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Market Snapshot
briefing.com
| Dow | 33329.86 | +29.33 | (0.09%) | | Nasdaq | 12354.48 | +69.56 | (0.57%) | | SP 500 | 4134.98 | +9.63 | (0.23%) | | 10-yr Note | -26/32 | 3.51 |
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| | NYSE | Adv 1921 | Dec 968 | Vol 806 mln | | Nasdaq | Adv 2872 | Dec 1595 | Vol 3.9 bln |
Industry Watch
| Strong: Materials, Financials, Information Technology, Industrials |
| | Weak: Utilities, Consumer Staples, Health Care, Real Estate |
Moving the Market
-- Lingering uncertainty about the debt ceiling
-- Some M&A activity boosting sentiment due to pleasing premiums
-- Rebound action in regional bank stocks supporting broader market
-- Lack of conviction from buyers and sellers
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Closing Summary
15-May-23 16:30 ET
Dow +47.98 at 33348.51, Nasdaq +80.47 at 12365.39, S&P +12.20 at 4137.55
[BRIEFING.COM] The stock market closed the session on a relatively upbeat note, but today's price action was somewhat lackluster on below-average volume. The major indices all closed near their highs of the day, sporting only modest gains.
Relative softness from the mega cap space in the early going limited index performance, yet moves below the surface were still somewhat modest. Some mega caps came back from early losses to close with a gain, offering a boost the major indices. Meta Platforms (META 238.86, +5.05, +2.2%) maintained its outperformance throughout the session after it was upgraded to Buy from Hold at Loop Capital. The Vanguard Mega Cap Growth ETF (MGK) closed with a 0.2% gain.
The continued inclination to buy mega cap stocks reflected the anxiousness in the market related to uncertainty about the debt ceiling. This comes ahead of President Biden's meeting with congressional leaders on Tuesday to further discuss the debt ceiling.
Regional bank stocks had a nice rally today, acting as a source of support for the broader market. The SPDR S&P Regional Banking ETF (KRE) logged a 3.2% gain and the S&P 500 financials sector (+0.8%) closed near the top of the leaderboard.
Strength from regional bank stocks, along with energy shares, led the Russell 2000 to outperform its peers today with a 1.2% gain.
Some M&A activity that featured premium valuations provided added support to the broader market. Namely, Newmont (NEM 47.09, +1.15, +2.5%) plans to acquire Newcrest for approximately $19 billion in a cash-and-stock deal, and Oneok (OKE 57.95, -5.77, -9.1%) plans to acquire Magellan Midstream Partners (MMP 62.61, +7.20, +13.0%) for approximately $18.8 billion, including assumed debt.
There was also some positive action on the regulatory front after EU regulators approved Microsoft's (MSFT 309.46, +0.49, +0.2%) acquisition of Activision (ATVI 78.33, +0.96, +1.2%).
S&P 500 sector performance was mixed, reflecting a lack of conviction from buyers and sellers. Aside from financials, the materials (+0.9%) and information technology (+0.7%) sectors were the top performers today. The utilities sector (-1.2%) was the worst performer by a wide margin. It was the only sector to move more than 1.0% in either direction.
Treasuries settled on a mostly lower note. The 2-yr note yield rose two basis points to 4.00% and the 10-yr note yield rose five basis points to 3.51%.
Today's economic data was limited to the New York Fed Empire State Manufacturing Survey for May, which plunged to -31.8 (Briefing.com consensus -1.8) from 10.8 in April. The dividing line between expansion and contraction for this survey is 0.0. The key takeaway from the survey is that the new orders index sank 53 points to -28.0, underscoring a sharp drop off in demand in May.
- Nasdaq Composite: +18.1% YTD
- S&P 500: +7.7% YTD
- Dow Jones Industrial Average: +0.6% YTD
- S&P Midcap 400: +0.9% YTD
- Russell 2000: UNCH YTD
Ahead of Tuesday's open, Baidu (BIDU), Home Depot (HD), Tencent Music (TME), and Sea Limited (SE) are among the notable companies reporting earnings.
Market participants will receive the following economic data on Tuesday:
- 8:30 ET: April Retail Sales (Briefing.com consensus 0.7%; prior -1.0%) and Retail Sales ex-auto (Briefing.com consensus 0.3%; prior -0.8%)
- 9:15 ET: April Industrial Production (Briefing.com consensus 0.0%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 79.8%; prior 79.8%)
- 10:00 ET: March Business Inventories (Briefing.com consensus 0.0%; prior 0.2%) and May NAHB Housing Market Index (Briefing.com consensus 45; prior 45)
Market inches higher ahead of the close
15-May-23 15:35 ET
Dow +41.43 at 33341.96, Nasdaq +74.14 at 12359.06, S&P +10.67 at 4136.02
[BRIEFING.COM] The major indices are trying to inch higher ahead of the close.
Treasuries settled on a mostly lower note. The 2-yr note yield rose two basis points to 4.00% and the 10-yr note yield rose five basis points to 3.51%.
Ahead of Tuesday's open, Baidu (BIDU), Home Depot (HD), Tencent Music (TME), and Sea Limited (SE) are among the notable companies reporting earnings.
Market participants will receive the following economic data:
- 8:30 ET: April Retail Sales (Briefing.com consensus 0.7%; prior -1.0%) and Retail Sales ex-auto (Briefing.com consensus 0.3%; prior -0.8%)
- 9:15 ET: April Industrial Production (Briefing.com consensus 0.0%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 79.8%; prior 79.8%)
- 10:00 ET: March Business Inventories (Briefing.com consensus 0.0%; prior 0.2%) and May NAHB Housing Market Index (Briefing.com consensus 45; prior 45)
Energy complex futures rise
15-May-23 15:10 ET
Dow +29.33 at 33329.86, Nasdaq +69.56 at 12354.48, S&P +9.63 at 4134.98
[BRIEFING.COM] The major indices are little changed in the last half hour. The Russell 2000 (+1.2%) continues to outperform its peers.
Energy complex futures settled the session higher. WTI crude oil futures rose 1.5% to $71.11/bbl and natural gas futures rose 4.0% to $2.54/mmbtu.
On a related note, the S&P 500 energy sector (+0.2%) trades near the middle of the pack.
Western Digital gains after reports of deal acceleration with Kioxia
15-May-23 14:30 ET
Dow -11.98 at 33288.55, Nasdaq +68.18 at 12353.10, S&P +6.27 at 4131.62
[BRIEFING.COM] The S&P 500 (+0.15%) is in second place to this point on Monday.
S&P 500 constituents Western Digital (WDC 36.56, +3.53, +10.69%), DISH Network (DISH 6.58, +0.42, +6.90%), and Zions Bancorp (ZION 24.04, +1.61, +7.18%) pepper the top of today's standings. WDC jumps after reports it is advancing merger talks with Kioxia, while ZION is strong alongside other regional banking peers.
Meanwhile, Tractor Supply (TSCO 231.66, -8.26, -3.44%) holds decent losses despite a dearth of corporate news.
Gold modestly higher to open the week
15-May-23 14:00 ET
Dow -22.77 at 33277.76, Nasdaq +61.84 at 12346.76, S&P +4.69 at 4130.04
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.50%) remains atop the standings.
Gold futures settled $2.90 higher (+0.1%) to $2,022.70/oz even as treasury yields and equities post modest gains.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $102.42.
First step should be incrementally positive
The bulls are slated to have first-mover advantage to begin the week.
Currently, the S&P 500 futures are up nine points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 31 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 61 points and are trading 0.2% above fair value.
This positive bias is an offshoot of several influences:
- The People's Bank of China added some liquidity by rolling over CNY125 billion of maturing medium-term loans
- The EU Commission raised its 2023 growth forecast to 1.1% from 0.9% and its 2024 growth forecast to 1.6% from 1.5%
- NEC Director Lael Brainard said debt ceiling discussions have been productive; meanwhile, Treasury Secretary Yellen said both sides have found some areas of agreement, according to CBS News
- Several M&A deals have been announced, highlighted by Newmont's (NEM) approximately $19 billion cash-and-stock deal to acquire Newcrest and Onoeok's (OKE) approximately $18.8 billion deal, including assumed debt, to acquire Magellan Midstream Partners (MMP)
Positive price action in Asian and European equity markets has set a constructive tone ahead of the U.S. open, which will feature some buy-the-dip action coming off last week's modest losses. Nonetheless, it won't be an aggressive bid at the open.
An ugly New York Fed Empire State Manufacturing Survey for May tamped down some of the stronger enthusiasm seen earlier. The ugliness came in the headline print of -31.8 (Briefing.com consensus -1.8) versus 10.8 in April. The dividing line between expansion and contraction for this survey is 0.0.
The key takeaway from the survey is that the new orders index sank 53 points to -28.0, underscoring a sharp drop off in demand in May.
Granted this is a lower-tier report, yet this is the the type of data that should give the Fed some pause about raising rates further. Both Atlanta Fed President Bostic (non-FOMC voter) and Chicago Fed President Goolsbee (FOMC voter) suggested to CNBC this morning that it is prudent now to take a wait-and-see stance on policy. Mr. Bostic added, though, that rate cuts are not part of his baseline forecast.
There will be more data this week, including the Retail Sales, Housing Starts, and Existing Home Sales reports for May, that will factor into the Fed's thinking. Separately, we will also hear several retailers, including Home Depot (HD), Target, (TGT), and Walmart (WMT), report their quarterly earnings results.
Debt ceiling discussions -- or at least reports about debt ceiling discussions -- are apt to feature prominently this week as well.
-- Patrick J. O'Hare, Briefing.com
Seagate Tech offers decent exposure to AI trends and carries a solid dividend yield (STX)
AI has stirred up quite the buzz lately, with companies seemingly attaching the word to their earnings reports to propel their shares higher. However, at the same time, AI could end up being incredibly disruptive, with use cases extending across numerous industries. Given this uncertainty surrounding AI, we wanted to highlight a company that is not overcommitting itself to AI but still has decent exposure to the technology.
Seagate Tech (STX), a mainstay in our Yield Leaders Rankings, may be operating in a challenging environment due to the pronounced softness regarding consumer electronics demand. However, its leadership position within the hard disk drive (HDD) market gives it a sturdy base to capitalize on current AI trends.
- Storage is the foundation from which AI can be built, as AI applications require large amounts of data. Solid-state drive (SSD) provider Pure Storage (PSTG) wants to lead this front, developing flash storage specifically oriented for AI workloads. However, STX rival Western Digital (WDC) stated earlier this month that with HDDs commanding the lion's share of cloud storage, it expects the more significant AI-induced lift would occur in HDD instead of SSD, benefiting STX.
- AI is opening the door for an increasing number of connected devices, accelerating the need for more storage. The primary reason a company opts for HDDs over SSDs, even though SSDs can read and write data faster, is price. HDDs carry a lower cost per byte, a critical factor for cloud companies focused less on user-facing, latency-sensitive applications and more on batch workloads and data archival. STX referenced a study that estimates the amount of data generated globally subject to data analysis will grow by a factor of 50 by 2025, stressing the importance of cheap, reliable storage.
Still, the near term remains cloudy. STX's large cloud customers' inventory digestion is adversely impacting its near-term business. Meanwhile, when combined with lower economic activity in China, STX has struggled over the past few months. However, STX is taking the proper steps to traverse this tough economy, extending the first phase of its restructuring efforts and scaling back new investments. As a result, in Q1, STX removed over $150 mln from its cost structure, lowered debt by 5% yr/yr, and reduced its manufacturing capacity meaningfully. The company is also targeting at least an additional $200 mln in annualized savings during the next phase of its restructuring actions.
Bottom line, given that AI's popularity is just now blossoming, it is unclear how firms will monetize the technology and what its primary use cases will be. Therefore we view STX as a solid choice to still gain exposure to the AI trend without being over-extended. Also, even though the company recently paused its buybacks, this was to preserve its dividend yield, which currently sits at a solid 4.9%.
Monday.com continues to defy tough IT spending environment with another beat-and-raise report (MNDY)
Monday.com (MNDY), a work management platform provider that went public in June 2021, extended its impressive streak of topping quarterly estimates and issuing upside revenue guidance, accomplishing that feat for the eighth consecutive quarter. Even in a climate in which many enterprises are cutting back on IT spending, demand for MDNY's product suite -- especially its Work OS platform -- remains quite healthy, as illustrated by its revenue and free cash flow reaching a quarterly record in Q1.
Despite the company's strong performance, the stock has struggled to maintain any upward momentum after hitting post-IPO highs in November 2021. A broader rotation out of growth stocks in a rising interest rate environment, investors' anticipation for a softening of demand, and MNDY's rich valuation, have combined to work against the stock. On the topic of valuation, MNDY is currently trading with a lofty P/S near 12x.
MNDY is doing its best to try to justify that valuation as the company's Q1 key metrics were solid across the board.
- For instance, the number of customers with more than $50k in ARR increased by 75% yr/yr, following last quarter's growth of 86%. The robust growth in large accounts indicates that MNDY is having success on the enterprise side, easing concerns that work management platforms aren't being prioritized within corporate IT budgets.
- A desire to do more with less and to drive better efficiencies through existing systems, especially as macroeconomic pressures increase, has provided a solid foundation for work management platforms.
- Existing customers are also ramping up their usage of MNDY's platform. Net dollar retention rate for the quarter was north of 115%, which is partly due to the recent launch and strong reception of MNDY's Work OS products.
- Within the Work OS product suite, Sales CRM has been a notable standout after initially only being rolled out to new customers. As MNDY begins to gradually offer CRM to existing customers, and as its recent investments in its sales force for begin to pay off, it could see its net dollar retention rate climb even higher.
- Another key recent launch is mondayDB, which the company believes will enhance how the Work OS engine runs since it upgrades its infrastructure, enabling faster performance, more flexibility, and greater scale. In other words, mondayDB will allow the company to run larger applications on its platform, creating the opportunity to win larger installments and different use cases.
As MNDY's scale increases, its efficiency is also significantly improving, leading to better-than-expected profitability. In fact, in addition to raising its FY23 revenue guidance, the company also said that it now expects to achieve non-GAAP operating profitability this year -- two years ahead of its prior expectation.
The main takeaway is that MNDY continues to deliver impressive results in the face of stiff macroeconomic headwinds, reflecting the value proposition of its offerings, potential market share gains against competitors such as Salesforce (CRM), Asana (ASAN), and Smartsheet (SMAR), and solid sales execution.
C3.ai trades sharply higher despite modest upside guidance; AI sounds pretty bullish on FY24 (AI)
C3.ai (AI +17%) is getting a nice boost after the company raised Q4 (Apr) revenue guidance this morning. And just as importantly, AI says it is on track with its path to profitability. Specifically, AI reaffirmed that it expects to become a non-GAAP profitable business by the end of FY24. Management also provided some encouraging commentary about its business.
- AI expects to report AprQ revs of $72.1-72.4 mln. While that is only slightly above prior guidance of $70-72 mln, investors are relieved after the company had to lower guidance for several quarters earlier in this fiscal year.
- The commentary was quite bullish as well. C3.ai said that the business environment for enterprise AI is more active than it has seen since the company's inception and seems to be accelerating. Interest in applying predictive analytics to business processes has never been greater. This manifested in significantly increased business activity. AI closed 43 deals, including 19 pilots that were initiated in Q4. The consumption-based pricing model continues to be well received.
- The near term outlook appears promising as well. The number of qualified enterprise opportunities for closure within 12 months in its sales pipeline has increased by over 100% in the past year. Its partner ecosystem is a big help. C3.ai is particularly active with Google Cloud, AWS, Microsoft, Baker Hughes, and Booz Allen.
- It is helpful that this Enterprise AI application software company serves lots of end markets, including manufacturing, oil & gas, utilities, financial services, government, healthcare, retail etc. By serving lots of industries that helps it ride out weakness in any particular area of the economy. The company says its Federal business is increasingly strong, particularly in Defense and Intelligence.
- As the new fiscal year gets underway, the company says it has never been better positioned and that there is broad consensus that the addressable market for Enterprise AI is extraordinarily large. C3.ai says its platform is increasingly recognized as the gold-standard in enterprise AI as it has 40+ production enterprise AI applications.
Investors may be surprised to see such a big move in the shares despite pretty modest upside guidance. However, AI had guided below consensus at some point for each of the prior three quarters, so even a small upside result is seen as a win. Also, the comments about reaching non-GAAP profitability by fiscal year end was great to hear. That is always a very important milestone, so it's clear investors are focusing on that.
We do caution that the stock has been pretty volatile and its downside guidance quarters are still pretty recent. One good quarter does not a trend make. However, we hope this Q4 guidance/commentary marks a turning point for AI as its FY24 prospects look brighter. C3.ai strikes us a way to play the AI trend as its platform can be used in so many different industries.
Tapestry extends its rally following an upgrade at Bernstein today (TPR)
Tapestry (TPR +3%) is extending its rally kicked off last week on vibrant Q3 (Mar) earnings results following an upgrade today to "Outperform" from "Mkt Perform" at Bernstein. The luxury apparel and accessories firm that owns brands Coach and Kate Spade was one of the first amongst its peers to report MarQ earnings, setting a positive tone for the industry, which includes big names like Capri Holdings (CPRI), Ralph Lauren (RL), and PVH Corp (PVH).
Briefing.com profiled TPR earlier this year ahead of its Q2 (Dec) earnings report commenting that by selling luxury goods appealing to higher-income consumers, TPR is better defended from a slowdown in discretionary spending. At the same time, premium products carry premium margins, highlighted by TPR's gross margins reaching 72.8% in MarQ, a 360 bp improvement yr/yr.
Although some uncertainties are still on the horizon, TPR is capitalizing on its competitive advantages, putting it in a prime position to extend its rally further.
- The international market is a major contributor to TPR's recent success. During MarQ, total revs may have edged just 5% higher yr/yr or +9%, excluding FX impacts. However, overseas revenue jumped nearly 20% in constant currency, supported primarily by a much quicker-than-expected rebound in China. Given the uneven recovery from the pandemic, as the U.S. led most other countries, TPR is now up against difficult North American comps while benefiting from recovery efforts in markets where pandemic recovery efforts took significantly longer.
- As a result, while TPR is expecting to end FY23 (Jun) with a low single-digit sales decline yr/yr (excluding FX impacts) in North America, it projects a mid-single-digit gain in China, buoyed by an estimated 50% leap in sales growth in Q4.
- Other regions in Asia are performing similarly to China, with TPR forecasting mid-teen sales growth yr/yr in Japan and a 40% surge within its other Asia business in FY23.
- TPR's strategy to appeal to younger generations has been a critical factor in its success. During MarQ, TPR acquired over 1.2 mln new customers in North America alone, half of which were Millennial and Gen Z. New customers transact at higher average selling prices, while younger generations increasingly comprise the bulk of the luxury fashion industry. TPR estimates that by FY25, these two generations will make up 70% of the luxury goods market.
- The Coach banner continuously demonstrates dominance in the luxury handbag and leather goods category, boasting an 11% gain in revs yr/yr in MarQ, excluding FX impacts. Meanwhile, TPR generated 300 bps of operating margin expansion for the brand, a testament to its solid pricing power.
Still, alongside softness in North America, TPR also faces adversities in Europe. Even though the region registered 4% sales growth yr/yr in MarQ, it was fueled mainly by international tourists, consistent with recent travel firms' comments on robust international travel demand. Also, China may be bouncing back strong since last quarter, but TPR noted that tourist trends remain well below pre-pandemic levels.
Nevertheless, TPR's brand loyalty, especially with its Coach banner, will help cushion the firm from North America's increasingly challenging consumer backdrop. Also, unfavorable economic conditions in multiple overseas markets add to the potential future upside.
Gen Digital sells off on another quarter of declining direct customer counts (GEN)
Gen Digital (GEN -6%), formerly known as NortonLifeLock, turned off its 50-day moving average (17.20), heading down toward multi-year lows set in March despite exceeding its Q4 (Mar) revenue forecast and delivering earnings at the high end of its prior projection. Additionally, the cybersecurity software provider, owning banners Norton, Avast, LifeLock, and others, guided Q1 (Jun) numbers relatively in line with estimates, projecting similar EPS and sales as in MarQ.
So why are shares selling off? GEN's direct customer count, which comprises around 90% of its total revenue, contracted by 183,000 sequentially, marking its fourth-straight quarter of declining direct customers qtr/qtr. GEN announced last quarter it was taking the appropriate actions to help drive traffic to its site to reverse this trend, as lower web traffic constricts customer acquisition. GEN reiterated investing in a diverse mix of marketing spend to reach new audiences this quarter to return to direct customer growth. Additionally, management noted that the MarQ decline was the lowest of FY23, signaling a possible bottom. Nevertheless, investors are expressing their lack of patience in GEN's ability to turn around its falling direct customer count, especially given the current unfavorable macroeconomic conditions, setting up a challenging task ahead.
- There were still positives during MarQ. GEN's adjusted EPS of $0.46 came in at the high end of its $0.44-0.46 guidance. Meanwhile, revs of $948 mln, a 32.4% jump yr/yr, surpassed GEN's $935-945 prediction and marked the company's 15th consecutive quarter of growth.
- Also, bookings crossed the $1.0 bln mark for the first time, growing 29% yr/yr in MarQ.
- Also, although direct customers continued to fall off in MarQ, the average revenue per user ticked $0.15 higher qtr/qtr to $7.24, driven by GEN's cross-sell and upsell efforts. Meanwhile, the company's aggregate direct retention rate improved by 1 pt sequentially to 76%, underscoring the positive effects of its actions to increase customer engagement.
- Although it comprises a much lower slice of GEN's total customer count, its indirect customer base grew nicely in MarQ, tacking on 400,000 sequential adds, boosting partner revs by 35% yr/yr to $100 mln.
- GEN's recent $8.0 bln acquisition of Avast, which closed in September, has also been integrating smoothly; CEO Vincent Pilette commented that the two companies' sales and overall infrastructure processes are fully integrated. Mr. Pilette also remarked that the company is on track to achieve $300 mln plus annual cost savings by the end of FY24.
- Product integration is the last piece of the merger and will be a crucial enabler of the total $850 mln in expected revenue synergies.
Bottom line, GEN delivered decent MarQ numbers with encouraging developments underway, including surpassing the $1.0 bln in bookings milestone and healthy progress with the Avast merger. However, investors are discouraged by the continuously declining number of direct customers. Even though management pointed out that the trend appears to be stabilizing, it is unclear when this would occur, especially since GEN is facing an economic environment spurring tightening budgets.
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