Mid-Morning Look

Friday, May 03, 2024

Stock buying blitz continues, as U.S. stocks surge amid a perfect storm of news today, with better earnings from AAPL (better than feared) coupled with slowing jobs growth – raising prospects of lower interest rates. 1) Nonfarm payrolls slowed in April, as increased by 175,000 jobs last month, below estimates of 240,000 and down from the upwardly revised number of 315,000 in March, while the unemployment rate rose to 3.9% from 3.8%, still staying below 4% for the 27th straight month. Wages increased less than expected, rising 3.9% y/y and +0.2% m/m, both below consensus. The lower wages, coupled with slowing jobs data helps boost market hopes for a sooner interest rate cut by the Fed. 2) the data followed good results from Dow component and tech behemoth Apple (AAPL) overnight, beating Q1 estimates alongside a record $110B stock buyback and dividend boost. Interest rate sensitive sectors (benefit from low rates) seeing some of biggest non-earnings-related moves this morning, as names that tend to benefit from low financing like solar stocks, lenders, biotech as well as traditional housing related names and dividend paying sectors (utilities, telecom, towers, REITs) seeing big jumps. Stock markets pulled back a bit around 10:00 after the ISM Services data showed modest weakness, but another jump in prices paid (inflation). If the Fed truly has inflation as its main driver for future cuts, the recent bounce in prices paid, as well as ECI, CPI and PCE data keep rate cut hopes in check. U.S. Treasury yields fell as much as 10-bps after the jobs report but has since pared losses (10-yr as low at 4.45% from 4.57% prior – now at 4.535), while gold tumbles further, on track for worst week of 2024. Nick Timiraos of the WSJ tweeted: "The April jobs report won’t change much for the Fed because; There’s another one before their next meeting; They’re more focused on inflation data; It’s doesn’t show "unexpected" weakness; But it will certainly help ease fears about reacceleration/overheating."

• ISM non-manufacturing sector shows PMI 49.4 in April below consensus 52.0 and vs 51.4 in March; business activity index 50.9 in April vs 57.4 in March, paid index jumps to 59.2 in April vs 53.4 in March, new orders index 52.2 in April vs 54.4 in March and non-manufacturing employment index 45.9 in April vs 48.5 in March.

• In Media & Telecom: The NBA agrees to general framework of new long-term broadcasting agreements DIS & AMZN worth $2.6B and $1.8B per year respectively, Bloomberg reported last night; UNIT enters into a definitive agreement to merge with Windstream Holdings; in cable, WOW rises after shareholder Crestview says it and DigitalBridge submitted a joint, preliminary non-binding proposal to buy the cable service provider for $4.80 per Class A share. PARA was downgraded to Sell at Argus saying Paramount’s sale process has become a fiasco as CEO Bakish steps down. FUBO guided Q2 revs $357.5M-$367.5M vs. consensus of $355.2M after Q1 results topped expectations.
• In Casino and Gaming: DKNG reported Q124 revenue of $1.175B, increasing 53% YoY, exceeding expectations despite headwinds to sporting outcomes in several parts of the quarter; beat was broad-based, including gross margins 400 bps above expectations (+564 bps YoY), and EBITDA of +$22M compared consensus of +$5M; DKNG increased MUPs 23% YoY, below 35% in Q423 and 44% in Q323; that said, it did not capture a full quarter of players in North Carolina (March 11 launch). In gaming technology, Stifel previewed quarter saying they forecast beats from AGS, IGT, & LNW and inline for EVRI as regional same-store GGR trends improved following well-discussed adverse weather in January.
• In Transports: Dow Transports extend Thursday gains as XPO shares jumped after Q1 adj EPS $0.81 topped the $0.67 estimate on better revs of $2.02B and reports North American Less-Than-Truckload (LTL) revenue of $1.22B and European transportation revenue of $797M; UNP upgraded to Buy from Hold at Stifel and raise tgt to $267 from $248 after hosted Jim Vena and Jennifer Hamann to discuss the progress at Union Pacific and the current rail freight environment. Dow Transports jumped 2.5% on Thursday behind a spike in CHRW after results.

• AMGN +13%; after earnings results and news it is working on two weight-loss drugs: MariTide which is in mid-stage testing for weight loss in adults with or without obesity and wrapped a Phase 1 study of its other obesity drug, a small molecule medicine known as AMG 786 (shares of competing obesity drug makers NVO, LLY, VKTX down on obesity drug comments).
• ARDX +24%; as reported Q1 revenue of $46M, above consensus of $36ME driven by higher than anticipated Xphozah sales of $15.2M vs. consensus of $6.5M.
• BKNG +5%; shares jumped as Q1 gross bookings of $43.5B topped consensus of $42.16B handily, backstopped by 8.5% y/y growth in room-nights vs consensus of 5.5% and the high-end of guidance at 6%, though guided a bit soft on Q2.
• LYV +7%; among top gainers in the S&P 500 after earnings as reported a meaningful beat on Q1 revenue and AOI on continued healthy demand, and management indicated that they are approaching the final phase of the DOJ investigation in preparation for discussions with senior DOJ leadership; Q1 adj operating income up 15% to $367M.
• MTZ +14%; reported 1Q adjusted EPS of ($0.13), an improvement over the guidance of ($0.48) and revenue growth was 4% vs. guidance, beating in all segments except Clean Energy; Q1 adjusted EBITDA was $164M vs. consensus of $130M, and adjusted EBITDA margin was 6.1% vs. our Keybanc est. 4.9%.
• SQ +2%; after boosting its year outlook following all around strong Q1 results – posted Q1 gross profit 3% above consensus and EBITDA 105M above consensus, while 2024 EBITDA guidance was raised by 4%; guides FY24 adjusted EBITDA $2.76B above prior view at least $2.63B and Q2 adjusted EBITDA $670M-$690M.
• TNDM +24%; delivered Q1 results which were better than expected and increased top line guidance to 12% growth and maintained AEBTIDA breakeven guidance.
• WOW +31%; after shareholder Crestview says it and DigitalBridge submitted a joint, preliminary non-binding proposal to buy the cable service provider for $4.80 per Class A share.

• FLR -6%; as Q1 EPS $0.47 missed the $0.54 consensus on weaker revs $3.7B (vs. est. $4.0B) while affirmed year profit.
• FTNT -7%; following a 1Q billings miss and 2Q billings guide below; 1Q margins & FCF both solidly beat; FY24 billings guide was maintained despite the 1Q/2Q miss and FY24 revenue/EBIT guided above; posted -18% y/y product growth and -6% billings growth this quarter.
• NET -16%; shares decline as Q1 operating loss widens to $54.6M from $47.3M, while Q1 sales and marketing expenses jumped about 42% to $194.1M and forecasts in-line revs at $393.5M-$394.5M vs. est. $393.5M.
• OTEX -17%; downgraded to Market Perform at BMO Capital and cut tgt following Q3/24 results that were roughly in line, while OTEX’s preliminary FY2025 guidance was significantly weaker than expected.
• SPT -37%; downgraded by several analysts after cuts FY revenue forecast to $405M-$406M below prior view $425.3M-$425.5M saying they underestimated the magnitude of enterprise seasonality and faced sales execution challenges.
• TRMB -7%; said the Company’s disclosure controls and procedures were not effective as of December 29, 2023 due to the material weakness in internal control over financial reporting.