Mid-Morning Look

Wednesday, October 11, 2023

U.S. stocks open higher, continuing the recent upward momentum given the recent pullback in Treasury yields, but major averages are losing a little steam and trading near the morning lows as markets digest the “hotter” than expected PPI inflation data. Rates are down again this morning with the 10Y down 6-bps to 4.59% (hit lows of 4.54%, lowest since late September), despite Sept PPI jumping on a y/y and m/m basis, with all eyes on the more important consumer price index (CPI) data tomorrow. Fed Minutes are also expected later this afternoon. We get more Fed speakers as Bostic and Waller are speaking today. U.S. producer prices increased more than expected in September amid higher costs for energy products, but underlying inflation pressures at the factory gate continued to moderate. Conflict in the Middle East worsens as the death and casualty toll rise. Birkenstock (BIRK) 32M share IPO priced in middle of range at $46 and expected to trade this morning. No major earnings today, but fun begins tomorrow with Delta, Domino’s, and Dow component Walgreens before the big banks Friday.

Economic Data

·     The Producer Price index (PPI) for September rises +2.2% y/y above est. +1.6% (and previous 1.6%) and on a month/month basis, rises +0.5% vs. est. +0.3% (and vs. prior reading +0.7%). On a core basis, PPI y/y rises +2.7% vs. est. +2.3% and above last month 2.2% and m/m rises +0.3% vs. est. and prior reading +0.2%.

Sector Movers Today

·     The biggest stock story the last few months has been the surge in demand for weight loss drugs (Wegovy Ozempic) on positive data points from NVO The spike in shares on rising desire for the drugs has decimated several sectors in the food (CPB, K, KO, HSY), insulin (DXCM, PODD, TNDM), sleep apnea (RMD), and now dialysis sector (BAX, FMS, DVA). Overnight, NVO hinted its weight-loss drug, semaglutide the active ingredient in weight loss drugs), showed early promise in kidney disease treatment. Watch for further fallout of food related stocks seeing more weakness as truckers that transport and packaging companies that box it could also be impacted.

·     In transports: Goldman Sachs lowers 3Q EPS across coverage (ex- LTL space) on tepid peak season trends, still elevated inventories, and concerns over goods demand. JPMorgan downgraded RXO to Underweight and upgraded CSX to Overweight saying downside concerns have played out and is positive on JBHT into the print and add it as a Positive Catalyst Watch on domestic market share gains. The firm remains OW on CP but removes it from the AFL as a Growth idea given its new estimates are now well below consensus.

·     In Asset managers: Monthly assets under management (AUM) data released: 1) AB prelim AUM decreased (-4%) to $669 billion during September 2023 from $694 billion at the end of August; 2) APAM prelim AUM as of September 30, 2023, totaling $136.5 billion; 3) BEN prelim AUM of $1.37 trillion at September 30, 2023, compared to $1.42 trillion at August 31, 2023; 4) IVZ prelim AUM of $1,487.3 billion, a decrease of 2.6% versus the previous month-end; 5) VCTR prelim AUM of $153.5B as of September 30, 2023; 6) LAZ prelim AUM as of September 30, 2023 totaled approximately $228.3 billion.

Stock GAINERS

·     ADBE +2%; analysts positive reaction following Adobe MAX user conference and Analyst event.

·     AMGN +2%; upgraded to Outperform w/$318.00 pt from $267.00 at Leerink Partners.

·     HPQ +1%; guided FY24 adjusted EPS $3.25-$3.65 vs. est. $3.47, said anticipates generating free cash flow of $3.1B-$3.6B for FY24.

·     NVO +3%; said it will halt a trial studying Ozempic as a treatment for kidney failure in diabetes patients ahead of schedule as it was clear from an interim analysis that the treatment would succeed; shares of comp weight loss drug maker LLY rises as well.

·     SHLS +4%; upgraded to Buy at Goldman Sachs as see upside risks to margin expectations and favor its utility scale exposure – which should drive solid growth in 2024.

·     WBA +2%; after the appointment of Tim Wentworth (from Cigna) as the company’s new Chief Executive Officer, effective on October 23.

Stock LAGGARDS

·     ALLY -3%; said CEO Jeffrey Brown will be stepping down early next year.

·     CHPT -8%; after announcing “at-the-market” offering facility; said raises $232M to support path to profitability in 2024.

·     DVA -16%; along with other Renal care/dialysis companies (BAX, FMS) after NVO’s Ozempic Kidney trial was stopped early at the interim having met pre-specified criteria on efficacy.

·     ETWO -22%; after cutting its FY24 revenue view to $625M-$635M from $655M-$670M (below consensus $658.74M); backed FY24 adjusted gross profit margin view 68%-70%.

·     HUBS -2%; downgraded from Strong Buy to Outperform at Raymond James as believes the outperformance YTD sets up a more balanced risk/reward scenario relative to historical levels.

·     NOG -5%; announced 6.5M shares offering priced $38.88, for ~$252.7M raise for general Corp. purposes.

·     SILK -50%; after CEO said to step down as will continue as President and CEO until a successor is found, while provided preliminary 3Q23E revenue of $44.4M (up 19% y/y) versus consensus’s $46.3M, and lowered 2023 revenue guidance to $170-$174M from $180-$184M.