Market Snapshot
| Dow | 38712.21 | -35.21 | (-0.09%) | | Nasdaq | 17608.44 | +264.89 | (1.53%) | | SP 500 | 5421.03 | +45.71 | (0.85%) | | 10-yr Note | +31/32 | 4.30 |
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| | NYSE | Adv 1934 | Dec 930 | Vol 922 mln | | Nasdaq | Adv 2694 | Dec 1589 | Vol 5.5 bln |
Industry Watch
| Strong: Information Technology, Real Estate, Materials, Industrials, Consumer Discretionary, Financials |
| | Weak: Energy, Utilities, Consumer Staples, Communication Services |
Moving the Market
-- Positive response to cooler-than-expected CPI in May
-- Sharp drop in rates after CPI
-- Rate cut optimism after inflation moved in Fed's desired direction
-- Digesting FOMC policy directive and Fed Chair Powell's press conference
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Closing Summary
12-Jun-24 16:35 ET
Dow -35.21 at 38712.21, Nasdaq +264.89 at 17608.44, S&P +45.71 at 5421.03
The stock market started the session in rally-mode following some pleasing inflation data. The May Consumer Price Index reflected some welcome disinflation on a year-over-year basis in total CPI (actual +3.3%; prior +3.4%) and core CPI (actual +3.4%; prior +3.6%).
[BRIEFING.COM] Stocks hit some turbulence, though, in response to the latest move by the Fed.
The FOMC left the target range for the fed funds rate unchanged at 5.25-5.50%, as expected. The vote was unanimous, as expected. The directive reiterated that, "The Committee does not expect it will be appropriate to reduce the target range until it has greater confidence that inflation is moving sustainably toward 2 percent," as expected.
If there was a surprise, it would be the Summary of Economic Projections (SEP), which showed a median estimate of only one rate cut this year versus three at the time of the March projections.
The market vacillated in the wake of the policy directive and SEP, and Fed Chair Powell's press conference, which featured a Fed Chair who was non-committal about the policy path. Ultimately, the S&P 500 (+0.9%) and Nasdaq Composite (+1.5%) settled further into record territory. The Dow Jones Industrial Average (-0.1%) settled slightly lower after the late-session choppiness.
The Treasury market also exhibited volatile action in response to the afternoon developments, ultimately settling with solid gains. The 10-yr note yield fell 11 basis points to 4.30% and the 2-yr note yield, which is most sensitive to changes in the fed funds rate, fell eight basis points to 4.75%.
The fed funds futures market is now pricing in a 63.3% probability of a 25 basis points rate cut at the September FOMC meeting versus a 52.8% probability yesterday.
Many stocks participated in today's gains, leading the equal-weighted S&P 500 to close 0.5% higher and seven of the 11 S&P 500 sectors to close with gains. The weightiest sector in the index -- information technology -- logged the biggest gain as some influential components reached fresh highs.
Apple (AAPL 213.07, +5.92, +2.9%), NVIDIA (NVDA 125.20, +4.29, +3.6%), and Microsoft (MSFT 441.06, +8.38, +1.9%) were standouts in that respect, but the top performing sector component was Oracle (ORCL 140.38, +16.50, +13.3%), which jumped 13% on quarterly results and guidance.
- Nasdaq Composite: +17.3% YTD
- S&P 500:+13.7% YTD
- S&P Midcap 400: +6.1% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +1.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 15.6%; Prior -5.2%
- May CPI 0.0% (Briefing.com consensus 0.1%); Prior 0.3%; May Core CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.3%
- The key takeaway from the report is the recognition that there was year-over-year disinflation, meaning prices moved in the Fed's desired direction. Accordingly, the market will conclude that there won't be another rate hike and will remain hopeful that a rate cut could come as early as September.
Thursday's economic calendar features:
- 8:30 ET: May PPI (Briefing.com consensus 0.1%; prior 0.5%), Core PPI (Briefing.com consensus 0.3%; prior 0.5%), Weekly Initial Claims (Briefing.com consensus 224,000; prior 229,000), and Continuing Claims (prior 1.792 mln)
- 10:30 ET: Weekly natural gas inventories (prior 98 bcf)
Volatility continues after press conference
12-Jun-24 15:40 ET
Dow -80.75 at 38666.67, Nasdaq +281.10 at 17624.65, S&P +44.70 at 5420.02
[BRIEFING.COM] The major indices are heading lower after the conclusion of Fed Chair Powell's press conference. The S&P 500 trades near its "worst" level of the day, still sporting a 0.7% gain.
The downside moves in the stock market coincided with Treasury yields moving slightly higher. The 10-yr note yield moved from 4.27% to 4.32% and the 2-yr note yield moved from 4.67% to $4.76%.
This afternoon's calendar features earnings results from Broadcom (AVGO), Dave & Buster's (PLAY), and others.
Choppiness continues amid press conference
12-Jun-24 15:05 ET
Dow +50.14 at 38797.56, Nasdaq +338.10 at 17681.65, S&P +61.50 at 5436.82
[BRIEFING.COM] The market continues to exhibit choppy action as Fed Chair Powell gives his press conference.
Mr. Powell reiterated that the FOMC remains data dependent, saying that no one on the committee brings a really strong commitment to a particular rate path.
He also acknowledged that "We had really good inflation data in the second half of last year, then kind of a pause in progress in the first quarter. And what we took away from that was that it's probably going to take longer to get confidence we need to begin to loosen policy."
Updated projections show increased inflation estimates
12-Jun-24 14:35 ET
Dow +52.19 at 38799.61, Nasdaq +313.01 at 17656.56, S&P +57.70 at 5433.02
[BRIEFING.COM] The market is recovering from recent volatility as Fed Chair Powell begins his press conference.
The updated projections from the June FOMC meeting indicated that the committee estimates 2024 Core PCE median inflation of 2.8%, up from 2.6% in the prior forecast. The estimates for the 2024 Fed rates increased to 4.9-5.4% from 4.6-5.1% in the prior projection and the 2024 GDP estimates were steady at 2.1%.
The equal-weighted S&P 500 sports a 0.7% gain and the market-cap weighted index is up 1.1%.
FOMC leaves rates unchanged
12-Jun-24 14:00 ET
Dow +8.30 at 38755.72, Nasdaq +314.56 at 17658.11, S&P +54.71 at 5430.03
[BRIEFING.COM] The major indices turned lower in response to the FOMC policy directive.
The committee voted to leave rates unchanged at 5.25-5.50%, as expected.
Treasury yields are little changed following the directive. The 10-yr note yield is at 4.28% and the 2-yr note yield is at 4.70%.
Pure Storage is sluggish today following an analyst downgrade; remains a compelling AI play (PSTG)
Pure Storage (PSTG) stays close to its flatline today despite receiving a downgrade to "Equal-Weight" from "Overweight" at Morgan Stanley. The data storage platform provider has enjoyed excellent appreciation on the year, nearly doubling YTD, reflecting a healthy appetite for all-things AI.
Briefing.com notes that PSTG has been pouncing on the transition among businesses worldwide to the cloud and their seemingly insatiable demand to ensure they are competitively positioned to take advantage of a secular AI trend. As a result, PSTG recently returned to double-digit revenue growth in Q1 (Apr). Despite the stock hovering around all-time highs, it still has room to run. PSTG is a compelling AI play, and it has the added advantage of benefiting from a shift toward becoming more digital, making pullbacks offer attractive entry points.
- Advances in AI have opened several doors for PSTG across many market segments. High-performance data storage warehouses are growing, putting PSTG in a prime position to add to its accelerating revenue growth. Over a longer period, upgrading all enterprise storage to cloud storage provides an even more lucrative opportunity.
- PSTG is different from others in its field because it does not require different operating systems software to tackle various storage requirements. Its platform offers uniformity and integration across different data environments. This characteristic leads to power savings, materially reducing costs for data center operators. Given the magnitude more power AI workloads require, those who can save the most power without performance loss will likely pull ahead over the long term.
- Shares of PSTG have been on a tear primarily due to AI, offsetting the lingering issues surrounding the macroeconomic environment. Management remarked last month that AI-related spending might be pressuring other parts of IT budgets, keeping the storage market from noticing any major inflection. However, despite this challenging environment, PSTG has performed relatively well, consistently exceeding analysts' quarterly earnings and revenue forecasts, underscoring the company's ability to reignite revenue growth once broader demand conditions turn.
Like others in the tech industry enjoying record-high stock prices despite a constrained economic backdrop, PSTG has been benefiting from investors' interest in buying now in anticipation of a significant ramp-up next year, fueled largely by AI. While shares are by no means cheap -- PSTG currently trades at around 40x forward earnings -- its business model showcases a competitive edge for becoming the leader in AI and cloud data storage. PSTG recently boasted a notable win with Meta Platforms (META), showcasing its technological advantage. With big tech pouring bundles of cash into building their AI infrastructure, companies like PSTG stand to benefit big, allowing for further room to run over the long term.
Oracle breaks above trading range following upbeat comments on Q4 call and key deals (ORCL)
Oracle (ORCL +11%) is trading nicely higher today despite a rare miss on EPS with its Q4 (May) report last night. The company had reported six consecutive EPS beats, before last night's miss. Revenue rose 3.3% yr/yr to $14.29 bln, which was below expectations. However, ORCL tends to be hit-or-miss on the top line so that was not as surprising as the EPS miss. Oracle guided Q1 (Aug) EPS in-line.
So why is the stock higher despite the EPS miss? We think it's a combination of factors. While EPS and revs were not great, Oracle did provide an impressive RPO (remaining performance obligations) metric, which will convert to revenue down the line. Also, investors are focusing on a couple of big partnership announcements. And the final reason is because Q4 EPS was impacted by FX headwinds relative to guidance, so investors are not punishing them as much.
- RPO: Oracle noted that its Q4 is known for customers purchasing large software license contracts. However, because of the pivot to the cloud, this Q4 was powered by enormous demand for its cloud services. That was evident in its RPO metric, which jumped 44% yr/yr to $98 bln, up from $80 bln in Q3. Excluding Cerner, RPO was even stronger, up 60% yr/yr. Of note, approximately 39% of total RPO is expected to be recognized as revenue over the next 12 months.
- In Q4, Oracle signed the largest sales contracts in its history, led by huge demand for training large language models and record sales for OCI, Autonomous, Fusion, and NetSuite. Oracle noted that it's trading one-time non-recurring license revenue for much bigger commitments from multiyear cloud deals. In short, this Q4 marked the full emergence of its high-growth cloud businesses. While Oracle signed several large deals in Q4, it says there are many more in the pipeline.
- Partnerships: Management announced last night that OpenAI had selected Oracle to run deep learning and AI workloads on Oracle Cloud Infrastructure. In total, Oracle signed over 30 AI contracts for over $12 bln this quarter, and nearly $17 bln this year. In addition, Oracle signed another multi-cloud partnership, this time with Google Cloud. Oracle expects to be live with Oracle Database@Google Cloud in September where customers can get direct access to Oracle database services running on OCI, deployed in Google Cloud data centers.
- Non-GAAP operating margin is a metric we like to track. In Q4, it grew to 47% from 44% a year ago and 44% in Q3 as Oracle continues to drive more efficiencies in its business. Looking forward, as it continues to benefit from economies of scale in the cloud, Oracle expects it will be able to expand operating margin.
Overall, it is clear that investors are not focusing heavily on the Q4 EPS and revenue miss. There was a lot of positive commentary on the call, including the robust RPO performance and a lot of talk about signing large multi-year deals with many more in the pipeline. Oracle also mentioned Q4 as the full emergence of its high-growth cloud businesses. We also think the OpenAI and Google Cloud deals are generating excitement as well.
Finally, Q4 marked the fourth consecutive earnings report leading to a gap in the share price. Q1 and Q2 were down but Q3 and Q4 gapped higher. Also, the stock has generally traded in the $100-130 range over the past year, even as other tech names have surged. However, this report has pushed shares above that range, which is generally a bullish signal.
Rubrik's first earnings report since IPO puts its growth story back on the map (RBRK)
Cybersecurity company Rubrik (RBRK) reported its first earnings report since launching its highly successful IPO on April 25 and its Q1 results showed why investors were so enthusiastic about its $750 mln deal. The company, which specializes in data security and recovery, delivered a solid beat-and-raise performance against a challenging backdrop for enterprise IT spending. On that note, recent earnings reports across the cybersecurity space have been mixed at best, with Palo Alto Networks (PANW), SentinelOne (S), and Okta (OKTA), issuing disappointing results/outlooks, while endpoint security leader CrowdStrike (CRWD) stood out yet again on the positive side.
- That RBRK achieved its strong results in a buying climate characterized by elongated sales cycles and heightened deal scrutiny is all the more impressive. Perhaps the metric that best highlights the strength in its business is Subscription Annual Recurring Revenue, which grew by a robust 46% yr/yr to $856.1 mln, beating expectations. Unlike most other enterprise software companies, RBRK is seeing an upswing in large deals, as the company capitalizes on a similar cybersecurity consolidation trend that CRWD has experienced.
- Fueled by this increase in large transactions, net new Subscription ARR grew by 32% yr/yr to $72.0 mln. Similar to how the explosion of new devices, especially during the pandemic, significantly widened the threat landscape for enterprises, the emergence of AI and the massive amount of data powering AI technologies is creating another wave of security risks. In turn, demand for RBRK's Zero Trust Data Security platform is not only remaining resilient amid macroeconomic headwinds, but it seems to be on the rise as enterprises prioritize and consolidate their spending on RBRK's network.
- The one main blemish is that, despite the strong revenue and ARR growth, RBRK is not profitable, and it doesn't expect to approach profitability in FY25. Although its FY25 EPS guidance of ($2.35)-($2.25) exceeded expectations, it also indicates that RBRK may not turn a profit for a couple more years. For the time being, though, the focus will largely center on the demand side and the narrative there is quite bullish. For instance, the midpoint of RBRK's FY25 Subscription ARR guidance of $983-$997 mln equates to healthy yr/yr growth of about 26%.
Overall, there was plenty to like in regard to RBRK's first earnings report as a publicly traded company. With a total addressable market of approximately $53 bln by 2027, according to RBRK, the company is only in the early innings of its growth curve.
Casey's General's tank remains full, surging to all-time highs following upbeat Q4 results (CASY)
A wide Q4 (Apr) earnings beat, decent top-line upside, and FY25 guidance signaling another solid year ahead is enough to keep Casey's General's (CASY +17%) tank full as it forms fresh all-time highs today. A 16% hike to its quarterly dividend to $0.50 per share was also a nice touch. There does not seem to be much that can slow down the fuel station and convenience store chain. Shares have steadily risen over the past couple of years, tacking on over +70% in the past year. The company's Q4 results demonstrate that many of its competitive advantages are stable, and management continues to perform well against its peer group, helping CASY stand out in a relatively homogenous market.
- CASY delivered EPS of $2.34, a 57% jump yr/yr on revs of $3.6 bln, an 8% improvement from the year-ago period. Inside same-store sales grew by +5.6%, ending the year at +4.4%, toward the higher end of the company's +3.5-5.0% forecast.
- One of the critical aspects setting CASY apart from other convenience stores is its prepared foods, which enjoyed a 14% bump yr/yr (an +8.8% comp) in Q4 to $357 mln. Management noted that hot sandwiches and dispensed beverages were notable standouts. Another differentiator is location. Being situated across the Midwest, CASY tends to be prominent in rural areas, being one of the few options for residents to purchase groceries and general merchandise. This category climbed 11% higher in Q4 (a +4.3% comp) to $900 mln.
- Fuel same-store gallons edged +0.9% higher in Q4, ending the year virtually flat, directly at the midpoint of CASY's negative 1% to positive 1% prediction. Fuel margins remained above 34.5 cents per gallon for the 12th consecutive quarter at 36.5 cents in Q4. Importantly, CASY mentioned that its same-store gallon volume outperformed relevant geographic data by several hundred basis points, reflecting continuous market share growth.
- CASY's FY25 financial forecasts resemble its most recent FY24 projections, underpinning sustained growth over the near term. The company targeted EBITDA growth of at least 8%, consistent with its long-term +8-10% goal, inside comps of +3-5% with an inside margin comparable to FY24's 41.2%, and same-store fuel gallons sold between negative 1% and positive 1%. Thus far, through the first month of FY25, inside and fuel gallon comps were tracking in line with FY25 targets.
CASY continues to do all the right things to separate itself within the gas station and convenience store market, keeping its stores clean, innovating its prepared foods menu, and targeting lucrative locations for new store construction, of which it plans to add at least 100 more in FY25. While a gas station may not be top-of-mind for food, CASY has taken a different approach to change consumers' minds. The company's marketing campaigns typically center around its pizza. Meanwhile, CASY continues to refresh its menu, launching new sandwiches and rolling out thin-crust pizza this past year. While fuel sales will likely remain CASY's primary source of income, it can bolster its margin profile by focusing on inside sales growth. Given another likely solid year ahead, we continue to like CASY as a buy-and-hold stock.
H & R Block's dividend, buybacks, and innovation set the stage for further upside potential (HRB)
H & R Block (HRB), a relatively new addition to our Yield Leaders rankings, has been buying back stock at an impressive clip while paying a consistent and steady dividend for decades. As such, the tax prep, financial products, and small business systems provider is worthy of a deeper dive, particularly given its additional upstanding attributes.
- HRB owns TurboTax, a DIY software to help individuals file their taxes. TurboTax was the primary driver behind solid paid volume growth last quarter. TurboTax's competitive edge lies in its ease of use and user interface, helping outpace the broader DIY category this past tax season, resulting in further market share capture.
- HRB's AI-powered Tax Assist function has also supported market share gains. Gen AI is ripe for helping individuals file taxes without a professional as it can better answer complex questions arising from a tax return's uniqueness than traditional chatbots, which typically extract answers from FAQ pages. HRB mentioned that feedback indicated that its AI tool was helpful in the tax prep process and that clients found value in it. More importantly, HRB noticed greater conversion among new clients leveraging AI Tax Assist.
- AI is also playing a role in materially assisting future revenue growth within HRB's Assisted segment (being helped by a human; stepping into an office). HRB commented last quarter that too many clients that started tax prep in physical offices did not finish. Management is addressing this issue, leaning on AI to improve call center operations and overall customer experience. CEO Jeffrey Jones noted that improving Assisted volumes is a major focus in FY25 (Jun).
- While U.S. tax prep still comprises nearly three-quarters of HRB's total annual revenue, the company has taken strides to diversify its income stream, helping fill some of the holes created by seasonal weaknesses that follow peak tax time. HRB offers a variety of products centered on finance, from Block Horizons to assist small businesses with taxes, payrolls, and bookkeeping, to Wave, which offers similar small business services, and Spruce, HRB's mobile banking offering.
HRB may not top the charts with its dividend yield. It also is not as exciting as the several AI-related stocks continuously carving out fresh all-time highs. However, HRB offers a historically stable dividend, a testament to its financial profile. At the same time, the company has been buying back stock aggressively, completing $350 mln in buybacks or 5.5% of its outstanding shares during the first half of the year. Lastly, HRB has been implementing AI, which tucks in nicely with its DIY tax prep services. This innovation could provide the competitive edge needed to continue fortifying its market position while helping lift its Assisted segment. As always, a 15-20% stop loss is recommended.
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