Market Snapshot
briefing.com
| Dow | 35469.44 | +10.24 | (0.03%) | | Nasdaq | 14321.10 | +4.05 | (0.03%) | | SP 500 | 4580.47 | -3.03 | (-0.07%) | | 10-yr Note | 0/32 | 3.96 |
|
| | NYSE | Adv 2090 | Dec 778 | Vol 1.2 bln | | Nasdaq | Adv 2763 | Dec 1690 | Vol 4.9 bln |
Industry Watch
| Strong: Energy, Real Estate, Financials, Materials, Consumer Discretionary |
| | Weak: Health Care, Communication Services, Consumer Staples |
Moving the Market
-- Weakness in some mega cap stocks weighing on index performance
-- Wait-and-see mode in front of busy week of earnings and economic releases
-- Strength from small caps
|
Closing Summary
31-Jul-23 16:30 ET
Dow +100.24 at 35559.44, Nasdaq +29.37 at 14346.42, S&P +6.73 at 4590.23
[BRIEFING.COM] The stock market spent most of the session trading flattish at the index level. The major indices eked out slim gains, though, on this last session of the month due to a nice move higher in the last 10 minutes of trading. The Russell 2000 paced index gains by a decent margin, rising 1.1%.
Many stocks participated in the late afternoon climb. The market-cap weighted S&P 500 rose 0.2%; the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.3%; and the Vanguard Mega Cap Growth ETF (MGK) rose 0.1%.
In the early going, the major indices largely traded in narrow ranges near their flat lines as participants looked ahead to a busy week of earnings. The calendar this week will feature quarterly results from the likes of Apple (AAPL 196.45, +0.62, +0.3%), Amazon (AMZN 133.68, +1.47, +1.1%), Merck (MRK 106.65, +0.31, +0.3%), and Qualcomm (QCOM 132.17, +2.69, +2.1%).
There's also some market-moving economic data, including the July ISM Manufacturing Index on Tuesday, the July ISM Non-Manufacturing Index on Thursday, and the July Employment Report on Friday.
Even when the major indices were flattish, market breadth still reflected a positive bias. Advancers led decliners by a 5-to-2 margin at the NYSE and a 5-to-3 margin at the Nasdaq.
The S&P 500 energy sector (+2.0%) rose to the top of the leaderboard by a decent margin, boosted by a gain in Chevron (CVX 163.66, +4.79, +3.0%) after it was upgraded to Buy from Neutral at Goldman Sachs.
The health care sector (-0.8%), meanwhile, was the worst performer. Johnson & Johnson (JNJ 167.33, -6.95, -4.0%) was a drag on the sector after a U.S. judge ruled against resolving talc claims in bankruptcy, according to Reuters. Agilent (A 121.77, -4.28, -3.4%) was another notable loser after being downgraded to In-line from Outperform at Evercore ISI.
- Nasdaq Composite: +37.1% YTD
- S&P 500: +19.5% YTD
- Russell 2000: +13.7% YTD
- S&P Midcap 400: +12.3% YTD
- Dow Jones Industrial Average: +7.3% YTD
Reviewing today's economic data:
- Chicago PMI rose to 42.8 in July (Briefing.com consensus 43.0) from 41.5 in June
Economic data on Tuesday will include:
- 9:45 ET: Final July S&P Global U.S. Manufacturing PMI (prior 46.3)
- 10:00 ET: June Construction Spending (Briefing.com consensus 0.6%; prior 0.9%), July ISM Manufacturing Index (Briefing.com consensus 46.8%; prior 46.0%), and June job openings (prior 9.824 mln)
Market sticks to narrow range; Econ data on Tuesday
31-Jul-23 15:40 ET
Dow -1.73 at 35457.47, Nasdaq -9.79 at 14307.26, S&P -6.19 at 4577.31
[BRIEFING.COM] The market continues to chop around a narrow range.
After the close today, Tenet Healthcare (THC), Avis Budget (CAR), Yum China (YUMC), Western Digital (WDC), Diamondback Energy (FANG), Amkor (AMKR), and Lattice Semi (LSCC) are among the companies reporting earnings.
Economic data on Tuesday will include:
- 9:45 ET: Final July S&P Global U.S. Manufacturing PMI (prior 46.3)
- 10:00 ET: June Construction Spending (Briefing.com consensus 0.6%; prior 0.9%), July ISM Manufacturing Index (Briefing.com consensus 46.8%; prior 46.0%), and June job openings (prior 9.824 mln)
Energy sector outperforms
31-Jul-23 15:05 ET
Dow +10.24 at 35469.44, Nasdaq +4.05 at 14321.10, S&P -3.03 at 4580.47
[BRIEFING.COM] Recent trading had the major indices confined to narrow ranges.
Energy complex futures settled mixed. WTI crude oil futures rose 1.5% to $81.78/bbl and natural gas futures fell 0.2% to $2.64/mmbtu.
The S&P 500 energy sector (+2.0%) remains at the top of the leaderboard by a wide margin. Real estate (+0.4%) and materials (+0.3%) are the next best performing sectors.
Trucking names slip after Yellow Corp. shutdown, United Rentals higher on Barclays tgt bump
31-Jul-23 14:30 ET
Dow +0.14 at 35459.34, Nasdaq +0.41 at 14317.46, S&P -4.14 at 4579.36
[BRIEFING.COM] All three major averages are hovering near unchanged levels, the S&P 500 (-0.09%) down now about 4 points.
S&P 500 constituents Dexcom (DXCM 124.34, -8.04, -6.07%), Live Nation (LYV 87.14, -2.19, -2.45%), and Old Dominion (ODFL 415.96, -11.62, -2.72%) pepper the bottom of the S&P. DXCM lags alongside the broader healthcare sector (XLV), while LYV continues recent weakness stemming from Friday's Politico report which suggested the DoJ could revisit its antitrust lawsuit against Ticketmaster by the end of the year, while ODFL slips after news that Yellow Corp. (YELL 1.40, +0.69, +98.26%) shutdown operations.
Meanwhile, United Rentals (URI 463.91, +17.84, +4.00%) is today's best performer following a target price raise out of Barclays.
Gold hits highest levels in two months
31-Jul-23 14:00 ET
Dow +23.61 at 35482.81, Nasdaq +2.80 at 14319.85, S&P -1.58 at 4581.92
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.02%) is in second place, up about three points.
Gold futures settled $9.30 higher (+0.5%) to $2,009.20/oz, ending the month up +4.1%.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $101.75.
Page One
Last Updated: 31-Jul-23 09:03 ET | Archive
Market holds steady in front of big week of earnings
Following Friday's rally, stock futures indicate a modestly higher open. The S&P 500 futures are up 9 points and are trading 0.2% above fair value. The Nasdaq 100 futures are up 35 points and are trading 0.2% above fair value. The Dow Jones Industrial Average futures are up 46 points and are trading 0.2% above fair value.
It's another busy week in terms of earnings reports and economic data. Apple (AAPL) and Amazon.com (AMZN), which report results after the close on Thursday, will headline the earnings calendar. Notable economic releases include the July ISM Manufacturing Index (Briefing.com consensus 46.8%; prior 46.0%) on Tuesday, the July ISM Non-Manufacturing Index (Briefing.com consensus 53.0%; prior 53.9%) on Thursday, and the July Employment Report on Friday.
In corporate news, Ford (F) is aiming to recall 870K F-150 trucks, according to Reuters. Johnson & Johnson (JNJ) is another top laggard this morning on a report that a US judge ruled against resolving talc claims in bankruptcy, according to Reuters.
Over the weekend, Minneapolis Fed chair Neel Kashkari (FOMC voter) said in interview he is no longer expecting a US recession, according to CBS News.
China's Manufacturing PMI remained in contraction in the July reading while Non-Manufacturing PMI decelerated for the fourth consecutive month. Also, China will launch new measures to increase consumption, but stopped short of direct consumer support, according to Bloomberg.
In Europe, eurozone's GDP expanded 0.3% (expected 0.2%) according to the flash reading for Q2, but Italy's GDP contracted 0.3% qtr/qtr against expectations for no change.
U.S. economic data today is limited to the July Chicago PMI (prior 41.5) at 9:45 ET.
The 2-yr Treasury note yield is down two basis points to 4.87% and the 10-yr note yield is down one basis point to 3.96%.
New Relic observing sharply higher prices after agreeing to private equity buyout offer (NEWR)
Observability and app monitoring company New Relic (NEWR) is launching higher after private equity firms Francisco Partners and TPG have agreed to acquire the company for $87/share in cash, representing a 17.5% premium to last Friday's closing price. There has been plenty of speculation that NEWR could be acquired over the past several months, so today's news doesn't come as a complete surprise. The main question was whether NEWR and its suitors could come to an agreement on valuation.
- On that note, in late May Reuters reported that Francisco Partners and TPG walked away from the negotiating table after the firms couldn't reach an agreement with NEWR on a price tag for an acquisition. Securing enough capital to finance the deal was another issue standing in the way.
- With both sides finding a middle ground, NEWR is now poised to become a privately held company again after launching its IPO in December of 2014. Since going public, it's been a rollercoaster ride for NEWR.
- After shares soared to all-times highs in 2021, rising interest rates sparked a nasty tech sell-off, sending NEWR crashing lower in the winter and spring of 2022. Although NEWR's observability tools help companies improve the efficiency of their apps and networks, demand still languished under the difficult macroeconomic conditions and from tough competition from peers like DataDog (DDOG) and Dynatrace (DT).
- NEWR's recent revenue growth rates, for instance, significantly lag behind DDOG's. In 1Q23 and 4Q22, NEWR posted top-line growth of 12% an 18%, respectively, compared to growth of 33% and 44% in those same quarters for DDOG.
- It's fitting, then, that DDOG would also be trading higher today as NEWR's valuation pops to $6.5 bln on the acquisition news. On a P/S basis, though, NEWR is still trading at a steep discount to DDOG at about 5.4x compared to roughly 19.8x.
- Based on the magnitude of that valuation divergence, one could argue that Francisco Partners and TPG scored a bargain on the deal -- especially since NEWR's financials are improving.
- This morning, NEWR also reported better-than-expected Q1 results that featured a vast improvement in margins and profitability. Specifically, non-GAAP operating margin climbed to 15.0% from (7.9)% in the year-earlier quarter as EPS reached $0.43 compared to $(0.26) a year ago.
- Last summer, NEWR implemented a restructuring program that included layoffs as the company continued to transition to a consumption-based model. That transition, which began in 2020, has taken some time to yield better results, but the company seems to be turning a corner with Francisco Partners and TPG taking notice.
Overall, it's good to see some M&A activity finally spring up in the tech sector as it indicates that firms are feeling more comfortable and confident about market conditions. Whether this deal is the forerunner of more M&A activity is highly uncertain, though, especially with tech valuations at rich levels.
Johnson & Johnson's hope of putting talc-related legal overhang behind it takes a major hit (JNJ)
Litigation risks surrounding the use of potentially harmful talc in Johnson & Johnson's (JNJ) baby powder has acted as an overhang on the stock for years and now it appears that a resolution could take many more years to play out.
- After the close on Friday afternoon, Reuters reported that a bankruptcy judge in New Jersey denied JNJ's second attempt to resolve all the talc-related lawsuits through LTL Management -- an entity created by JNJ to file for bankruptcy and to pay out the future claims.
- According to Judge Michael Kaplan, the bankruptcy appeal must be rejected because JNJ isn't under sufficient financial distress to warrant the legal protections granted by bankruptcy laws. This is the same reason why JNJ's first bankruptcy bid was dismissed back in April.
- JNJ was hopeful that a substantial increase in the proposed settlement amount would tip the scales in its favor this time around. After initially committing to $2.0 bln in claim contributions, the company bumped the amount up to $8.9 bln before LTL Management refiled for bankruptcy in April.
- According to JNJ, most of the 100,000+ claimants are now in favor of settling through the bankruptcy process. However, the proportion of claimants who are in favor isn't high enough to receive a legal stamp of approval for the bankruptcy of LTL Management.
- While JNJ plans to appeal the court's decision, the likelihood of receiving Chapter 11 protection seems rather remote now that the scheme has been struck down twice. Therefore, JNJ may be forced to fight the tens of thousands of cases individually through the tort system.
- The company continues to contend that scientific evidence doesn't support the claim that talc in its baby power caused the serious health issues, which include ovarian cancer and mesothelioma. Indeed, JNJ has successfully defended itself in court against some of the claims. It has also experienced some major losses, though, including a $2.1 bln verdict in 2021.
The bottom line is that the prospects of JNJ wiping its hands clean of the talc-related litigation in an expedited fashion seems quite unlikely after a second judge denied its bankruptcy strategy. Following the spinoff of the Consumer Health segment through the Kenvue (KVUE) IPO in May, JNJ's growth prospects have improved as the MedTech and Pharmaceutical segments take center stage. The concern, however, is that the stock won't fully reflect JNJ's stronger growth profile as the litigation overhang seems likely to linger for years to come.
ON Semiconductor's rally cannot be turned off after upbeat Q2 results today (ON)
Following a Q2 earnings and sales beat and bullish Q3 guidance today, there is no turning off On Semi's (ON +3%) powerful rally. Shares of the power and signal management chip maker, whose competitors include Texas Instruments (TXN), STMicroelectronics (STM), and Wolfspeed (WOLF), have been cruising right alongside the broader semiconductor landscape this year, gaining over 70%. Even better, stacked against its closest competitors, ON's outperformance on the year is far superior, tracking at worst over 20 pts higher.
- ON's Q2 numbers reveal part of why the company has sustained such an impressive rally this year. EPS of $1.29 represented a 3.7% dip yr/yr, tracking above analyst estimates. Revenue growth of 0.5% was consistent with last quarter and is a positive standout given the heightened macroeconomic uncertainty currently plaguing overall demand.
- Although not immune to these pressures, electric vehicle (EV) demand has remained relatively sound and has been a significant factor time and again for ON's solid quarterly headline results. Q2 was no exception; management reiterated that EVs remained its fastest-growing business during the quarter, showcased by the company inking over $3.0 bln of new silicon carbide (SiC) long-term service agreements.
- SiC is a crucial component of electrification, given its ability to withstand high voltages, making it the material of choice by EV makers and an essential driver of long-term growth for ON.
- Although Tesla (TSLA) stated earlier this year that it would use around 75% less SiC in its next-gen lower-priced EV, which briefly dented shares of ON and its rivals, it would still increase the total addressable market for SiC since, as WOLF noted, the industry likely never incorporated lower-tier EVs to use any SiC.
- As a result, automotive sales climbed +8% sequentially in the quarter, surpassing $1.0 bln in revenue for the first time.
- Alongside healthy automotive demand, which was largely expected after TXN and STM reported sustained positive momentum in this industry, industrial demand fueled ON's upbeat Q2 figures, expanding by +10% sequentially. EV charging, medical applications, and energy infrastructure lifted industrial sales.
- Looking ahead, ON continues to anticipate a 250 bp hit to gross margins for the next several quarters due to its EFK fab. Nonetheless, the company projected Q3 EPS above analyst expectations, targeting $1.27-1.41 and revs of $2.095-2.195 bln. Management also remarked that it remains committed to its long-term gross margin goals as it continues improving its EFK fab's cost structure.
Bottom line, ON is seizing on the sustained momentum in automotive and industrial demand, which remains afloat despite macroeconomic challenges. Although these end markets could begin taking on water if economic conditions sour, ON's long-term profile is encouraging, especially as it continues to plant itself at the forefront of a long-lasting SiC-related tailwind.
Roku rockets higher as beat-and-raise report signals a pickup in ad spending recovery (ROKU)
Connected TV pioneer Roku (ROKU) is soaring to multi-month highs after crushing Q2 top and bottom-line estimates and issuing upside Q3 revenue guidance, demonstrating that its business has been far more resilient than anticipated in a challenging environment for ad spending.
- Following a disappointing Q2 earnings report from Netflix (NFLX) on July 19 that included a revenue miss and downside revenue guidance for Q3, expectations for ROKU's results and outlook were downgraded. This is reflected in a 10% dive in ROKU shares since that earnings report from NFLX.
- Although the U.S. advertising market was indeed soft again in Q2 -- spending was flat on a yr/yr basis -- it did improve from last quarter while viewership on ROKU's platform also trended higher. More specifically, the total U.S. advertising market was down 7.4% yr/yr in Q1 and Active Accounts increased by 1.9 mln qtr/qtr to 73.5 mln in Q2.
- The pickup in ad spending, which was most pronounced in the consumer packaged goods and health and wellness verticals, combined with ROKU's active account growth, drove an 11% increase in Platform revenue to $744 mln.
- For the sake of comparison, Platform revenue declined by 1% last quarter, even as Active Accounts increased by 1.6 mln qtr/qtr.
- On the device side of the business, the news is more mixed. Device revenue grew by 9% yr/yr to $103.4 mln, exhibiting resiliency amid a tough macro climate characterized by rising interest rates and high inflation.
- The growth is especially encouraging since the company launched its first Roku-branded TVs in March, which are exclusively sold at Best Buy (BBY). Based on the better-than-expected growth, its apparent that consumer acceptance of ROKU's own TVs is solid.
- However, after showing major improvement in Q1, device gross margin plunged into negative territory again in Q2, diving by over 20 percentage points qtr/qtr to (17.0)%. The huge decline is a direct result of the higher costs associated with manufacturing TVs in-house.
- This is a price that ROKU is willing to pay, though, because the company gains control over its supply chain by making its own TVs.
- Additionally, the Device segment is basically seen as a loss-leader -- that is, the company will sacrifice margins on devices in order to sell a higher volume, ultimately leading to an increase in higher-margin platform revenue down the road.
- ROKU's upside Q3 guidance is adding fuel to the fire, especially since the company has a recent track record of guiding conservatively. On that note, ROKU blew out its own revenue expectations in both Q2 and Q1.
- Investors are also cheering the fact that the company plans to keep a lid on expenses, even as it sees more signs of a recovery emerging for ad spending. In fact, ROKU expects Q3 expenses to be lower than Q2.
The bottom line is that while business conditions are far from optimal, the arrow is pointing up for ROKU. From a longer-term perspective, the company remains poised to benefit from the ongoing cord-cutting trend and its leading position in the CTV market.
Boston Beer Co's massive EPS upside in Q2 gives investors plenty to cheer about (SAM)
Boston Beer Co (SAM +18%) is giving investors plenty to cheer about today after registering its widest earnings beat in over two years in Q2 on energetic performance from its Twisted Tea brand. Revs still fell yr/yr in the quarter but by less than analysts feared. Meanwhile, although SAM only reiterated its FY23 guidance despite the upside in Q2, it was primarily due to lingering economic uncertainties. Management was confident the positive momentum in Q2 would spill into subsequent quarters, possibly leading to future outperformance.
Part of today's exuberance comes from the fact that SAM's quarterly results were primarily the result of its internal initiatives instead of outside forces. The controversy surrounding Anheuser-Busch Inbev (BUD) is not really feeding into SAM's robust Q2 numbers. SAM Chairman C. James Koch remarked that the beneficiaries of the Bud Light issue are companies offering competing light beers, such as Molson Coors Beverage (TAP) and privately-held Pabst Brewing Company.
- SAM recorded EPS of $4.72, a 9.5% jump yr/yr, fueled largely by ongoing productivity initiatives. SAM has focused on three critical items related to its supply chain: procurement savings, brewery performance, and network optimization. This strategy has propelled gross margins from the low-40s/high-30s to achieving 45.4% in Q2, a 230 bp expansion yr/yr, and SAM's highest number in two years.
- SAM did project gross margins to cool off in 2H23, targeting 41-43%. However, management noted that given recent margin volatility and its work to get back above 45%, it wanted to remain prudent in its forecast to close the year.
- A minor blemish was revs slipping 2.1% yr/yr to $603.3 mln, with depletions and shipments falling 3.0% and 4.5%, respectively, reflecting decreases in Truly, Angry Orchard, Samuel Adams, Hard Mountain Dew, and Dogfish.
- However, encouragingly, Twisted Tea roared back with a vengeance during the quarter, enjoying 38% dollar sales growth, adding 3.3 pts of market share. SAM attributed the pop to expanding availability, improved distribution, and a highly effective brand-building campaign. Demand was so robust that SAM struggled to keep up with demand, enhancing service levels to support further growth acceleration.
- Regarding Truly, while SAM was disappointed that it has not fully recovered the brand's share losses, remaining down around 3.3 volume share pts YTD, it saw green shoots that should positively impact the rest of the summer and Q4. SAM is upping its media spend for the rest of FY23 to reinforce these silver linings, ensuring that Truly is on the air every week.
- Looking ahead, SAM kept its FY23 outlook unchanged, underscoring its conservative near-term outlook. The company targets EPS of $6.00-10.00 and shipments and depletions of down 2% to 8%.
A substantial demand shift toward Twisted Tea provided the kindling needed for SAM to deliver excellent numbers in Q2. Although demand for the rest of SAM's brands remained relatively soft, there are promising developments surrounding Truly ahead of the fall and potentially next spring, allowing for future upside.
|
