Mid-Morning Look

Monday, November 13, 2023

U.S. stocks slip out of the gate to kick off the new week, paring last week’s gains for large caps dominated by strength in the Nasdaq, though the Smallcap sector remains a market laggard as the Russell 2000 adds to last week’s losses. Reminder, the Nasdaq 100 has been up 18 straight Monday’s (a trend that started 7/3), but under pressure early. Macro concerns dragging stocks down as: 1) Moody’s placing US credit rating on negative watch, citing higher interest rates and doubts about the government’s ability implement effective fiscal policies, but they affirmed the Aaa status of Treasuries, citing the USs significant credit strength; 2) the possibility of a US government shutdown looms in just a little over four days as DC remains at odds on a bill; 3) inflation data Tuesday 11/14 (CPI) and Wednesday 11/15 (PPI). Regarding the shutdown, House Speaker Mike Johnson proposed a two-step spending plan to avert a shutdown, avoiding cuts and border rule change…but does not include the deep spending cuts that some GOP pushed for. Geopolitical concerns continue amid reports the US conducted strikes on two sites in Syria with connections to Iran Sunday. In corporate news, several MedTech movers this morning following headlines out of the American Heart Association’s conference this past weekend moving weight loss, cardiovascular stocks (NVO, LLY, PEN, NARI, DXCM – see below). The 10-yr yield early bounces up 4-bbs to 4.668% – while the 2-yr rises 1 bps to 5.075%.

Sector Movers Today

·     In MedTech, shares of PEN, DXCM, PODD, NARI, TNDM and others saw early strength after NVO trial results this weekend eases fears – JPM earlier reiterated view that trial a positive for GLP-1˖s, but its take is relative to expectations for the MedTech sector from GLP-1˖s, and in that case, it thinks this trial underwhelmed. NVO said at the American Heart Association’s conference this past weekend that its obesity drug Wegovy notably cut the risk of heart attacks in its SELECT trial, affirming the treatment offers health benefits beyond weight loss – reduces the rate of heart attacks by 28%, strokes by 7%, and cardiovascular-related deaths by 15%.

·     In Media & Telecom: DIS movie “The Marvels” generated $47M in domestic box office ticket sales, below Disney’s ~$60M forecast and the lowest ever for a Marvel movie. DWAC shares volatile early after saying earlier there is substantial doubt about its ability to continue as a going concern. VOD creates strategic partnership with ACN to commercialize Vodafone’s shared operations to accelerate growth.

Stock GAINERS

·     BA +4%; on two pieces of news: 1) Boeing is closing in on a major order for its 777X widebody model from Emirates; 2) China is contemplating resuming purchases of Boeing’s 737 Max aircraft when U.S. President Joe Biden and Chinese President Xi Jinping meet this week (also helped shares of plane supplier SPR).

·     CRWD +2%; resumed coverage at Stifel as upgrade to Buy with $225 tgt saying believes CrowdStrike has several secular and company-specific drivers to sustain at least low-to-mid 20% growth and operating margin/FCF expansion in coming years.

·     HCAT +4%; was upgraded from Neutral to Overweight at Piper after solid Q323 results, exceeding the midpoint of guidance across both revenues and adjusted EBITDA.

·     HPQ +2%; was upgraded to Buy from Neutral at Citigroup on continued improvements in PC ecosystem, significant cost takeout, and undemanding valuations and potential for higher FCF generation to drive higher buybacks.

·     MNDY +11%; after earnings results this morning.

·     PEN +12%; DXCM, PODD, NARI, TNDM and others in MedTech saw early strength after NVO trial results this weekend eases fears.

·     STNE +10%; after earnings results late Friday better-than-expected.

Stock LAGGARDS

·     ACRS -85%; after saying it will stop development of its rheumatoid arthritis drug Zunsemetinib after it failed to meet its primary or secondary goals in a mid-stage trial; will also halt enrollment in an ongoing mid-stage trial studying the drug in psoriatic arthritis.

·     ILMN -4%; adds to last week’s earnings losses, falling to the lowest levels in about a decade.

·     RCM -3%; said to restate certain previously issued financial statements due to errors in accounting for expenses associated with historical acquisitions.

·     RILY -20%; extends last week’s losses, falling another 20% after recent losses.

·     TSEM -2%; after posting a decline in Q4 revs, forecasting the midpoint at $350M, down -13% y/y and below est. $359M as faces oversupply of chips and continues to correct inventory; reported in-line Q3 revs $358.2M.

·     VERV -44%; said its CRISPR-based gene editing treatment successfully reduced levels of “bad” cholesterol in patients with an inherited form of high cholesterol in a small trial of ten people – but shares fell after saying two patients experienced serious heart-related adverse events.