Mid-Morning Look

Wednesday, November 01, 2023

U.S. stocks mixed as large caps outperform Smallcaps ahead of a big FOMC policy meeting day later at 2:00 PM. This morning so far, Treasury yields fall (10-yr 4.78%) on favorable market economic data as the October ADP employment figure was lighter than views, JOLTS showed more job openings than forecast and ISM Manufacturing at 46.7 (below expansion – sub 50 level for the 12th straight month), was below consensus. Still the FOMC will dominate action later at 2:00 where rates expected to hold steady but reiterate their hawkish outlook of “rates higher for longer.” The US dollar index (DXY) extending recent gains above the 107 level initially – but has since pulled back following the economic data (still shy of 10-3 recent hi of 107.348). Another onslaught of earnings results again (highlights below) moving several S&P sectors. Early strength in Energy, Technology and Utilities while Healthcare, Materials, and Staples lag. Also helping Treasury yields ease, the U.S. Treasury Department said it plans to “gradually” increase the size of most of its debt auctions in the November 2023 to January 2024 quarter. Treasury said plans to sell $112 billion in its quarterly refunding next week – which was below some expectations of a higher figure. Treasury 30-year yields decline 15 basis points on the day, 10-year Treasury yield drops below 4.8% for first time in two weeks.

Economic Data

·     ADP Private payroll data reported at 113K, below the consensus estimate 150K jobs after added 89K jobs last month; data comes ahead of the nonfarm payroll data Friday.

·     U.S. Sept. Job openings (JOLTS) reported at 9.553M vs. est. 9.400M; 1.52 million layoffs in Sept, down from 1.68 million in Aug. layoff rate fell to 1.0% in Sept from 1.1% in Aug.

·     ISM U.S. manufacturing activity index 46.7 in October below consensus 49.0 as prices paid index 45.1 in October (vs. est. 45.0) vs 43.8 in September; new orders index 45.5 in October vs 49.2 in September; and employment index 46.8 in October (consensus 50.3) vs 51.2 in September.

·     September construction spending +0.4% m/m vs. +0.4% est. and rises 1% in the prior month (rev up from +0.5%); private residential construction +0.6%.

Sector Movers Today

·     Restaurants: DIN Applebee’s posted -2.4% lower same-store sales during 3Q, while IHOP’s same-store sales were up 2% and overall, revenue declined 13% to $202.6M. EAT Q3 comp sales rose 5.8% vs. est. 5/7% and now expects Fy24 EPS $3.35-$3.65, compared with consensus of $3.32 and maintains year revs $4.27B-$4.35B after posted better Q3 results; Chili’s Comp sales +6.1% vs. 3.8% y/y, Maggiano’s 2.6% vs. 18.2% y/y and Chili’s rose 6%. WING raised its full-year guidance and now expects same-store sales growth of about 16%, up from prior guidance of 10% to 12%; still expects to open 240 to 260 global net new units; Q3 EPS, sales, and comp sales all above consensus. YUMC shares dive after missing Wall Street expectations for its Q3 earnings, revenues and comp store sales saying that “softening consumer demand” emerged in recent weeks. YUM reports that Q3 comp sales rose 6% at KFC, gained 8% at Taco Bell and were up 1% at Pizza Hut while overall, same-store sales rose 6% vs/ est. 4.6%.

·     In Chemicals: DD saw its 3Q net sales drop 8% y/y, lowers year adj EPS to $3.45 from prior $3.40-$3.50 and cuts full-year revenue forecast to $12.17B from prior $12.45B; said Q3 sales in electronics and industrial segment fell 13%, water and protection unit down 8%; HUN Q3 adj EPS $0.15 vs. est. $0.19; Q3 revs $1.506B vs. est. $1.55B; says 4Q will likely be the most challenging period in recent memory due to weak demand, pricing pressure; SMG said volumes fell 23% overall, down 30% for the consumer segment and 13% for the Hawthorne business. LTHM quarter showed a modestly more pronounced decline from lower lithium prices than expected, with 4Q guidance lower due to a delay in the Argentina expansion; Q3 adj EPS and revs miss and cuts FY23 revenue view to $890M-$940M from $1.025B-$1.125B.

·     In Semiconductors: AMD reported Q3 beat but came up short with its revenue forecast for Q4 ($5.8B-$6.4B vs. est. $6.4B) but talked up its opportunities in artificial intelligence; Q3 data-center revenue was flat with the year-earlier sum but up 21% sequentially. CRUS was upgraded to Buy from Hold and raise tgt to $100 at Loop Capital saying the stock offers a unique opportunity emerging for both the company and investors, as Cirrus Logic can level up its earnings per share. SLAB Q3 results in-line to slightly better but guides Q4 adj EPS loss ($1.66)-($1.22) vs. est. $0.67 and sees Q4 revenue $70M-$100M below consensus $204.93M.

·     In Casinos: CZR rises on strong 3Q performance, in which both revenue and profitability results beat estimates as Las Vegas continues to operate on all cylinders with regional markets, the surprise of the quarter, continuing to show; BALY lowered FY revs to $2.4B-$2.5B from prior $2.5B-$2.6B after weaker Q3 results as revs $632.5M vs. est. $633.6M on wider net loss of -$61.8M vs. est. loss $7.15M. Macau’s casino revenue jumped in October after the world’s largest gambling hub saw a surge during China’s Golden Week holiday. Gross gaming revenue grew 400% to 19.5 billion patacas ($2.4 billion).

Stock GAINERS

·     ALDX +48%; signed a licensing deal with ABBV on an eye-condition drug where Aldeyra will receive a $100M up-front payment, less option fees, and up to an added $300M in milestones.

·     AMD +6%; reported Q3 beat but came up short with its revenue forecast for Q4 ($5.8B-$6.4B vs. est. $6.4B) but talked up its opportunities in artificial intelligence; Q3 data-center revenue was flat with the year-earlier sum but up 21% sequentially.

·     CRSP +6%; following positive FDA advisory panel meeting on the gene-editing drug exa-cel developed by Crispr and partner VRTX as a treatment for sickle-cell disease.

·     CZR 1%; rises on strong 3Q performance, in which both revenue and profitability results beat estimates as Las Vegas continues to operate on all cylinders.

·     FTDR +12%; Q3 a top and bottom line easily top consensus and raises FY adj. EBITDA view to $320M-$330M from prior $260M-$280M view.

·     GNRC +15%; Q3 adj EPS $1.64 vs. est. $1.51; Q3 revs $1.07B vs. est. $1.04B; Residential product sales were down 15% at $565M, though commercial and industrial product sales were up by nearly a quarter at $385M.

Stock LAGGARDS

·     BGFV -16%; after cutting its cash dividend in half to 12.5c from 25c while Q3 EPS of $0.08 missed the $0.16 estimates and revs $239.9M vs. est. $243M and comp store sales fell 8.2% y/y.

·     DD -4%; saw its 3Q net sales drop 8% y/y, lowers year adj EPS to $3.45 from prior $3.40-$3.50 and cuts full-year revenue forecast to $12.17B from prior $12.45B.

·     EL -16%; shares slide as guides Q2 adj EPS $0.47-$0.57 below est. $1.25 and sees FY adj EPS $2.17-$2.42, missing the est. $3.60 and said given the slower-than-expected pace of recovery, announces profit recovery plan to rebuild its profit margins in fiscal years 2025 and 2026.

·     EXTR -13%; after posted a revenue and EPS beat for Q1, but issues downside guidance for Q2 and FY24 vs prior double-digit revenue growth outlook, citing changing customer buying patterns based on macroeconomic conditions.

·     GOOS -11%; lowered FY rev guidance to range C$1.2B-$1.4B Canadian dollars vs. prior view C$1.4B-C$1.5B citing global macroeconomic and geopolitical headwinds.

·     MTCH -16%; reported in-line Q3 revs but sees Q4 total revenue $855m-$865M below consensus of $895.M, anticipating continued weakness in spending on dating services.

·     MTZ -22%; reported Q3 EPS, EBITDA, and revenue below guidance and guidance for 2023 was lowered due to numerous project delays, deferrals, and lower utilization.

·     PAYC -37%; posted lower 3Q results and 4Q guide, attributing shortfall to BETI cannibalization, lower cross-sell activity, and macro; lower initial growth FY outlook of 10-12% (vs. cons. 21%).

·     XPOF -11%; downgraded to Neutral from Buy at Bank America and cut tgt to $16 from $35 as believes risk/reward is now more balanced.

·     YUMC -19%; after missing Wall Street expectations for its Q3 earnings, revenues and comp store sales saying that “softening consumer demand” emerged in recent weeks.