| | |
Market Snapshot
briefing.com
| Dow | 33401.36 | +10.48 | (0.03%) | | Nasdaq | 11693.15 | +4.15 | (0.04%) | | SP 500 | 4050.88 | +5.24 | (0.13%) | | 10-yr Note | -2/32 | 3.98 |
|
| | NYSE | Adv 1043 | Dec 1924 | Vol 944 mln | | Nasdaq | Adv 1554 | Dec 2975 | Vol 4.9 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Utilities, Consumer Staples |
| | Weak: Materials, Consumer Discretionary, Real Estate, Industrials |
Moving the Market
-- Leadership from Apple following Goldman Sachs initiating coverage with a Buy
-- Rising Treasury yields coincided with the market deteriorating in the afternoon
-- Hesitation ahead of key events this week
-- Weakness in small cap and mid cap stocks
|
Closing Summary
06-Mar-23 16:25 ET
Dow +40.47 at 33431.35, Nasdaq -13.27 at 11675.73, S&P +2.78 at 4048.42
[BRIEFING.COM] Today's trade started on a more upbeat note. The main indices enjoyed a positive standing in the early going, supported by gains in some mega cap stocks. Apple (AAPL 153.83, +2.80, +1.9%) led the charge in that respect after Goldman Sachs initiated coverage with a Buy rating and a $199 price target.
Things were more shaky under the surface, though, as investors played a waiting game ahead of key events later this week, including Fed Chair Powell's monetary policy testimony before Senate and House committees on Tuesday and Wednesday, respectively, followed by the February Employment Report on Friday.
Even at midday, when the main indices traded near their best levels of the day, decliners led advancers by a 4-to-3 margin at the NYSE and a 5-to-3 margin at the Nasdaq.
Underlying weakness became more apparent as mega cap strength started to fade. This coincided with selling efforts ramping up in the Treasury market. The 2-yr note yield, which stood at 4.83% before the stock market opened, rose five basis points to 4.91%. The 10-yr note yield, which stood at 3.90% before the stock market opened, rose two basis points to 3.98%.
The main indices spent most of the afternoon in a slow grind lower, ultimately settling near their lows for the day. At the close, decliners led advancers by a roughly 2-to-1 margin at both the NYSE and the Nasdaq.
Roughly half of the 11 S&P 500 sectors closed with a gain, but moves in either direction were modest in scope. The only sector to move more than 1.0% was materials (-1.7%), reflecting potential concerns about China providing a 2023 growth forecast of around 5.0% that was more conservative than expected. On the flip side, gains in Apple propelled information technology (+0.5%) to the top spot on the leaderboard.
Separately, small cap and mid cap stocks underperformed by a notable margin today presumably on concerns about the U.S. economy weakening in the months ahead as the Fed continues to raise rates. The Russell 2000 fell 1.5% and the S&P Mid Cap 400 dropped 1.2%.
- Nasdaq Composite: +11.6% YTD
- Russell 2000: +7.9% YTD
- S&P Midcap 400: +7.9% YTD
- S&P 500: +5.4% YTD
- Dow Jones Industrial Average: +0.9% YTD
Today's economic data was limited to the January Factory Orders, which declined 1.6% month-over-month in January (Briefing.com consensus -1.8%) following a downwardly revised 1.7% increase (from 1.8%) in December. Shipments of manufactured goods increased 0.7% month-over-month after declining 0.6% in December.
- The key takeaway from the report was the strength (and rebound) seen in nondefense capital goods orders, excluding aircraft. Shipments of these same goods, which factor into GDP forecasts, were up 1.1% after declining 0.6% in December.
Market participants will receive the following economic data tomorrow:
- 10:00 ET: January Wholesale Inventories (Briefing.com consensus -0.4%; prior 0.1%)
- 15:00 ET: January Consumer Credit (Briefing.com consensus $22.90 bln; prior $11.60 bln)
Market continues decline ahead of close
06-Mar-23 15:30 ET
Dow +18.05 at 33408.93, Nasdaq -11.53 at 11677.47, S&P +2.30 at 4047.94
[BRIEFING.COM] The stock market continues to deteriorate ahead of the close.
The 2-yr note yield rose five basis points to 4.91% and the 10-yr note yield rose two basis points to 3.98%.
Market participants will receive the following economic data tomorrow:
- 10:00 ET: January Wholesale Inventories (Briefing.com consensus -0.4%; prior 0.1%)
- 15:00 ET: January Consumer Credit (Briefing.com consensus $22.90 bln; prior $11.60 bln)
AAPL holds up while market declines
06-Mar-23 15:10 ET
Dow +10.48 at 33401.36, Nasdaq +4.15 at 11693.15, S&P +5.24 at 4050.88
[BRIEFING.COM] The market remains in a steady grind lower. The Dow and Nasdaq trade flat while the S&P 500 sports a slim gain.
Things would be looking worse at the index level if it were not for Apple (AAPL 153.97, +2.94, +2.0%) maintaining its sizable gain today. The Vanguard Mega Cap Growth ETF (MGK) is up 0.4% versus a 0.5% decline in the Invesco S&P 500 Equal Weight ETF (RSP).
Small and mid cap stocks are suffering worse than their larger peers. The Russell 2000 (-1.7%) and S&P Mid Cap 400 (-1.2%) sport fairly sizable losses.
S&P 500 takes the lead; Dexcom slips on increased competition concerns
06-Mar-23 14:35 ET
Dow +26.59 at 33417.47, Nasdaq +22.30 at 11711.30, S&P +9.39 at 4055.03
[BRIEFING.COM] The S&P 500 (+0.23%) is now in the lead among the major averages, up slightly less than 10 points.
S&P 500 constituents Enphase Energy (ENPH 226.87, +9.71, +4.47%), Domino's Pizza (DPZ 315.95, +11.19, +3.67%), and Costco (COST 485.14, +9.88, +2.08%) dot the top of today's standings. This morning ENPH announced growing deployments of Enphase IQ8 Microinverter products in Illinois, DPZ caught a move higher after CEO R. Weiner announced purchase of 3,333 shares worth about $1.0 mln, while COST recoups most of last week's earnings-related declines.
Meanwhile, San Diego-based medtech firm Dexcom (DXCM 113.02, -9.90, -8.05%) slides to the bottom of the S&P after news that competitor Abbott (ABT 103.02, -1.42, -1.36%) FreeStyle Libre 2 and FreeStyle Libre 3 integrated continuous glucose monitoring (iCGM) system were given FDA clearance.
Gold unchanged with markets trickling to intraday lows
06-Mar-23 14:00 ET
Dow +30.33 at 33421.21, Nasdaq +26.84 at 11715.84, S&P +7.85 at 4053.49
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.23%) continues to hold a narrow lead among the major averages while currently trading near lows.
Gold futures settled largely unchanged at $1,854.60/oz, kept in check as yields rise modestly and the dollar slips a bit.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $104.29.
Gearing up for a hearing test
The stock market is starting this new week on some firmer ground, comforted by the understanding that Treasury yields have cooled down and that the S&P 500 found buyer support at its 200-day moving average (3,940), which is a key technical level.
The 10-yr note yield, which hit 4.08% last Thursday, settled Friday's session at 3.96% and it has dropped another five basis points this morning to 3.91%. In turn, the 2-yr note yield, which hit 4.95% last Thursday, settled Friday's session at 4.86% and it has dropped another three basis points this morning to 4.83%.
China setting a more conservative than expected growth forecast of around 5.0% for 2023 has aided the follow-through buying efforts in the Treasury market, and has also contributed to a pullback in many commodity prices, yet this drop in rates is predominately technical so far.
Treasuries hurried into a short-term oversold condition themselves. At their highs last Thursday, the 2-yr note yield and 10-yr note yield were up 87 basis points and 68 basis points, respectively, from their closing levels the day before the January employment report.
That spike in rates was the catalyst for the concurrent slide in stock prices seen throughout February and into early March. Accordingly, there is a symbiosis between stocks and bonds now that is more constructive looking.
The S&P rallied 1.6% on Friday and the Nasdaq Composite surged 2.0%. There isn't a great deal of follow-through buying interest at the moment, but more importantly, there isn't any real selling interest either.
Currently, the S&P 500 futures are up eight points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 52 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 29 points and are trading 0.1% above fair value.
Apple (AAPL), which rallied 3.5% on Friday, is a cornerstone stock from which the broader market is trying to build on its recovery effort this morning. Shares of AAPL are up 1.8% after Goldman Sachs initiated coverage of the stock with a Buy rating and price target of $199 that teases the possibility of a nearly 32% gain from the stock's current level.
If Apple ultimately gains 32%, the broader market will presumably be in a better place than it is now.
Where the market is now, though, is roughly in the middle of a trading range (3,800-4,200) that has persisted since October. Where it goes next will depend in large part on what it hears over the course of the next few weeks.
The hearing test starts tomorrow with Fed Chair Powell's semiannual monetary policy testimony before the Senate Banking Committee, and it will continue Friday with the release of the February Employment Situation Report before resuming with the February Consumer Price Index Report on March 14 and then wrapping up with the FOMC decision and release of updated economic projections on March 22.
It won't be just what the market hears in those happenings, though, that drives the action. It will be what it sees in the Treasury market following those happenings.
The stock market liked what it saw in the Treasury market on Friday and likes what it continues to see today.
-- Patrick J. O'Hare, Briefing.com
Monster Beverage claws its way back toward 52-week highs following an upgrade at Redburn (MNST)
Monster Beverage (MNST +1%) is clawing its way back to 52-week highs following an upgrade to "Buy" from "Neutral" at Redburn today, citing near-term margin and longer-term sales upside. Shares of the energy beverage company sold off after the company missed Q4 earnings and sales estimates last week. MNST also announced a 2-for-1 stock split at the time. However, the stock quickly established a bottom, avenging the post-Q4 report losses by the end of last week.
As shares approach one-year highs reached last month, Briefing.com wanted to take a deeper dive into MNST to see if current momentum can continue to push the stock in a positive direction.
- MNST commands a respectable portfolio of energy drinks outside its primary Monster banner, including popular brands like NOS and Full Throttle. These brands boast a loyal customer base, evidenced by MNST's market leadership position within the energy drink category in the U.S. For example, during Q4, MNST's sales of energy drinks across all outlets (convenience, grocery, etc.) in the U.S. increased 12.1% yr/yr, while the entire energy drink category grew 13.1%. Meanwhile, in Canada, MNST increased its market share by 1.1 pts. The company boasted gains in several other countries as well during the quarter.
- Part of MNST's ability to maintain and, in many cases, gain market share is due to its partnership with Coca-Cola (KO), whereby MNST relies on KO for its distribution network. However, this adds a layer of risk as KO could step on MNST's toes if it decided to begin competing in the energy drink market. However, KO tried this with Coke Energy, which was discontinued just over a year after its introduction. Also, even while it was on the shelves, Coke Energy did not materially negatively impact MNST's financials.
- Still, MNST operates in a highly competitive environment. Alongside Red Bull, Celsius (CELH) has proven to be a formidable opponent, capitalizing on fitness trends by penetrating workout facilities and offering energy drinks with fewer calories than many of MNST's brands. CELH also recently inked a partnership with PepsiCo (PEP), utilizing its distribution network.
- With competition heating up, MNST's ability to take price could also be hindered. Management did note that it was seeing improvements in its gross margins on a sequential basis in Q4 as supply chains normalized. However, MNST has also been increasing pricing in many markets, implementing further actions internationally on a phased basis starting this year. If MNST's prices creep up toward higher-cost competitors, consumers may be more apt to try alternatives.
Still, MNST has proven its resilience despite macroeconomic and competitive pressures. Its partnership with KO should also help maintain its market leadership position. Nonetheless, we would advise waiting on a pullback before entering for the long term, especially as the stock continues to hit resistance around the $105 mark. A potential retreat toward MNST's 200-day moving average (95.40) is a more attractive entry point.
Tesla looks to put another charge into demand with another round of price cuts (TSLA)
Not long ago, the idea of Tesla (TSLA) cutting prices on its ultra-popular electric vehicles seemed like a stretch and completely unnecessary. Now, price cuts have become commonplace for the leading EV maker as it looks to expand its customer base and market share amid a challenging macroeconomic environment. Yesterday, TSLA reduced its prices for its more expensive Model S and Model X vehicles by 5.3% and 9.1%, respectively.
- The price cuts on Model S and Model X, which account for about 5% of TSLA's total deliveries, come after the company slashed U.S. prices by as much as 20% on some vehicles in mid-January. Although those price cuts were a means for the Model 3 and Model Y to qualify for tax credits under the Inflation Reduction Act, they also amplified concerns about an erupting price war in the EV market.
- Rewinding a bit further, TSLA lowered prices by 6-13% in China in early January, its second largest market where competition is really heating up with BYD Co. (BYDDY), NIO (NIO), Li Auto (LI), and a host of other companies. The pricing action came after a dreadful end to 2022 with shares of TSLA diving by over 45% from the beginning of November through year end as fears about waning demand clobbered the expensive stock.
However, those fears are proving to be overblown as the pricing actions are having a major positive impact.
- When TSLA reported Q4 results on January 26, CEO Elon Musk stated that January saw the strongest orders on a year-to-date basis in the company's history and that orders are coming in at almost twice the rate of production.
- Then, last Friday, Bloomberg reported that February sales in China increased by 13% from January to 74,402 vehicles with TSLA's head of global production stating that the price cuts have sparked "huge demand." Therefore, we'd expect that these new Model S and Model X price reductions will have a similar effect.
The downside is that TSLA's automotive gross margin will face more pressure as ASP's dip lower.
- Last quarter, automotive gross margin dove by 466 bps qtr/qtr to 25.9% and there's likely more erosion ahead in Q1. CFO Zachary Kirkhorn did comment that FY23 automotive gross margin will remain above 20%, though, so at least investors have a sense for where the floor is for margins.
Overall, TSLA's price cuts are paying big dividends and are playing an important role in its mission to drive volume higher and expand its addressable market. While last week's Analyst and Investor Day was mainly deemed to be a disappointment because TSLA didn't formally announce a new lower-priced EV model, the company did reaffirm its long-term goal of 20 mln in annual deliveries. Making its prices more affordable and competitive will be a key pillar in attaining that goal.
Ciena's supply chain keeps improving, fueling solid JanQ results & raised FY23 sales guidance (CIEN)
Resembling last quarter, Ciena (CIEN +3%) delivered Q1 (Jan) results that could not have gotten much better, driven by a continuation of supply chain improvements and resilient demand. These dynamics allowed the networking equipment supplier to crush its revenue forecast while easily topping consensus on its bottom line. Meanwhile, CIEN raised its FY23 (Oct) revenue forecast. The excellent Q1 numbers are igniting solid price action, propelling shares toward levels not reached since immediately following its cheery Q4 (Oct) results in early December.
- The combination of improving supply chains and sustained demand resulted in CIEN's best revenue quarter ever, boasting growth of 25.1% yr/yr to $1.06, outpacing its forecast of $910-990 mln handily. Profitability was also a positive standout, with adjusted operating margins expanding by 80 bps yr/yr to 12.6%. These attributes fueled CIEN's solid adjusted EPS growth of 36.2% yr/yr to $0.64.
- To put the magnitude of CIEN's past supply woes into perspective, its backlog grew from $1.2 bln in FY20 to $4.2 bln entering FY23. In Q1, CIEN started to see its backlog decline slightly, helping explain its exceptional revenue growth.
- It is important to note that CIEN's supply chain has yet to fully recover; CEO Gary Smith pointed out some persistent volatility in component deliveries. Nevertheless, component availability continued to trend in a positive direction in Q1, a promising indicator of the company's expectation for gradual supply chain improvements as it moves through the year, consistent with what it stated last quarter.
- Also consistent with CIEN's remarks from Q4 (Oct) was the demand backdrop. CIEN has not changed its bullish tone on the fundamental drivers of long-term demand, including 5G, cloud, AI, and automation. These trends require ever-increasing network capacity to reduce latency and utilize power consumption efficiently, benefiting CIEN.
- Peer Cisco (CSCO) shared similar comments, noting that even as some customers slow spending in some areas, their digital transformations remain vital to their organization's success.
- CIEN remains upbeat that the improvements it saw during the past couple of quarters will continue throughout FY23, illuminated by its raised revenue growth forecast to +20-22% from +16-18%. CIEN also expects its adjusted gross margins to remain around 42-44% for the year due to a shift in product mix toward more line systems and early builds coming online, consistent with what CIEN has noted in previous quarters.
After CSCO's encouraging JanQ report last week, fueled by an improving supply situation, we commented on how it should impact other networking equipment names, such as CIEN. Potential concerns remain lingering in the distance, such as weakness overseas, where CIEN is focused on driving growth and a highly-fluid supply chain environment. Still, with such a significant backlog, CIEN has excellent visibility into demand, buoying its confidence in capturing additional market share over the next few years.
Qualtrics trades modestly higher after receiving takeover bid (XM)
Qualtrics (XM +2%) is trading higher today after the company received a non-binding proposal from Silver Lake Mgmt and Canada Pension Plan to acquire the company for $18.15 per share in cash. XM says that price would value the equity portion of the company at $12.4 bln (XM also carries some debt). That Qualtrics would receive an offer is not a surprise. Recall that, in January, majority owner SAP (SAP) said it would explore a sale of the company.
- Qualtrics describes itself as having pioneered a new category of software, experience management, or XM. Unlike most "experience" offerings on the market, Qualtrics says it does more than use surveys to collect post-transaction feedback to monitor trends in satisfaction scores. Instead, its XM Operating System collects structured and unstructured data, including social media posts, emails, support calls, chats and product reviews.
- Qualtrics has been posting solid financials with 2022 revenue jumping 36% to $1.46 bln, however, it was able to only eke out a small non-GAAP profit at $0.04 per share vs a small $(0.01) loss in 2021. A worthwhile criticism may be its thin non-GAAP operating margin at just 4% despite a pretty large revenue base. Also, it did not grow much from 3% in 2021 despite the large increase on the top line.
- Granted, the $18.15 offer price is not much of a premium from Friday's close at $17.13. However, it is a robust 62% premium relative to where XM was trading ($11.21) when SAP announced it would explore a sale on January 25.
So, what does this news tell us? It shows that the process is actively underway, which is good. Now that we have a firm bid, we could see some competing bids. We also think the small premium tells us the market has pegged pretty well where investors expects the final deal price to end up. Also, we have to say we were a bit surprised the offer did not come from perhaps a larger software company that could easily fold XM into their current offerings and generate synergies. However, Silver Lake has some other software holdings, so maybe they will combine it with one of those.
Finally, this would be a tidy profit for SAP, which bought Qualtrics for $8 bln in early 2019 then spun it out in an IPO in 2021. Qualtrics has increased revenue by 3.5x to ~$1.5 bln since then. However, a sale makes sense as it would allow SAP to focus on its core ERP business, which is not really what Qualtrics does. We will continue to monitor developments.
Costco's growth rates dip lower on softening demand for big ticket items (COST)
Membership warehouse retailer Costco (COST) has navigated through this inflationary environment and accompanying slowdown in consumer spending better than most retailers, but its mixed Q2 earnings report shows that even it's not immune to these headwinds.
- The company not only missed top-line estimates in back-to-back quarters, but its net sales growth of 6.5% was its weakest showing since 3Q20. Although COST generally benefits from a more affluent customer base than other big box retailers like Target (TGT) or Walmart (WMT), it's still experiencing a pullback in demand for big-ticket items such as electronics, jewelry, toys, and home furnishings.
- Altogether, big-ticket item categories, which account for 58% of COST's total e-commerce sales, were down by 15% yr/yr in that channel. These same departments only represent 8% of sales in the warehouses, where food and sundries and other consumables make up the bulk of sales.
- That's good news for COST because consumers are still buying food in bulk in order to save money. This is evident by the 5% increase in traffic in Q2, which is up from last quarter's 2.2% increase, and the low double-digit growth in the food and sundries category.
- Average ticket size, though, was essentially flat, reflecting the sluggish demand for big ticket items. Overall, Q2 comps came in at +6.8%, continuing a downward trend in growth from +7.1% in Q1, +10.4% in 4Q22, and +10.7% in Q3.
COST shares are getting hit on this deceleration in growth, but there are some positives.
- For instance, membership renewal rates reached all-time highs of 92.6% in the U.S. and Canada and 90.5% on a worldwide basis. Additionally, memberships growth remained strong with 123.0 mln cardholders at quarter end, good for a 7% yr/yr increase.
- With inflation cooling off a bit, coming down to the 5-6% range according to CFO Richard Galanti, COST's gross margin is holding firm. Core merchandise margin was lower by just six bps (excluding gas inflation) with fresh foods being down the most as COST lowering prices where it can to drive traffic and improve its competitive standing.
The main takeaway is that COST is feeling the impact of slowing consumer spending, like other big box retailers, but its heavy reliance on the food and sundries categories, which accounts for over 50% of total sales, enables it to better withstand the headwinds.
|
|
