Mid-Morning Look

Friday, March 22, 2024

U.S. stocks are down lightly after a big run this week, charging higher Wednesday initially to new all-time highs for the S&P 500, Nasdaq, and Dow Jones Industrials after the FOMC meeting results, as investors continue to bank on the Fed staying the course with 75-bps worth of interest rate cuts in 2024. The timing of cuts (now June expected first cut) and quantity (fed futures came into year with calls for 6-cuts) have been pushed out for investors but have had no negative effects on stock markets to this point. The U.S. dollar index (DXY) jumps +0.8% on track for best week in 2-months, but Treasury yields fall as 10-yr hits 4.21%. No major economic data today or Fed speakers to rattle markets. A quiet day expected, but some fireworks early with weakness in retail after Dow component NKE and LULU shares both decline after better quarterly results, but weaker outlooks/guidance. Bitcoin prices down-3.5% to around $63K in a week of selling after hitting a record level near $74,000 last week but has since endured a volatile selloff, dipping as low as the $60,000 zone with that period (down from $67K levels yesterday). Dow Transports are higher following FDX earnings outperformance.

• In Restaurants: BROS shares slipped as 8M share Spot Secondary priced at $34.00; CMG tgt raised to $2,850 from $2,400 at Wedbush saying checks point to Q1 strength (SSS growth trending above consensus of 4.1%), but rest of 2024 could see slowing transactions. SHAK PT raised from $108 to $120 at Oppenheimer and maintains Outperform noting in an unexpected move, PZZA’s CEO Rob Lynch will leave the company to become the next CEO at SHAK effective May 20^th and the firm believes the shift represents a future catalyst for shares. PZZA was downgraded from Buy to Neutral at BTIG following the departure of Mr. Lynch from Papa John’s. BTIG believes it could take at least several months to identify the next CEO, and at least another six months to develop a growth strategy.
• In Brokers/Exchanges: SCHW was upgraded to Outperform from Market Perform at TD Cowen and up tgt to $87 from $70 on greater confidence in stabilizing cash sorting/favorable inflection into 2H24; balance sheet stabilization into ’25, a bit higher NIM expectations and well above average EPS CAGR through ’26. Cowen also raised price tgts on LPLA, RJF and SF (top pick) in sector, and raises tgts as believes the backdrop is incrementally more conducive for the sector for NIMs, capital markets.

• FDX +8%; a big winner on earnings as authorized a new $5B buyback and Q3 adj EPS $3.86 tops est. $3.45 on revs $21.7B vs est. $22.044B; while Q3 results benefitted from lower variable compensation, they also continued to demonstrate solid momentum in terms of cost reduction.
• FL +4%; was upgraded from Sell to Neutral at Citigroup with $24 tgt noting NKE acknowledged last night they were too focused on growing their own digital channel, which has come at the expense of wholesale, particularly in N.A.
• NOVA +4%; SEDG was downgraded to Neutral from Buy at Janney Montgomery Scott while they upgraded NOVA to Buy from Neutral with an unchanged fair value estimate of $12.
• SCHW +1%; upgraded to Outperform from Market Perform at TD Cowen and up tgt to $87 from $70 on greater confidence in stabilizing cash sorting/favorable inflection into 2H24.
• SMLP +35%; shares jumped after agreeing to sell its Utica shale position to a unit of MPLX for $625Mm in cash, which follows the culmination of its strategic review process launched in October.

• LULU -17%; shares tumbled after beat Q423 on top and bottom line (upside from GM beat, fixed cost leverage, lower tax rate = $0.14 in EPS), Q4 revs rose 16% y/y to $3.21B vs. est. $3.19B – but guidance disappoints as sees Q1 EPS $2.35-$2.40 vs. est. $2.55 and guides Q1 revenues $2.18B-$2.2B below consensus $2.26B.
• NKE -8%; posted a Q3 beat as EPS $0.77 tops est. $0.74 while revs rose 0.3% to $12.43B vs. est. $12.31B (and prior year $12.39B) and Q4 inventories were $7.7B, down -13% y/y, but forecast revenues to be down in the 1H24 to low single digits while FY25 and FY26 EPS estimates see a -10% haircut.
• NKTX –19%; after results; downgraded from Buy to Outperform at Raymond James while ups tgt to $16 (from $13) not due to any decrease in confidence in its view of the company, but to better reflect remaining upside given recent strength.
• TME -4%; after saying Zhenyu Xie resigns as President, CTO.
• TSLA -1%; has reduced its car production at its China plant, according to Bloomberg News reports. Earlier this month, co instructed employees at its Shanghai facility to lower production of both the Model Y SUV and Model 3 sedan by working five days a week instead of the usual 6-1/2 days.