Mid-Morning Look

Wednesday, May 17, 2023

U.S. stocks open higher, back near the top end of yesterday’s highs though the market remains trapped in a narrow range (S&P 50-point range for 2-weeks), with all awaiting the outcome of debt ceiling talks in Washington. Debt-ceiling talks between White House and congressional aides are set to intensify as negotiators seek a framework agreement for Joe Biden and House Speaker Kevin McCarthy to review upon the President’s return from his Asian G7 trip (leaves today, back Sunday). Early strength in Financials, led by regional banks (KRE) after WAL provided an upbeat bank deposit update last night, leading shares higher. Energy bounce back day is top gainer in the S&P, and Industrials also broadly higher. Usual tech strength as well early with AMZN, TSLA leading along with semiconductors. Defensive Healthcare, Staples, and Utilities leading lower. The US dollar index (DXY) tops the 103 level in recent strength, highest levels since late March and Treasury yields resume yesterday’s climb with the 10-yr above 3.55%. Large cap tech remains mainly responsible for the S&P and Nasdaq gains YTD: NVDA +99% YTD (coming into today), META +98%, AMD +57%, TSLA +35%, AMZN +35%, GOOGL +34%, AAPL +32%, and MSFT +30% all year-to-date. How much longer can this group carry the broader market? Or will there be new leaders?

Economic Data

·     Housing starts for April rose +2.2% to 1.401M unit rate (in-line w ests) vs March -4.5% as 1.371M units as single-family starts +1.6% to 846,000-unit rate and multifamily +3.2% to 555,000-unit rate; April housing permits 1.416M unit rate vs. est. 1.437M and March 1.437M unit rate.

Sector Movers Today

·     In retail: TGT reversed pre-mkt losses after mixed Q1 (EPS beat/revs miss), weaker Q2 guide (EPS $1.30-$1.70 below the $1.91 estimate) but maintained year outlook; inventories also improved but margins below trend – co said says sales slowed in March, decelerated further in April. TJX Q1 sales rise +3.3% to $11.78B but miss ests $11.82B as comp store sales at HomeGoods fall by (-7%); forecasts Q2 sales and profit below Wall Street estimates – for Q2 EPS $0.72-$0.75 vs. est. $0.79 and comp sales +2%-3% vs. est. 3%; maintains year revs view and boosts year EPS. ONON was downgraded to Sell from Hold at Williams Trading a day after earnings results.

·     Homebuilders: Housing starts data was better than last month and mostly in-line, supporting continued strength in homebuilders with many holding at or near 52-week highs. Weekly MBA mortgage data shows the US mortgage market index fell -5.7% in week ended May 12, purchase index falls -4.8%, refinance index falls -7.7% as the average 30-year mortgage rate rises 9 bps to 6.57% In Home retail preview: TD Cowen said they are cautious on trends & set-ups at both but prefer RH over WSM as thinks FY23 will be a beat & raise year, especially if RH can launch key catalysts on time. At WSM, TDCowen models 1Q & FY23 below Street, but its work suggests good promo control, and shares are trading at a deep discount to historical S&P 500 spreads.

Stock GAINERS

·     DT +2%; after Q4 EPS $0.31 vs. est. $0.22; Q4 revs $314M vs. est. $304.9M; Q4 Total ARR of $1.247B, and adjusted ARR growth of 29% y/y; guides Q1 revs $325M-$328M vs. est. $319.2M.

·     KEYS +7%; reported F2Q23 revenues that were largely in-line with expectations (+3% yoy), with better gross margins driving a more sizable 9-10% beat on Operating income and non-GAAP EPS.

·     PTCT +5%; announces APHENITY trial achieved primary endpoint with Sepiapterin in PKU patients.

·     TGI +15%; after the Q4 sales and profit topped analysts’ expectations and better FCF.

·     TGT +1%; after mixed Q1 (EPS beat/revs miss), weaker Q2 guide (EPS $1.30-$1.70 below the $1.91 estimate) but maintained year outlook; inventories also improved but margins below trend.

·     WAL +11%; after saying deposits have grown by $2 billion during Q2. As of May 12, the bank said it had about $50B in deposits, up from $47.6B as of March 31, according to a filing.

·     WYNN +5%; upgraded to Overweight at Barclays and raised tgt by $15 to $135 on Macau recovery, strength in Las Vegas operations.

Stock LAGGARDS

·     AGYS -15%; Q4 results better as posted record bookings growth, but analysts note the record F4Q:2023 bookings performance did not lead to higher consensus revenue estimates for FY2024.

·     DOCS -8%; reported 4Q results that came in in line in terms of revenue and were ~6.9% above consensus on adjusted EBITDA, but 1Q revenue and profit guidance came in short of current consensus expectations ($107M vs. est. $112M).

·     EVGO -12%; after announced $125M stock offering.

·     ICPT -19%; after FDA staff concluded that the companies OCA can cause significant drug-induced liver injury and there is uncertainty about how magnitude of changes observed on surrogate endpoints for intercept’s OCA may translate to meaningful changes in clinical outcomes.

·     KD -11%; as Q4 revenue fell ~4% to $4.26B and net loss widened to $737M, or (-$3.24), from a net loss of $229M y/y and forecast a FY24 revenue decline of 6%-8% due to accelerated actions by it to reduce certain low-margin revenue streams.

·     TCS -12%; on miss and guide; 4Q adj EPS $0.18 vs est. $0.16 on revs $259.7Mm vs es.t $265.7Mm, comps -13.1%; guides 1Q net sales $200-210Mm vs est. $257.71Mm, comps -23% to -19%.

Syndicate:

·     Akero Therapeutics (AKRO) 5.24M share Spot Secondary priced at $42.00.

·     Everest Re (RE) 3.6M share Spot Secondary priced at $360.00.

·     Hess Midstream LP (HESM) 11.1M share Spot Secondary priced at $27.00.

·     Maxeon Solar Technologies (MAXN) 7.5M share secondary priced at $28.00.

·     New York Community Bancorp (NYCB) 39.03M share Spot Secondary priced at $10.08.

·     OneSpaWorld (OSW) 9M share Spot Secondary priced at $10.00.