Market Snapshot
briefing.com
| Dow | 33850.39 | +368.59 | (1.10%) | | Nasdaq | 11026.54 | +82.08 | (0.75%) | | SP 500 | 3970.27 | +35.47 | (0.90%) | | 10-yr Note | -2/32 | 3.61 |
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| | NYSE | Adv 1928 | Dec 1105 | Vol 860 mln | | Nasdaq | Adv 2598 | Dec 1951 | Vol 4.7 bln |
Industry Watch
| Strong: Energy, Information Technology, Health Care, Utilities |
| | Weak: -- |
Moving the Market
-- Bargain hunting activity after last week's losses
-- Some M&A news helping to prop up market
-- Hesitation in front of the November Consumer Price Index tomorrow followed by the FOMC decision Wednesday
-- S&P 500 finding support at Friday's closing level (3934.8) shortly after the open
-- Strength from most mega cap stocks boosting broader market
-- New York Fed report shows decline in inflation expectations
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Closing Summary
12-Dec-22 16:30 ET
Dow +528.58 at 34010.38, Nasdaq +139.12 at 11083.58, S&P +56.18 at 3990.98
[BRIEFING.COM] Today's trade shaped up to be decidedly positive following some downtrend days recently that saw the main indices lose between 2.8% and 5.1% last week. The S&P 500 faded back to test Friday's closing level (3,934.8) shortly after the open, but buyers showed up and defended that line.
The main indices oscillated around a narrow trading range for most of the day before taking a noticeable turn higher with about an hour left in the session. Every sector participated in the move, suggesting it could be some type of buy program.
There wasn't a specific news catalyst to account for the move, but it did coincide with the S&P 500 clearing resistance in the 3,955-3,960 area, which ended up being a breaking point on Friday when that zone was violated late in the session.
M&A news ahead of today's open fueled some bargain hunting activity along with a release from the New York Fed that showed a decline in median inflation expectations for the 1-, 3-, and 5-yr ahead periods.
Today's featured M&A transactions included Amgen (AMGN 276.78, -1.87, -0.7%) acquiring Horizon Pharmaceuticals (HZNP 112.36, +15.07, +15.5%) for $116.50 per share and Thoma Bravo acquiring Coupa Software (COUP 78.65, +16.56, +26.7%) for $81.00 per share.
A sizable gain in Microsoft (MSFT 252.51, +7.09, +2.9%) also boosted the broader market today. Microsoft traded up after announcing a 10-year strategic partnership with the London Stock Exchange Group that will also see Microsoft purchase an approximately 4% stake in the London Stock Exchange Group.
The CBOE Volatility Index, up 9.6% or 2.19 to 25.02, reflected the increased hedging activity in front the November Consumer Price Index on Tuesday and the FOMC decision and release of an updated Summary of Economic Projections on Wednesday.
Every S&P 500 sector came along for the late upside ride, led by energy (+2.5%), information technology (+2.2%), and utilities (+2.3%). The consumer discretionary (+0.4%) and communication services (+0.7%) sectors showed the slimmest gains, but joined in on the rally effort.
The 2-yr Treasury note yield rose five basis points today to 4.39% and the 10-yr note yield rose four basis points to 3.61% in the wake of a $40 billion 3-yr Treasury note auction that met solid demand and a $32 billion 10-yr Treasury note reopening that saw weak demand.
The Treasury Budget for November showed a deficit of $248.5 bln versus a deficit of $191.3 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the November deficit cannot be compared to the deficit of $87.9 bln for October.
- Dow Jones Industrial Average: -6.4% YTD
- S&P Midcap 400: -12.2% YTD
- Russell 2000: -19.0% YTD
- S&P 500: -16.3% YTD
- Nasdaq Composite: -28.8% YTD
Looking ahead to Tuesday, market participants will be focused on the November Consumer Price Index (Briefing.com consensus 0.3%; prior 0.4%) and core Consumer Price Index (Briefing.com consensus 0.3%; prior 0.3%) at 8:30 a.m. ET. Other data out tomorrow includes the November NFIB Small Business Optimism (prior 91.3) at 6:00 a.m. ET.
Market continues to climb into the close
12-Dec-22 15:35 ET
Dow +496.56 at 33978.36, Nasdaq +118.52 at 11062.98, S&P +51.11 at 3985.91
[BRIEFING.COM] The main indices continue to climb heading into the close. There hasn't been a specific news catalyst to account for the move higher, but the move coincided with the S&P 500 breaking above a support level around 3,955. Breaching below that level on Friday became a catalyst for the poor finish.
Energy complex futures made upside moves today. WTI crude oil futures rose 2.3% to $73.10/bbl and natural gas futures rose 4.9% to $6.60/mmbtu.
Looking ahead to Tuesday, market participants will be focused on the November Consumer Price Index (Briefing.com consensus 0.3%; prior 0.4%) and core Consumer Price Index (Briefing.com consensus 0.3%; prior 0.3%) at 8:30 a.m. ET. Other data out tomorrow includes the November NFIB Small Business Optimism (prior 91.3) at 6:00 a.m. ET.
Market climbs to new highs; AAPL extends gains
12-Dec-22 15:00 ET
Dow +368.59 at 33850.39, Nasdaq +82.08 at 11026.54, S&P +35.47 at 3970.27
[BRIEFING.COM] The stock market climbed to new highs recently.
This move coincided with Apple (AAPL 143.80, +1.65, +1.2%) making a noticeable turn higher.
The recent upside move brought all the S&P 500 sectors into positive territory except consumer discretionary (-0.1%).
Treasury yields sit near their intraday highs. The 2-yr note yield is up five basis points to 4.40% and the 10-yr note yield is up six basis points to 3.62%.
Monthly budget widens as receipts fall
12-Dec-22 14:25 ET
Dow +273.84 at 33755.64, Nasdaq +35.44 at 10979.90, S&P +21.56 at 3956.36
[BRIEFING.COM] The S&P 500 (+0.55%) is firmly in second place to this point on Monday afternoon, having faded slightly off levels from the previous half hour.
The Treasury Budget for November showed a deficit of $248.5 bln versus a deficit of $191.3 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the November deficit cannot be compared to the deficit of $87.9 bln for October.
Total receipts of $252.1 bln fell 20.8% compared to last year while total outlays of $500.6 bln rose about 23.2% compared to last year.
In this the second month of fiscal 2022, the total year-to-date budget deficit now stands at $336.4 bln vs $356.4 bln at this point a year ago.
Gold slips ahead of this week's FOMC meeting
12-Dec-22 13:55 ET
Dow +299.74 at 33781.54, Nasdaq +46.70 at 10991.16, S&P +24.46 at 3959.26
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.42%) is today's shallowest gaining major average.
Gold futures settled $18.40 lower (-1.0%) to $1,792.30/oz as investors turned focus to the upcoming inflation report and implications of actions at this week's FOMC meeting/rate decision.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $105.17.
As a reminder, the Treasury Budget for November will be released in about 5 minutes at the top of the hour.
Page One
Last Updated: 12-Dec-22 08:58 ET | Archive
A little sunshine in the opening forecast
The stock market had a gloomy close on Friday, selling off sharply in the final 30 minutes without a news catalyst acting as the driver. It was a fitting end to a week that was long on growth concerns and short on returns. Specifically, the major indices declined between 2.8% and 5.1%; and the S&P 500 (-4.1%) suffered its worst week since September.
It may not be surprising then to see the futures for the major indices trading higher this morning, as some presumptive bargain-hunting activity is in play. Another source of uplift is a slate of M&A activity that included some hefty premiums over Friday's closing prices.
Currently, the S&P 500 futures are up nine points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 31 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 71 points and are trading 0.2% above fair value.
The M&A deals of note include the following:
- Amgen (AMGN) buying Horizon Pharmaceuticals (HZNP) for $116.50 per share in cash (a 19.8% premium)
- Thoma Bravo buying Coupa Software (COUP) for $81.00 per share in cash (a 30.5% premium)
- BDT Capital Partners acquiring the remaining shares of Weber, Inc. (WEBR) it does not already own for $8.05 per share (a 23.9% premium)
On a related note, Microsoft (MSFT) announced a 10-year strategic partnership with the London Stock Exchange Group, noting it will also purchase an approximately 4% equity stake in the London Stock Exchange Group through the acquisition of shares from the Blackstone (BX)/Thomson Reuters (TRI) consortium.
The gains expected at the open aren't expected to be unbridled, however.
While the news flow has been generally supportive for a rebound try, market participants are well aware that Tuesday will feature the Consumer Price Index for November and that the FOMC will publish a new policy directive on Wednesday along with an updated Summary of Economic Projections that is expected to include an increased median estimate for the terminal fed funds rate.
With these key happenings on the near horizon, buyers are expected to show some general restraint.
The CME FedWatch Tool shows a 72.3% probability of a 50-basis points rate hike on Wednesday in the target range for the fed funds rate to 4.25-4.50%. Per usual, Fed Chair Powell will hold a press conference to discuss the Committee's policy decision and to offer some insight on the Fed's updated economic and interest rate projections.
It will be a fitting hump day on Wednesday, because the CPI data and the Fed decision are big humps the market needs to get over if it wants to make a run at a year-end rally. If either, or both, disappoint in a meaningful way, then a year-end rally becomes a more challenging proposition.
The Fed isn't going to be alone in its rate-hike pursuits this week. The ECB and the Bank of England will be out with policy decisions on Thursday. Like the Fed, they are also expected to announce a 50-basis points hike in their key policy rates. The November Retail Sales Report will also be part of Thursday's news mix.
This will be an important week on the macro front, but like any other week, some micro waves will be made by individual companies. Whether those waves can move the market will depend on what company is making the waves.
For now, it's a fairly calm day at the beach with a little sunshine in the opening forecast.
-- Patrick J. O'Hare, Briefing.com
Rivian hits the brakes on Mercedes-Benz partnership, sending shares into reverse (RIVN)
Rivian Automotive's (RIVN) entrance into the electric vehicle market has been filled with potholes and the stock was jolted again today after the company announced that it's pausing its partnership with Mercedes-Benz.
To rewind, RIVN and Mercedes-Benz signed a Memorandum of Understanding this past September that called for both companies to work together in producing large electric vans. This news sent shares of RIVN higher by nearly 11% that day as the partnership was viewed as another major commercial win following an earlier deal with Amazon (AMZN). That agreement with AMZN includes an initial order of 100K electric vehicle delivery vans, of which 1,000 are expected to be rolled out during this holiday season.
It's uncertain how many commercial vans RIVN and Mercedes-Benz were targeting for production, but it's clear that both companies had ambitious plans.
- The companies were aiming to produce two large van models -- one based on a second generation RIVN light van platform, and another based on a Mercedes-Benz electric-only platform called VAN.EA. Ultimately, a new joint venture manufacturing company based in Central/Eastern Europe was to be established with both companies sharing in the investments.
- With so much promise surrounding this partnership, it's both surprising and disappointing that RIVN is putting its plans with Mercedes-Benz on hold. According to RIVN CEO RJ Scaringe, the company is hitting the pause button to better focus on its existing opportunities in the consumer and commercial businesses. In other words, RIVN may have bit off more than it can chew, given the supply chain issues and the challenges inherent with ramping up production of its existing EV models.
The silver lining is that demand is strong enough to keep RIVN fully occupied as it ramps up production at its Normal, IL plant.
- In Q3, net preorders in the U.S. and Canada for the R1 SUV grew by 16K from last quarter for a total of 114K. To help meet this growing demand, RIVN recently added a second manufacturing shift at its plant.
- Despite this robust demand, RIVN still missed revenue expectations in Q3, illustrating that supply chain disruptions and constrained capacity at its manufacturing facility remain key headwinds. Importantly, though, the company reaffirmed its FY22 production guidance of 25K vehicles, equating to 10,700 vehicles produced in Q4 (+45% qtr/qtr).
The main takeaway is that RIVN's decision to pause its partnership with Mercedes-Benz just three months after the companies forged their initial alliance represents yet another major disappointment for investors. However, considering that RIVN already has its hands full with meeting current demand, its decision is also sensible. It's also worth noting that production for a new RIVN-Mercedes van wasn't anticipated to begin for another few years. Therefore, near and intermediate-term revenue expectations shouldn't be affected.
Under Armour makes a nice move on an upgrade at Stifel; remains bullish on the long term (UAA)
Under Armour (UAA +9%) is extending its recent rally, tacking on gains following a Stifel upgrade to "Buy" citing better margin certainty going forward. Although shares of the sports apparel maker are climbing to six-month highs, the stock still sits roughly 50% lower on the year, significantly underperforming its close rival NIKE (NKE), which trades around 30% down this year.
Briefing.com notes that a considerable component of UAA's underperformance this year was supply chain gripes, which spurred a massive sell-off in early May. Following those developments, it was evident that the next several quarters would be a struggle for UAA. Unfortunately, even though UAA fixed many of its supply woes, it coincided with a softening demand backdrop, which has now created excessive inventories.
During UAA's Q2 (Sep) earnings call in early November, interim CEO Colin Browne commented that the economic picture was still unclear. However, one thing was sure: UAA would need to evolve its consumer-centric strategy to find success during these unfavorable economic conditions.
- The core focus was refining UAA's target audience, which is now centered on the 16-20-year-old sports athlete. UAA is confident this customer base will allow it to put its best foot forward in product and storytelling, influencing its larger target market.
- In addition to shifting its audience focus, UAA is broadening its product portfolio, working to outfit occasions beyond sporting events. UAA called this initiative "Live," which it added to its "Train," "Compete," and "Recover" construct. The company noted that this new market nearly tripled its total addressable market to around $300 bln.
- This "Live" strategy already manifested itself in FY23 (Mar), and UAA expects it will show up more significantly in FY24 with enhanced product offerings.
- Meanwhile, as UAA looks beyond FY23, it is honing in on the premium aspects of its brand and driving growth in footwear, women's, and international, which the company anticipates will spur meaningful gross margin expansion over time.
- In combination with its attention to maintaining brand health, UAA has already witnessed some success in these strategies by reiterating its FY23 gross margin outlook of a 375-425 bp decline yr/yr despite trimming its revenue and earnings forecasts.
- However, 2H23 will see the worst of UAA's margin contraction, anticipating a 550-600 bp decline over the next two quarters, underscoring the weakening demand backdrop, which is forcing UAA to apply increased markdowns and promotional activity.
- Still, by that same token, this could signal a bottom in excess inventory, expensive freight costs, and FX headwinds.
UAA has not swayed from its bullish attitude on its evolving long-term strategy, remaining confident that its playbook positions it nicely to survive the current market environment. With UAA trading at 21x forward earnings, a steep discount versus NKE at 37x, the window is open for a steady turnaround, which could be sparked by further success with its current strategies and a pending announcement of a new CEO before year's end.
Amgen emerges as winning bidder for Horizon Pharma, but lofty price tag makes it a risky move (AMGN)
A couple weeks after Horizon Pharma (HZNP) confirmed that it received buyout interest from three leading healthcare companies, it was revealed this morning that Amgen (AMGN) has emerged as the winning bidder for HZNP. After Sanofi (SNY) and Johnson & Johnson's (JNJ) Janssen unit both bowed out of the negotiating process, AMGN became the last company standing as its $116.50/share all-cash offer sealed the deal. The overall price tag for the acquisition is a whopping $27.8 bln, making this one of the largest deals of 2022.
Indeed, the steep valuation is the primary reason why SNY stepped to the sidelines, with the company commenting this morning that "transaction price expectations do not meet our value creation criteria." The $116.50/share takeout price represents a 48% premium from HZNP's closing price on November 29, which was unaffected from the buyout speculation. This considerable jump in HZNP's stock price and market cap translates into a lofty P/S of about 7.7x.
We believe that AMGN is trading lower on the acquisition news mainly due to concerns that its overpaying for HZNP. Additionally, AMGN is taking on a substantial amount of debt to finance the deal. Specifically, the company entered into a Bridge Credit Agreement for $28.5 bln, adding on to its long-term debt balance of $37.2 bln as of September 30, 2022. Adding balance sheet risk in this current market environment is a faux pas in many investors' eyes.
From AMGN's perspective, the addition of HZNP benefits the company, both strategically and financially.
- It's clear that the company is in need of a spark as revenue growth continues to slump. In Q3, revenue declined by 0.8% yr/yr, following a pedestrian increase of 1% in Q2. By acquiring HZNP, the company's top-line will receive a ~$4.0 bln jolt next year. For context, AMGN was expected to generate FY23 revenue of $27.2 bln, prior to this acquisition.
- The crown jewel of the acquisition is TEPEZZA, HZNP's treatment for thyroid eye disease (TED). In HZNP's Q3 earnings press release, the company reported that TEPEZZA generated sales of $1.47 bln on a year-to-date basis, equating to yr/yr growth of 37%. More importantly, though, the growth outlook for TEPEZZA continues to brighten as it expands into foreign markets.
- HZNP's analysis indicates that there is significant unmet need for treating TED in Europe and Japan, causing the company to increase its ex-U.S. peak annual net sales estimates to greater than $1.0 bln. With this enhanced outlook, HZNP now believes that the drug can achieve global peak annual sales north of $4.0. bln.
- When considering AMGN's vast reach and its substantial resources, it's quite plausible that the company can drive TEPEZZA's sales even higher than HZNP's forecast.
- Bolstered by TEPEZZA and KRYSTEXXA -- a treatment for chronic gout that generated sales of $565.5 mln last year -- AMGN anticipates that the acquisition will accelerate its revenue growth, boost its cash flow to a combined amount of $10 bln over the twelve months through 3Q22, and add to non-GAAP EPS starting in 2024.
It's not difficult to see the attraction in acquiring a high growth pharmaceutical company like HZNP. The addition of HZNP's up-and-coming treatments offers instant exposure to the rare autoimmune and severe inflammatory disease markets, helping to offset slowing sales of AMGN's more mature drugs, such as Embrel and Otezla. However, investors seem to be balking at the rich price tag of the deal, questioning whether the timing is right to make an aggressive move in the M&A arena.
Weber's stint as a public company to end with an $8.05/share buyout from BDT Capital Partners (WEBR)
Weber's (WEBR +23%) stint as a public company is ending after the grill-maker agreed to be acquired by BDT Capital Partners for $8.05 per share today, implying a total enterprise value of $3.7 bln. The stock was fired up in late October after BDT Capital offered $6.25/share to purchase shares not already owned by the firm. However, WEBR was able to strike a considerably higher deal, representing a 60% premium to where shares were trading before BDT's initial bid. The deal is expected to close during 1H23.
- WEBR opened for trading in August 2021 at $17/share after pricing a significantly downsized 17.9 mln IPO at $14/share. WEBR ignited little enthusiasm over its IPO as it generated gross proceeds of just $250.6 mln, 67% below the company's expectations.
- According to some reports, there were talks about pulling the IPO as the market was cooling off rapidly. Still, WEBR chose to stay the course, possibly believing market conditions would turn around.
- Adding salt to the wound, rival Traeger (COOK), which IPO'd the week prior, priced its IPO at the high end of its anticipated range, opening significantly higher and tacking on monstrous gains in just a few days trading.
- However, although WEBR and COOK would get stuck in a downward trend for most of their time as public companies, WEBR found support around the $5 range, around 64% below its IPO price. Meanwhile, COOK's shares have seen prices close to 85% below their IPO price.
Nevertheless, WEBR's highlights before going public, such as boasting a CAGR of 135% since 2018 and a market share of 23% in the U.S., did not crystallize into meaningful share price appreciation. After pandemic-induced tailwinds died down, numbers began to fizzle out. Sales growth was negative yr/yr for the first three quarters of FY22, while profitability continued to slide. Meanwhile, WEBR shook up its CEO position in July, replacing Chris Scherzinger with interim CEO Alan Matula, who quickly outlined cost-saving plans to traverse the deteriorating economic environment.
Still, it can be argued that WEBR was a victim of a quick shift in economic conditions rather than specific internal strife. Even though the current market remains challenging for WEBR, BDT Capital Partners purchased a leading grill maker that commands strong brand loyalty and solid historical operational performance. Lastly, even though COOK is sliding today, it may be only a matter of time until the competing grill maker follows a similar path as WEBR's short-lived time as a public company.
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