BOJ tomorrow, the Fed on Wednesday, and the BOE on Thursday. A light week of economic data after hotter CPI/PPI inflation reports weighed on sentiment and no Fed speakers until Wednesday FOMC meeting. Also seeing a little profit taking to start week for Bitcoin/crypto names (MSTR, COIN, RIOT). Early on, all eleven S&P sectors in the green, led by Tech (XLK) and Communications (XLC).

• In REITS: Evercore upgraded PGRE from Underperform to In Line as the current valuation seems to imply that most of the downside risk has now been priced in. INVH downgraded from Outperform to In Line at Evercore noting that since the start of 2024, INVH has been the best performing stock within the residential sector. Raymond James upgraded ESS to Outperform, EQR to Market Perform and downgraded AIRC to MP and NXRT to Underperform in multi-family sector.
• In Waste Sector: Jefferies raised price tgt in the sector saying WM (tgt to $256 from $230), WCN (tgt to $217 from $195) and GFL (tgt to $51 from $46) should see the most upside in waste, raise tgts also on RSG to $225 from $213 saying the Renewable Natural Gas (RNG) opportunity for the waste players remains underappreciated. Jefferies estimate RNG projects can add 10-15% to base earnings, lift margins 100-200bps, with 30-40% higher EBITDA vs mgmt’s expectations and believes this is not being reflected in consensus or buyside ests or in current share prices.
• Potential big week for semiconductors as: 1) NVDA will be hosting its GTC conference (live for the first time in 5-years) March 18-21. Within GTC, note a 1-3pm (PT) keynote presentation and 5-7pm cocktail reception on Monday, followed by 8:30-10am (PT) Q&A with Senior Management from NVDA on Tuesday. 2) Private AI company Cerebras will be holding its own AI event on Tuesday in San Jose. 3) AVGO will be hosting its AI Infrastructure Investor Day on Wednesday 9-11:30am PT. 4) Micron (MU) reports earnings on Wednesday 3/20 after the close. TSM is looking at building advanced packaging capacity in Japan, according to Reuters citing two sources familiar with the matter, a move that would add momentum to Japan’s efforts to reboot its semiconductor industry.

• GOOGL +6%; after Bloomberg reported AAPL opens new tab is in talks to build Google’s Gemini artificial intelligence engine into the iPhone citing people familiar with the situation. The negotiations are about licensing Gemini for some new features coming to the iPhone software this year. https://tinyurl.com/2jxmth6c  
• HCP +8%; has been considering options including a sale, people with knowledge of the matter said according to Bloomberg late Friday. https://tinyurl.com/2whxndap  
• NVDA +4%; will be hosting its GTC conference (live for the first time in 5-years) March 18-21. Within GTC, note a 1-3pm (PT) keynote presentation and 5-7pm cocktail reception on Monday, followed by 8:30-10am (PT) Q&A with Senior Management from NVDA on Tuesday.
• NVEI +24%; backed by celebrity entrepreneur Ryan Reynolds, is nearing a buyout deal according to reports. Private-equity firm Advent International is in advanced talks with Nuvei for a transaction that could be announced soon, according to people familiar with the matter. https://tinyurl.com/3bppm28v
• PEP +4%; upgraded to overweight from equal weight at Morgan Stanley, its Top Pick, both in beverages and overall (replacing STZ in beverages as its Top Pick and CL as its overall Top Pick as CL is at an all-time high and has outperformed PEP by 2,700 bps since Q2 of FY23 EPS).
• TSLA +2%; said it will raise Model Y prices by about $2,177 in some European countries effective March 22, as per TSLA’s post on social media platform X; TSLA also recently increased prices of Model Y cars in the U.S.
• TSVT +8%; said an FDA advisory committee meeting backed the expanded use of Abecma, the gene therapy it sells with partner BMY; the panel voted 8-3 that Abecma showed a favorable benefit/risk profile for patients with triple-class exposed relapsed or refractory multiple myeloma based on results from a pivotal Phase 3 KarMMa-3 study
• XPEV +4%; announced plans to launch a line of cheaper electrical vehicles under a different brand name, media outlets reported Saturday as models of the brand to be launched within the next month will be priced between 100,000 yuan and 150,000 yuan ($14,000-$21,000).

• FOUR -9%; after reports the CEO is unhappy with the offers from potential buyers for his firm as CEO said those bids failed to “sufficiently value” the payments processor, Bloomberg News reported https://tinyurl.com/yc9dvsp8  
• RILY -10%; after saying late Friday it was working with auditors to complete and file its annual report "as soon as reasonably possible" as grace period for its 10-K filing ended.
• SAIC -11%; stumbled after mixed Q4 as EPS $1.43 misses $1.46 consensus on better revs $1.74B (though was down -12% y/y) vs. est. $1.64B; raised year sales view, but mid-point of EPS view below consensus.
• TELL -10%; said Oct�vio Sim�es has resigned as CEO of the LNG developer, just after saying it would not renew or extend his employment term beyond June 5.