Market Snapshot
briefing.com
| Dow | 32902.27 | +85.44 | (0.26%) | | Nasdaq | 11472.16 | +77.22 | (0.68%) | | SP 500 | 3984.79 | +14.75 | (0.37%) | | 10-yr Note | +2/32 | 3.92 |
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| | NYSE | Adv 1738 | Dec 1230 | Vol 836 mln | | Nasdaq | Adv 2563 | Dec 1999 | Vol 4.4 bln |
Industry Watch
| Strong: Consumer Discretionary, Industrials, Information Technology, Communication Services, Energy |
| | Weak: Utilities, Consumer Staples, Health Care, Financials |
Moving the Market
-- Pullback in Treasury yields
-- Buying on weakness following last week's disappointing finish
-- S&P 500 maintaining a position above its 200-day moving average last week and defending its 50-day moving average today (3,980) after briefly slipping below that level
-- Strength in the mega cap space boosting index gains
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Closing Summary
27-Feb-23 16:20 ET
Dow +72.17 at 32889.00, Nasdaq +72.04 at 11466.98, S&P +12.20 at 3982.24
[BRIEFING.COM] Following last week's disappointing finish, the stock market kicked off this week on an upbeat note. The positive bias was partially fueled by some technical catalysts including the S&P 500 closing above its 200-day moving average on Friday, along with the 10-yr note yield staying below 4.00%.
A noticeable pullback in Treasury yields from overnight highs was another support factor for equities. The 2-yr note yield, which hit 4.86% overnight, settled at 4.80%. The 10-yr note yield, which hit 3.96% overnight, settled at 3.93%.
The main indices exhibited some fairly strong upside momentum in the early going, likely driven by some short-covering activity, that had the S&P 500, Dow, and Nasdaq up 1.2%, 1.1%, and 1.5%, respectively, at their morning highs.
That momentum quickly dissipated, though, and the market spent most of the session in a steady grind lower. The main indices ultimately settled off their lows for the day thanks to buyers stepping in when the S&P 500 slipped below its 50-day moving average (3,980). The Nasdaq settled with the biggest gain today, bolstered by outperforming mega cap stocks.
Market breadth skewed positive, but margins were slimmer by the close compared to earlier in the session. Shortly after the open, advancers led decliners by a nearly 5-to-1 margin at the NYSE and a nearly 3-to-1 margin at the Nasdaq. By the close, advancers led decliners by a roughly 4-to-3 margin at both the NYSE and the Nasdaq.
Most of the S&P 500 sectors closed with a gain led by consumer discretionary (+1.2%) and industrials (+0.8%). The former was boosted by Tesla (TSLA 207.63, +10.75, +5.5%), which traded up ahead of its Investor Day on March 1 and following positive remarks by Cathie Wood earlier on CNBC. The latter was supported by a big gain in Union Pacific (UNP 212.17, +19.45, +10.1%), which reacted to news of a CEO succession plan expected to unfold this year and a BofA Securities upgrade to Buy from Neutral.
On the flip side, utilities (-0.8%) and health care (-0.3%) suffered the steepest losses.
- Nasdaq Composite: +9.6% YTD
- Russell 2000: +7.7% YTD
- S&P Midcap 400: +7.2% YTD
- S&P 500: +3.7% YTD
- Dow Jones Industrial Average: -0.8% YTD
Reviewing today's economic data:
- Durable goods orders declined 4.5% month-over-month in January (Briefing.com consensus -3.9%) following a downwardly revised 5.1% increase (from 5.6%) in December. Excluding transportation, durable goods orders rose 0.7% month-over-month (Briefing.com consensus +0.1%) following a downwardly revised 0.4% decline (from -0.1%) in December.
- The key takeaway from the report was the strength seen in nondefense capital goods orders, excluding aircraft -- a proxy for business spending. Those orders were up 0.8% month-over-month following a 0.3% decline in December. Shipments of these same goods, which factor into GDP forecasts, were up a healthy 1.1% after declining 0.6% in December.
- Pending home sales rose 8.1% in January (Briefing.com consensus +1.0%) following a revised 1.1% increase in December (from +2.5%).
Advance Auto (AAP), AutoZone (AZO), Cracker Barrel (CBRL), J.M. Smucker (SJM), Norwegian Cruise Line (NCLH), Sea World Entertainment (SEAS), and Target (TGT) are among the notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: January advance goods trade deficit (prior -$90.30 bln), advance Retail Inventories (prior 0.5%), and advance Wholesale Inventories (prior 0.1%)
- 9:00 ET: December FHFA Housing Price Index (prior -0.1%) and December S&P Case Shiller Home Price Index (Briefing.com consensus 5.8%; prior 6.8%)
- 9:45 ET: February Chicago PMI (Briefing.com consensus 45.0; prior 44.3)
- 10:00 ET: February Consumer Confidence (Briefing.com consensus 108.4; prior 107.1)
S&P 500 slips below 50-day moving average
27-Feb-23 15:35 ET
Dow +30.98 at 32847.81, Nasdaq +65.93 at 11460.87, S&P +8.13 at 3978.17
[BRIEFING.COM] The main indices maintain decent gains, but the S&P 500 has slipped below its 50-day moving average (3,980).
After the close today, Occidental Petroleum (OXY), Universal Health (UHS), Workday (WDAY), and Zoom Video (ZM) will headline the earnings reports.
Advance Auto (AAP), AutoZone (AZO), Cracker Barrel (CBRL), J.M. Smucker (SJM), Norwegian Cruise Line (NCLH), Sea World Entertainment (SEAS), and Target (TGT) are among the notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: January advance goods trade deficit (prior -$90.30 bln), advance Retail Inventories (prior 0.5%), and advance Wholesale Inventories (prior 0.1%)
- 9:00 ET: December FHFA Housing Price Index (prior -0.1%) and December S&P Case Shiller Home Price Index (Briefing.com consensus 5.8%; prior 6.8%)
- 9:45 ET: February Chicago PMI (Briefing.com consensus 45.0; prior 44.3)
- 10:00 ET: February Consumer Confidence (Briefing.com consensus 108.4; prior 107.1)
S&P 500 testing support at 50-day moving average
27-Feb-23 15:00 ET
Dow +85.44 at 32902.27, Nasdaq +77.22 at 11472.16, S&P +14.75 at 3984.79
[BRIEFING.COM] The stock market took a turn lower recently and the S&P 500 is trending towards its 50-day moving average (3,980).
Semiconductor stocks are a distinct pocket of strength in the market. The PHLX Semiconductor Index (SOX) is up 1.0%. NVIDIA (NVDA 236.32, +3.42, +1.5%) is among the top performers after Cathie Wood made positive remarks about the company on CNBC this morning.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.9% to $75.71/bbl and natural gas futures rose 13.7% to $2.84/mmbtu.
Albemarle, lithium peers gain after China lithium probe news
27-Feb-23 14:30 ET
Dow +136.30 at 32953.13, Nasdaq +106.36 at 11501.30, S&P +22.76 at 3992.80
[BRIEFING.COM] The S&P 500 (+0.57%) is in second place to this point on Monday afternoon.
S&P 500 constituents SolarEdge Technologies (SEDG 315.00, +18.82, +6.35%), Albemarle (ALB 259.46, +9.94, +3.98%), and Steel Dynamics (STLD 122.70, +4.20, +3.54%) dot the top of the standings. ALB and lithium peers are higher today in reaction to news that China has implemented closures in light of a government probe into environmental infringements, while STLD gains following a dividend increase.
Meanwhile, Pennsylvania-based healthcare company Viatris (VTRS 11.23, -0.28, -2.43%) is one of today's worst performers following news of Scott Smith's appointment as CEO, as well as earnings.
Gold helped by weaker dollar
27-Feb-23 14:00 ET
Dow +159.58 at 32976.41, Nasdaq +107.59 at 11502.53, S&P +24.96 at 3995.00
[BRIEFING.COM] With about two hours to go on Monday afternoon the tech-heavy Nasdaq Composite (+0.94%) is still the best performer, having moved mostly sideways in the last half hour.
Gold futures settled $7.80 higher (+0.4%) to $1,824.90/oz, rebounding from Friday's 2023 lows, helped by declines in the dollar and yields.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $104.70.
Page One
Last Updated: 27-Feb-23 09:01 ET | Archive
Technical factors at work
The S&P 500 registered an inauspicious hat trick last week, recording its third, straight losing week. It was also the biggest weekly loss (2.7%) this year. The one success it had is that it managed to hold support at its 200-day moving average (3,940) on Friday.
Both developments have seemingly fostered some buy-the-dip interest this morning.
Currently, the S&P 500 futures are up 36 points and are trading 0.9% above fair value, the Nasdaq 100 futures are up 145 points and are trading 1.2% above fair value, and the Dow Jones Industrial Average futures are up 249 points and are trading 0.7% above fair value.
These indications, should they hold, will translate into a positive open for the major indices, whose movement this week will be heavily influenced by a slate of earnings results out of the retail and technology sectors, and the ISM Manufacturing (Wednesday) and ISM Services PMI (Friday) readings.
The main influence this morning, however, is the buy-the-dip trade. At Friday's low (3,943), the S&P 500 was down 6.0% since the release of the January employment report in early February.
An improvement in the Treasury market has helped firm up the futures trade in front of the open. The 2-yr note yield reached 4.85% overnight while the 10-yr note yield hit 3.97%. They have backed down to 4.78% and 3.92%, respectively, with a sharp reversal having occurred around 8:15 a.m. ET.
That was before the January Durable Goods Orders Report, which was released at 8:30 a.m. ET and was stronger than the headline for total durable goods orders suggests.
Briefly, durable goods orders declined 4.5% month-over-month (Briefing.com consensus -3.9%) following a downwardly revised 5.1% increase (from 5.6%) in December. Excluding transportation, durable goods orders rose 0.7% month-over-month (Briefing.com consensus +0.1%) following a downwardly revised 0.4% decline (from -0.1%) in December.
The key takeaway from the report was the strength seen in nondefense capital goods orders, excluding aircraft -- a proxy for business spending. Those orders were up 0.8% month-over-month following a 0.3% decline in December. Shipments of these same goods, which factor into GDP forecasts, were up a healthy 1.1% after declining 0.6% in December.
The strong reversal in Treasury yields following this report doesn't make much sense admittedly, so we suspect technical factors are in play. Some will say it is because total durable goods orders were quite weak, yet that is owed in large part to the volatility of nondefense aircraft orders, which were down 54.6% month-over-month after increasing 105.6% month-over-month in December. Accordingly, we would discount that factor as the market-moving catalyst.
In brief, we have the 200-day moving average holding up as support for the S&P 500 and 4.00% holding up as resistance for the 10-yr note yield. Neither has been violated, so bears in both markets are being put to the test to begin the week with buy-the-dip action.
-- Patrick J. O'Hare, Briefing.com
Union Pacific on right track today after disclosing CEO succession plans (UNP)
Union Pacific (UNP) is chugging higher after the railroad operator disclosed that current CEO Lance Fritz will step down this year as the company faces mounting pressure from investment firm Soroban Partners. Although news of the CEO succession plan broke yesterday when UNP issued a filing on the matter just hours after Soroban published a letter detailing UNP's underperformance, the change has been in the works for nearly a year.
- Last March, UNP's Board of Directors and Mr. Fritz began discussions regarding a leadership transition, culminating in the Board forming a task force and engaging a consultant firm with the purpose of identifying the next CEO. In the background, Soroban, which owns a 1+% stake in UNP, has been prodding the company to make a change at the top. The investment firm will get its wish as UNP expects to name a successor sometime this year.
- Based on the stock's positive reaction, it's apparent that other investors were also ready for a shake-up. UNP has struggled with shares down by about 23% since the beginning of 2022, prior to today's gains. In comparison, CSX (CSX) and Norfolk Southern (NSC), which has its own serious issues to deal with in the aftermath of the East Palestine, OH incident, are down by 18% and 20%, respectively, during this same period.
- UNP is coming off a rough 4Q22 report in which it missed EPS and revenue expectations. Not only did it fall short of analysts' estimates, but a variety of other metrics also deteriorated. For instance, operating ratio -- a measure of a railroad's efficiency and cost management performance -- weakened by 360 bps yr/yr to 61.0%. Also, quarterly workforce productivity decreased by 3% to 1,010 car miles per employee, while freight car velocity fell by 191 daily miles per car. The bottom line is that UNP's operating income decreased by 1%, even though the company's operating revenue grew by 8% to $6.2 bln.
- Naturally, the hope is that this performance will improve with a new leader at the helm. Soroban is hoping that the new leader will be Jim Vena, who served as UNP's COO from 2019-2020. His experience with operations could help UNP drive better efficiency and mitigate the impacts from high inflation, labor shortages, and a more challenging demand environment. In fact, Soroban is so bullish on the idea of Vena returning that it believes the stock could double in two years as EPS jumps to about $18 in 2025.
- Some analysts are in agreement with that promising view. This morning, BofA upgraded the stock to Buy from Hold and lifted the price target to $241 from $218. RBC wasn't quite as bullish, but the firm also sees better days ahead under a new CEO as it lifted its rating to Sector Perform from Underperform while raising its price target to $210.
The main takeaway is that investors are anticipating operational improvements and as associated upswing in earnings growth with a new CEO at the helm. That could very well be the case, but whoever takes the position will face difficult conditions and limited volume growth due to macroeconomic headwinds.
Pfizer looking to bolster oncology business with reported acquisition interest in Seagen (PFE)
Seagen (SGEN), a cancer-focused pharmaceutical company, is once again drawing interest as an acquisition target with the Wall Street Journal reporting that Pfizer (PFE) is in early-stage discussions to acquire the company. Last summer, Merck (MRK) was reportedly closing in on a deal to purchase SGEN for approximately $40 bln, but the two sides never came to an agreement and the acquisition talks fizzled out. Waiting in the wings has been PFE, which is looking to make a big splash in the M&A arena to reignite its revenue growth as its COVID-19 products descend from their peaks.
- At the center of this buy-out speculation is SGEN's portfolio of FDA approved oncology drugs. Specifically, the company's key products include Adecetris for the treatment of non-Hodgkin lymphoma, Padcev for the treatment of urothelial cancer, and Tukysa for the treatment of certain types of breast cancer. Altogether, these drugs generated sales of $1.64 bln in FY22, up about 19% yr/yr.
- The real lure, though, is the possibility for additional indications for these treatments in the coming years. For instance, last December, SGEN announced the FDA acceptance of supplemental Biologics License Applications (sBLAs) for Padcev and MRK's Keytruda for the first-line treatment of certain patients with locally advanced or metastatic urothelial cancer. Additionally, in January SGEN announced that Tukysa received FDA accelerated approval in combination with Trastuzumab for people with previously treated RAS wild-type, HER2-positive metastatic colorectal cancer.
- Bolstered by these anticipated new indications, future product launches, and an aging population, SGEN's revenue is expected to grow at a fast pace. In FY23, analysts are forecasting top-line growth of about 20%, followed by growth of nearly 37% in FY24.
- The addition of SGEN's oncology portfolio would provide PFE's growth with a needed shot in the arm. When the company reported 4Q22 results on January 31, it issued disappointing FY23 EPS and revenue guidance that badly missed estimates. On a yr/yr basis, PFE's outlook called for EPS to plunge by 49% and for revenue to dive by over 30% at the midpoints of the guidance ranges.
- However, the addition of SGEN wouldn't move the needle for PFE in the near term, given the huge size discrepancy. This year, PFE is expected to generate revenue of roughly $70 bln, compared to $2.3 bln for SGEN.
- Furthermore, PFE will likely have to pay a lofty price tag to acquire SGEN. If MRK and SGEN couldn't come to an agreement at the $40 bln level a few months ago, it stands to reason that PFE would need to go north of that figure. For some context, PFE would be paying 13x estimated FY24 sales at the $40 bln level.
- There's also the question of whether this deal would receive regulatory approval. PFE already owns a significant oncology portfolio that generated more than $12 bln in sales last year. With the Department of Justice taking a stricter stance on anticompetitive practices, there's some risk that this deal would get shot down. That may explain why shares of SGEN aren't trading higher than they currently are.
PFE's interest in acquiring SGEN is certainly understandable since it would immediately expand its oncology business, but, as we saw with the MRK-SGEN situation, things can unravel at the negotiating table. With regulatory hurdles also in the mix, this reported deal getting completed is not a slam dunk.
Freshpet fetches higher prices after topping earnings in Q4 (FRPT)
Freshpet (FRPT +1%) is fetching higher prices today after surpassing consensus on earnings and sales in Q4. Shares initially struggled as investors digested the premium refrigerated pet food supplier's FY23 revenue growth projection of +26% yr/yr, which came up just short of expectations. However, FRPT's outlook aligned with its five-year goal of +25% annualized sales growth outlined last week.
In fact, much of what was contained in FRPT's Q4 report reaffirmed long-term financial targets it detailed during its presentation at the 2023 CAGNY conference on February 22. The company is still targeting adjusted EBITDA margins of 18% over the next five years, building toward 45% adjusted gross margins, slightly below the 50% it was operating at two years ago, and working to reduce capital expenditures to improve profitability.
Still, although FRPT's FY23 revenue guidance aligned with its long-term forecast, recession fears add a layer of unease, especially since FRPT just implemented a 5% price increase. Management cautioned that its price actions at a time when economic conditions remain challenging for the consumer will likely lead to some adverse impact on its unit movement and growth rate. However, CEO William Cyr noted that countering these headwinds is a significant increase in new fridges at retailers, investment in marketing, and new product releases.
- Most of FRPT's Q4 numbers highlighted early positive impacts from the company's organizational changes and focus on costs initiated in September.
- Revenue surged by 43.1% yr/yr to $165.8 mln, the most substantial quarterly net sales growth in FRPT's nine-year history as a public company; it also represented a solid acceleration from the +40.6% delivered in Q3. FRPT also narrowed its adjusted net losses to $(0.08) per share from $(0.21) in the year-ago period.
- Improving logistics was a vital component of the several bright spots in Q4. For instance, FRPT was shipping customers with a fill rate above 90% by the end of the quarter, the best rates it has seen since 2019. FRPT's inability to fill trucks completely weighed on results in recent quarters, so the rebound back to pre-pandemic levels was a significant development.
Overall, FRPT capped off a challenging FY22 on a high note and is looking to carry that upbeat momentum into FY23. However, FRPT is not without its share of future obstacles. Alongside recession fears, rival General Mills (GIS) boasted accelerating pet food orders through its premium Blue Buffalo banner thus far in Q3 (Feb) last week as capacity challenges eased. Blue Buffalo is priced lower than many of FRPT's products, which could eat into FRPT's market share.
Still, FRPT is turning a corner, spotlighted by solid Q4 results. There is also the possibility that FRPT seeks out a potential buyer; an October report noted that FRPT hired bankers to explore a possible sale, with activist investor Jana Partners taking a 10% stake in the company. We think there is significant upside for FRPT given the uptick in pet ownership since the pandemic and the non-discretionary nature of pet food, but we are wary of the lingering headwinds.
LendingTree is losing a few leaves following Q4 report as mortgage re-fi's fall sharply (TREE)
LendingTree (TREE -10%) is losing a few leaves today after the online lending company reported Q4 results this morning. The company actually reported a surprise profit for Q4 when a loss was expected. However, revenue was light and TREE guided to Q1 revenue of just $200-210 mln, which was a good bit below analyst expectations. FY23 revenue guidance was weak as well.
- Not surprisingly, its Home segment was the main culprit with revenue falling 50% yr/yr and 25% sequentially to just $48.6 mln. Within Home, mortgage revenue fell an astounding 72% yr/yr to just $22.6 mln. TREE says it has continued to face headwinds as higher rates have limited home refinance transactions. Also, persistently low for-sale housing inventory and historically high prices have combined to limit purchase activity.
- The silver lining was its Home Equity offering, which has seen strong demand and has helped to partially offset its weak mortgage business. The idea is that homeowners are sitting on historic levels of equity in their homes, but do not want to lose their low mortgage rate if they sell and move. So the best way to access that cash is via a home equity loan. Within its Home segment, revenue from Home Equity jumped 56% yr/yr to $25.3 mln.
- In recent years, TREE has moved beyond mortgages as it has wanted to diversify its revenue and rely less on the boom-bust housing market, which we think has been a good idea. Its biggest segment is now Consumer (credit cards, personal loans, small business loans, student loans, auto loans etc.) Segment revenue declined yr/yr to $86.2 mln as higher rates hurt here too, but at -11% the drop off was much less pronounced than for its Home segment.
- The one area where TREE saw some growth was its Insurance segment, which saw revenue increase slightly, up 2% yr/yr but down 5% sequentially, to $67.0 mln.
Overall, investors are disappointed with TREE's Q4 report. We all know the mortgage refinance market has fallen off a cliff as rates have risen, but a 72% decline in mortgages was pretty drastic. Record home equity loans have been able to only partially offset the mortgage drop off. In particular, we think the Q1 guidance was a letdown for investors as they would have liked to have seen a better outlook heading into the spring home selling season, but TREE seems pretty cautious heading into 2023.
From a broader perspective, we think TREE's fortunes are unlikely to meaningfully improve until rates start to decline. Higher rates impact not just mortgages, but all types of consumer loans. When rates do finally start to decline, we suspect TREE could see demand turn around quickly both for mortgages and consumer loans.
Beyond Meat sizzling today after posting better-than-feared results, sparking a short squeeze (BYND)
Beyond Meat (BYND) is sizzling today after the plant-based meat producer reported better-than-feared Q4 results, beating top and bottom-line expectations for the first time since 1Q20. The company's FY23 revenue outlook of $375-$415 mln also fell within expectations, offering some relief and hope that a turnaround may be on the horizon.
However, with sales decreasing by nearly 21% yr/yr to $79.9 mln, it would be a stretch to say that this was a "strong" quarter for BYND.
On that note, we believe that the stock's surge is partly driven by a short squeeze as the upside results caught many on the short side off guard. Approximately 37% of BYND's float resides on the short side, setting the stage for a potent squeeze.
There are some key fundamental positives, though, that drove the improved results and sparked the short squeeze.
- Most notably, the company has made a dramatic U-turn in its priorities, shifting from a "growth at all costs" strategy, to one that emphasizes positive cash flow generation through streamlining and margin expansion.
- One concrete step that BYND made to start moving in the right direction is the reduction of its North American manufacturing footprint from eight co-manufacturers to three as of the end of Q4. This consolidation significantly reduced the underutilization that took place across its network, providing BYND with cost savings and better efficiency.
- Another key factor is BYND's effort to draw down the high level of inventory that has plagued its results. The company reduced its inventory balance by 17% from Q1 to Q4 and it expects to accelerate its reduction efforts in 2023.
- Simultaneously, BYND is removing costs as operating expenses decreased by $12.1 mln, or 16% qtr/qtr, putting it on track to attain the $39 mln in annualized cost savings it committed to last October.
The positive impact from this change in philosophy can be seen across a few different metrics.
- For instance, gross margin improved by fourteen percentage points sequentially to -3.7%. Accordingly, adjusted EBITDA loss shrunk to ($56.5) mln from ($73.8) mln in Q3.
- And, finally, while cash flow from operations worsened in Q4 to ($51.7) mln from ($34.7) mln last quarter, BYND reiterated that it expects to achieve positive cash flow within 2H23.
These are encouraging data points, but plenty of questions remain -- especially surrounding demand. In Q4, all of BYND's markets and channels experienced soft demand, as reflected in the 17% decline in total pounds sold. BYND did lower its prices in order to better compete against animal-based proteins, which helped work down inventory, but the general enthusiasm surrounding plant-based proteins has clearly dissipated. The reasons for that are debatable, although its higher relative price points in this inflationary environment certainly aren't helping.
The main takeaway is that BYND's newfound focus on positive cash flow and improved margins is resonating quite well with investors, while also igniting a short squeeze. With yr/yr comps looking very favorable this year, BYND may be poised for a bit of a comeback, but the magnitude of that comeback could be constrained by persistently sluggish demand.
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