Mid-Morning Look

Wednesday, November 29, 2023

U.S. stocks open strong following a drop in yields and more upside momentum as investors continue to chase stock performance into year end. Mixed Fed commentary on Tuesday (dovish Waller vs. hawkish Bowman) helped spark the mini bounce but comments today from Richmond Federal Reserve Bank President Thomas Barkin pared early stock market gains. Barkin said in a CNBC interview that he is skeptical that inflation is on its way down smoothly to 2% and is not willing to take the option of another rate hike off the table in case inflation flares again. As for rate cuts next year, it’s “premature” to be even talking about it, he said in an interview on CNBC. Smallcaps are strong as the IWM seeing early outperformance, back at its 200-day MA resistance of $180.55 (the 100-day MA higher at $181.22). Treasury yields fell, and investors digested an estimate on economic growth in the third quarter that was revised higher. Gross domestic product in the U.S. rose at an annual rate of 5.2%, according to a revised estimate for Q3. The dollar index (DXY) rises +0.2% to 102.96 after earlier hitting a low of 102.467 (lowest since 8-11). Gold prices pare gains after pushing above their year-to-date high earlier. Several tech stocks bouncing after earnings results as CRWD, INTU, NTAP, HPE, WDAY shares all higher.

Economic Data

·     The Second reading of Q3 2023 GDP comes in at +5.2%, above expectations of 4.9% and up from the 4.9% reading seen in the first preliminary number. Prelim Q3 consumer spending +3.6% vs. est. 4.0%. Inflation portion of readings better as Q3 GDP deflator +3.5% vs. consensus +3.5% and prelim Q3 core PCE +2.3% below the 2.4% expected.

·     International Advance Trade in Goods deficit at (-$89.84B) vs. (-$86.7B) consensus and (-$86.84B) in September as exports of goods for October were $170.8B, $3B less than September exports and imports of goods for October were $260.7B, virtually unchanged from September.

Sector Movers Today

·     In the Food Sector: HRL Q4 adj EPS $0.42 vs est. $0.44 and sales fell -2.6% y/y to $3.2B below the consensus of $3.26B, as overall volume declined -0.4%, with retail down 2.7% and foodservice up 4.8%; sees FY adj EPS $1.51-$1.65 below consensus $1.66. HSY downgraded from Overweight to Neutral at Piper and cut tgt to $200 and trim its estimates on higher cocoa costs up ~60% in Q423) driven by supply shortages…said uncertainty makes modeling very difficult.

·     In Internet Security Software: CRWD posted top/bottom-line metrics above guidance and Street and FY24 guidance goes up beyond the quarterly beat; Q3 ARR beat by $11M vs $4M last quarter and EBIT margins beat by 2pts and reiterated the FY24 net new ARR guide of “in line to modestly up” while commented that the Q4 setup is strong with record pipeline. OKTA notified customers that a recent hack was much more severe than initially thought and resulted in all customer data being stolen. Shares rebounded after the company boosted its FY 24 sales view to $2.24B-$2.25B, above prior forecast $2.21B-$2.22B on higher adj EPS view as well.

·     In Casinos: LVS announced ~46.3M shares sold by Miriam Adelson and family trust at $44.00, using net proceeds from the sale to buy Mark Cuban’s majority stake in the NBA’s Dallas Mavericks – offering reduces Adelson’s stake in LVS by about 6% to 50%, or roughly 382M shares. In Leisure/Travel/Lodging: ABNB was downgraded from Buy to Hold at Jefferies and cut tgt to $140 from $155 saying a recent slowdown in Bookings increases the risk of downside to consensus, making the story more reliant on potential take rate expansion. In cruises, CCL said its Holland America said U.S. bookings up 23% from Black Friday through Cyber Monday

·     In Healthcare Services: PDCO reported Q2 top and bottom-line miss ($0.50/$1.65B vs. est. $0.58/$1.7B) and lowered its FY24 EPS view to $2.35-$2.45 from $2.45-$2.55 (est. $2.50); said steady patient traffic supported strong performance in dental consumables but was offset by lower sales in other dental equipment categories; shares of HSIC, XRAY were active. WOOF shares tumbled after posted Q3 adj EPS loss (-$0.05) vs. est. $0.02; swung to a loss on a $1.2B noncash goodwill impairment charge while sales slipped -0.5% to $1.49B, missing the $1,51B estimate; cuts FY23 adj EPS view to $0.08 from $0.24-$0.30 prior; said Q3 sales in its supplies and companion animal business fell -8.8%.

Stock GAINERS

·     CRWD +7%; posted top/bottom-line metrics above guidance and Street and FY24 guidance goes up beyond the quarterly beat; Q3 ARR beat by $11M vs $4M last quarter and EBIT margins beat by 2pts and reiterated the FY24 net new ARR guide.

·     FL +16%; after a strong beat in earnings and improved sales outlook; Q3 adj EPS $0.30 vs. est. $0.21; Q3 sales fell -8.6% y/y to $1.99B vs. est. $1.96B; Q3 comp sales fell -8% vs. est. -9.8%.

·     FLNC +26%; following quarterly results well above consensus views.

·     GM +10%; reinstates 2023 earnings guidance and announces a $10B accelerated share repurchase program and 33% dividend increase starting in 2024; also lowered 2023 adj EPS $7.20-$7.40 from prior $7.15-$8.15 and lowers 2023 adj Ebit view to $11.7B-$12.7B from prior $12B-$14B.

·     NTAP +15%; after Oct-Q sales and adj. EPS of $1.562B and $1.58 beat the Street at $1.528B/$1.39, driven by QLC-based product ramps and self-help initiatives, which drove record margins.

·     PSX +3%; after CNBC David Faber reported activist investor Elliott takes $1B stake and plans to seek two board seats https://tinyurl.com/ykuv3wen (was later confirmed by the company)

·     ROVR +28%; agrees to be acquired by Blackstone in $2.3B transaction with shareholders to receive $11.00 per share in cash and transaction is currently expected to close in Q1 of 2024.

·     VVOS +160%; after saying its oral medical device to treat severe obstructive sleep apnea has been granted clearance by the U.S. FDA.

·     WDAY +9%; reported a strong Q3 w/ 24-month backlog growth of 23%, above guide of 21%, posted better-than-expected non-GAAP EPS of $1.53 (consensus of $1.41) on revenue of $1.87B (consensus 1.85B), and subscription revenue of $1.69B rose 18% y/y on better guide.

Stock LAGGARDS

·     BABA -2%; after founder Jack Ma memo praised rival PDD and reported to company saying needed to “change and reform” https://tinyurl.com/4ajhyc23

·     BIVI -69%; after saying primary efficacy endpoint of Phase 3 trial of NE3107 for treatment of mild to moderate Alzheimer’s Disease missed statistical significance “due to exclusions.”

·     EGRX -21%; received a notice from the Listing Qualifications Department of The Nasdaq Stock Market on deficiency related to the requirement of timely filing of periodic financial reports with the SEC.

·     JBL -11%; pre-announced Q1 results and guided down for FY24, citing recent order weakness across several end markets due to inventory issues and soft demand; cuts Q1 revenue view to $8.3B-$8.4B from $8.4B-$9B and sees FY24 revs roughly $31B below consensus $33.7B

·     LESL -22%; after result/guidance disappoint, as Goldman Sachs downgraded to Neutral from Buy following their Q423 results as sales and margins are expected to remain pressured in the near term, and the demand recovery timing now appears increasingly uncertain.

·     LVS -2%; announced ~46.3M shares sold by Miriam Adelson and family trust at $44.00, using net proceeds from the sale to buy Mark Cuban’s majority stake in the NBA’s Dallas Mavericks – offering reduces Adelson’s stake in LVS by about 6% to 50%, or roughly 382M shares.

·     PCG -3%; after announces proposed offering of $1.5 bln convertible senior secured notes; said intends to use net proceeds from the offering to repay portion of loans outstanding under its $2.75 bln term loan entered in June 2020.

·     VERV -9%; after announced 12.5M share offering at $10 for $125M, a 16.2% discount to stock’s last sale and said it also sold ~2.3 mln shares in concurrent private placement to LLY for $23M.

·     WOOF -14%; after posted Q3 adj EPS loss (-$0.05) vs. est. $0.02; swung to a loss on a $1.2B noncash goodwill impairment charge while sales slipped -0.5% to $1.49B, missing the $1,51B estimate.