Market Snapshot
briefing.com
| Dow | 37385.97 | -18.38 | (-0.05%) | | Nasdaq | 14992.97 | +29.11 | (0.19%) | | SP 500 | 4754.63 | +7.88 | (0.17%) | | 10-yr Note | -1/32 | 3.90 |
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| | NYSE | Adv 1827 | Dec 941 | Vol 718 mln | | Nasdaq | Adv 2781 | Dec 1488 | Vol 4.8 bln |
Industry Watch
| Strong: Utilities, Energy, Real Estate, Consumer Staples, Communication Services, Health Care, Materials |
| | Weak: Consumer Discretionary |
Moving the Market
-- Light participation ahead of the extended holiday weekend
-- Digesting the latest inflation readings, which look consistent with a soft landing scenario for the economy
-- Seasonality factor driving buying activity |
Closing Summary
22-Dec-23 16:25 ET
Dow -18.38 at 37385.97, Nasdaq +29.11 at 14992.97, S&P +7.88 at 4754.63
[BRIEFING.COM] Today's trade had an overall positive vibe in this lightly traded session ahead of the extended holiday weekend. Advancing issues had a roughly 2-to-1 lead over declining issues at both the NYSE and at the Nasdaq.
Market participants were digesting some economic releases today, which mostly fit with the soft landing narrative. The calendar was headlined by the November Personal Income and Spending report, which contained a healthy 0.4% increase in real disposable personal income, a 0.3% increase in real spending, and disinflation in both the PCE and Core PCE Price Indexes.
Durable goods orders were stronger than expected in November, and consumer sentiment increased while inflation expectations decreased in December.
The aforementioned reports overshadowed the disappointing 12.2% month-over-month decline in new home sales in November, although with the recent drop in mortgage rates, participants seemed willing to believe that sales activity will rebound smartly in December.
The three major indices traded with modest gains for most of the session, but hit an air pocket a little after 2:00 p.m. ET that brought the indices below yesterday's closing levels. The short-lived deterioration did not have a specific news catalyst to account for the activity. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), and Dow Jones Industrial Average (-0.1%) all climbed off their session lows, but the Dow couldn't manage a positive finish.
A big loss in NIKE (NKE 108.04, -14.49, -11.8%), which reported fiscal Q2 earnings and disappointing guidance, contributed to the relative underperformance of the DJIA.
NIKE's decline also weighed on the S&P 500 consumer discretionary sector (-0.7%), which was the only sector that closed lower today.
Meanwhile, economically-sensitive sectors and value stocks outperformed due to the positive sentiment around the economic outlook. The material (+0.6%) and industrial (+0.4%) sectors were among the winning standouts, and the Russell 3000 Value Index registered a 0.4% gain versus a 0.1% gain in the Russell 3000 Growth Index.
The health care (+0.5%) was another outperformer, propped up with some M&A activity that featured Bristol-Myers (BMY 52.29, +1.03, +2.0%) acquiring Karuna Therapeutics (KRTX 317.85, +102.66, +47.7%) for $330.00 per share in cash for a total equity value of $14.0 billion. The acquisition price is a 53% premium over Thursday's closing price for KRTX.
The 2-yr note yield settled unchanged from yesterday, and down ten basis points this week, to 4.33%. The 10-yr note yield rose one basis point today, and declined two basis points this week, to 3.90%.
As a reminder, markets are closed on Monday for Christmas Day.
- Nasdaq Composite: +43.3%
- S&P 500: +23.8%
- Russell 2000: +15.5%
- S&P Midcap 400: +14.7%
- Dow Jones industrial Average: +12.8%
Reviewing today's economic data:
- Personal income increased 0.4% month-over-month in November, as expected, following an upwardly revised 0.3% increase (from 0.2%) in October. Personal spending was up 0.2%, also as expected, following a downwardly revised 0.1% increase (from 0.2%) in October. The PCE Price Index declined 0.1% month-over-month (Briefing.com consensus 0.1%), taking the year-over-year change to 2.6% from 2.9% in October. That was the first decline in the PCE Price Index since 2020. The core PCE Price Index, which is the Fed's preferred inflation gauge, increased 0.1% month-over-month (Briefing.com consensus 0.2%), taking the year-over-year change to 3.2% from 3.4%.
- The key takeaway from the report is that it threads the needle for a Fed aiming to bring down inflation with higher rates, but not tank the economy in the process. The 0.3% month-over-month jump in real PCE combined with a 0.4% increase in real disposable personal income and the disinflation in the PCE Price Indexes is the stuff that soft landings/no landings are made of.
- Durable goods orders surged 5.4% month-over-month in November (Briefing.com consensus 2.5%) following an upwardly revised 5.1% decline (from -5.4%) in October. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.3% decline (from 0.0%) in October.
- The key takeaway from the report was found in the reading for nondefense capital goods orders excluding transportation -- a proxy for business spending. It was up 0.8% month-over-month on the heels of a 0.6% decline in October, connoting a welcome reacceleration in order activity that will mesh with a soft landing outlook.
- The final reading for the University of Michigan Consumer Sentiment Index for December came in at 69.7 (Briefing.com consensus 69.7) versus the preliminary reading of 69.4. That was up nicely from the final reading of 61.3 for November, and it marked a recovery of all declines from the previous four months. In the same period a year ago, the index stood at 59.8.
- The key takeaway from the report is the linkage between the increase in sentiment and the decrease in inflation expectations. The latter set the tone for improved attitudes across age, income, education, geography, and political identification.
- New home sales decreased 12.2% month-over-month in November to a seasonally adjusted annual rate of 590,000 units (Briefing.com consensus 689,000) from a downwardly revised 672,000 (from 679,000) in October. On a year-over-year basis, new home sales were up 1.4%.
- The key takeaway from the report is that new home sales activity slumped badly in November, paced by the largest region for new home sales (the South) where prices are generally more affordable. The weakness speaks to supply constraints for lower-priced homes and general affordability constraints created by high mortgage rates and high prices relative to median prices for existing homes.
Tuesday's economic calendar features:
- 9:00 ET: October FHFA Housing Price Index (Prior 0.6%); October S&P Case-Shiller Home Price Index (Prior 3.9%)
Treasuries settle little changed
22-Dec-23 15:35 ET
Dow -17.45 at 37386.90, Nasdaq +31.23 at 14995.09, S&P +8.05 at 4754.80
[BRIEFING.COM] The major indices are sticking to narrow trading ranges heading into the close.
The 2-yr note yield settled unchanged from yesterday, and down ten basis points this week, to 4.33%. The 10-yr note yield rose one basis point today, and declined two basis points this week, to 3.90%.
Looking ahead, markets are closed for Christmas Day on Monday.
Tuesday's economic calendar features:
- 9:00 ET: October FHFA Housing Price Index (Prior 0.6%); October S&P Case-Shiller Home Price Index (Prior 3.9%)
Stocks climb off session lows
22-Dec-23 15:05 ET
Dow +10.23 at 37414.58, Nasdaq +32.91 at 14996.77, S&P +10.84 at 4757.59
[BRIEFING.COM] Stocks are climbing after hitting an air pocket. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), and Dow Jones Industrial Average (+0.03%) are all trading up. The equal weighted S&P 500 is up 0.4%.
There was no specific catalyst to account for the quick move lower.
Elsewhere, WTI crude oil futures declined 0.4% to $73.62/bbl and natural gas futures climbed 0.8% to $2.60/mmbtu.
ANSYS higher after M&A reports; markets melt as we approach the close
22-Dec-23 14:30 ET
Dow -101.57 at 37302.78, Nasdaq -17.72 at 14946.14, S&P -4.13 at 4742.62
[BRIEFING.COM] The major averages fell hard over the last half hour, all now modestly in the red with the S&P 500 (-0.09%) holding up the best.
Elsewhere, S&P 500 constituents ANSYS (ANSS 337.94, +34.78, +11.47%), Albemarle (ALB 151.43, +5.98, +4.11%), and Allegion (ALLE 125.58, +2.57, +2.09%) alliteratively make up some of the top performers. ANSS shoots higher after M&A reports, while ALB and ALLE advance alongside the materials (+0.36%) and industrials (+0.22%) groups, respectively.
Meanwhile, Cummins (CMI 236.58, -7.42, -3.04%) is near the bottom of the group after announcing charges set to hit in Q4 related to the settlement of an emissions claim.
Gold stretches weekly gains on Friday
22-Dec-23 14:00 ET
Dow +33.27 at 37437.62, Nasdaq +58.98 at 15022.84, S&P +15.92 at 4762.67
[BRIEFING.COM] With about two hours to go before the holiday break the tech-heavy Nasdaq Composite (+0.39%) holds a narrow lead.
Gold futures settled $17.80 higher (+0.9%) to $2,069.10/oz, pushing gains to +1.6% on the week, amid disinflation seen in PCE readings this morning.
Meanwhile, the U.S. Dollar Index is down -0.1% to $101.72.
Page One
Last Updated: 22-Dec-23 09:06 ET | Archive
Ready for something or nothing at all
The stock market on Thursday recouped a nice portion of Wednesday's losses, demonstrating that buy-the-dip chivalry is not dead and that there is still some seasonal/trend momentum in the market.
It is reasonable to think that there won't be much momentum in the market today, as participants turn their attention to the extended Christmas weekend that will have markets closed on Monday. Then again, it has also been reasonable to assume that the market would give way to some selling momentum after the run it has had since late October, and that hasn't happened.
So, we suppose one shouldn't be surprised if the market does nothing today or does a lot.
Prior to the release of the economic data at 8:30 a.m. ET, the equity futures market wasn't doing much. The exception was the Dow Jones Industrial Average futures. They were underperforming noticeably on account of weakness in Nike (NKE), which was down 11.8% in the wake of its fiscal Q2 earnings report and disappointing guidance.
Some volatility was injected into the futures trade, however, following the release of the data, which provided a little algorithmic reason to sell and buy based on the headlines.
Personal income increased 0.4% month-over-month in November, as expected, following an upwardly revised 0.3% increase (from 0.2%) in October. Personal spending was up 0.2%, also as expected, following a downwardly revised 0.1% increase (from 0.2%) in October.
The PCE Price Index declined 0.1% month-over-month (Briefing.com consensus 0.1%), taking the year-over-year change to 2.6% from 2.9% in October. That was the first decline in the PCE Price Index since 2020. The core PCE Price Index, which is the Fed's preferred inflation gauge, increased 0.1% month-over-month (Briefing.com consensus 0.2%), taking the year-over-year change to 3.2% from 3.4%.
The key takeaway from the report is that it threads the needle for a Fed aiming to bring down inflation with higher rates, but not tank the economy in the process. The 0.3% month-over-month jump in real PCE combined with a 0.4% increase in real disposable personal income and the disinflation in the PCE Price Indexes is the stuff that soft landings/no landings are made of.
Separately, durable goods orders surged 5.4% month-over-month in November (Briefing.com consensus 2.5%) following an upwardly revised 5.1% decline (from -5.4%) in October. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.3% decline (from 0.0%) in October.
The key takeaway from the report was found in the reading for nondefense capital goods orders excluding transportation -- a proxy for business spending. It was up 0.8% month-over-month on the heels of a 0.6% decline in October, connoting a welcome reacceleration in order activity that will mesh with a soft landing outlook.
Treasury yields saw some knee-jerk selling in the immediate wake of the the release and the equity futures did as well. In aggregate, the income, spending, and durable goods orders data were sturdy, so the instantaneous connection might have been that they will perhaps forestall a rate cut in March even though the inflation data continue to improve.
Also, we can't dismiss that the market, which was feeling optimistic in front of the release of the core PCE Price Index, was ripe for a sell-the-news response.
In any case, both markets soon regrouped and wiped away most, if not all, of the knee-jerk losses.
The 2-yr note yield, at 4.33% just before the release, shot up to 4.39% and is back at 4.35%. The 10-yr note yield, at 3.85% before the release, climbed to 3.89% and is back at 3.87%.
The S&P 500 futures, meanwhile, are up 10 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 44 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 56 points and are trading 0.1% below fair value.
That is some mixed positioning for a market that could be poised to do something or nothing at all today.
Happy holidays!
-- Patrick J. O'Hare, Briefing.com
Bristol-Myers gains possible blockbuster schizophrenia drug in buyout of Karuna Therapeutics (BMY)
While M&A activity continues to be sluggish overall, deal making in the pharmaceutical and biotech industries has been robust as healthcare companies flush with cash look to bolster their drug portfolios. This heightened activity was on display again this morning when Bristol-Myers Squibb (BMY) announced its intention to acquire Karuna Therapeutics (KRTX), a clinical-stage biotech company focused on treating neurological diseases, for $14.0 bln.
- In the past month alone, we have seen several high-profile deals in the healthcare sector, including Roche Holdings' (RHHBY) $2.7 bln acquisition of Carmot Therapeutics on December 4, along with two acquisitions from AbbVie (ABBV). That company purchased Cerevel Therapeutics (CERE) for $8.7 bln on December, preceded by its $10 bln acquisition of ImmunoGen (IMGN) on November 30.
- In fact, this is BMY's second recent acquisition, coming on the heels of its buyout of oncology company Mirati Therapeutics (MRTX) on October 9. While the MRTX addition will strengthen BMY's cancer treatment portfolio, the acquisition of KRTX has the potential to provide its neuroscience business with a major boost.
- The crown jewel of the acquisition is KarXT, a potential first-in-class treatment for schizophrenia and Alzheimer's disease psychosis that may gain FDA approval next September (current PDUFA date is September 26, 2024). In March, KRTX reported positive Phase 3 data for the drug, disclosing that it met its primary endpoint, demonstrating a statistically significant and clinically meaningful 8.4-point reduction in Positive and Negative Syndrome Scale (PANSS) total score compared to placebo.
- Perhaps equally important, the tolerability and safety profile was also very promising. A major issue for currently available schizophrenia treatments is that people oftentimes stop taking their medications due to the serious side effects, which can include Parkinson's disease-like shaking, sedation, insomnia, and weight gain. Since KarXT targets different receptors (M1/M4 Muscarinic Receptors) than current forms of treatment, the unwanted side effects are less severe according to the clinical trial data.
- Should KarTX receive FDA approval next September, it has the potential to become a blockbuster, multi-billion-dollar drug for BMY. There's an estimated 1.6 mln people treated for schizophrenia in the U.S. alone, and if KarTX gains approval for other indications, such as Alzheimer's disease psychosis, the total addressable market expands significantly.
- With the above in mind, it's understandable why BMY was willing to pay such a hefty price for KRTX -- the $330/share offer price represents a 53% premium from yesterday's closing price. BMY is also facing a sharp slowdown in growth as its chemotherapy treatment Revlimid faces increasing competition from generics. In Q3, Revlimid sales plunged by 41% to $1.4 bln, while its blood thinner treatment Eliquis saw flat sales of $2.7 bln.
- Investors seem to be on board with the splurge as BMY shares trade higher on the news. That's interesting in itself since the acquiring company typically trades lower on buyout news -- especially if the deal is dilutive to EPS, as this one is. BMY estimates that the transaction will be dilutive to EPS by approximately $0.30/share in 2024 due to financing costs as it plans to raise debt to pay for the deal.
Overall, we believe that KRTX is a good fit for BMY as it expands its neuroscience treatment portfolio and provides it with a possible best-in-class treatment for a disease that has been notoriously difficult to treat in schizophrenia.
NIKE running sharply lower as sluggish sales suggest it may have lost a bit off its fastball (NKE)
Ahead of NIKE's (NKE) 2Q24 earnings report, there was a hope and expectation that the sports and athletic footwear giant would display additional margin improvement and a brighter growth outlook, but only one of those prognostications came to fruition.
- Thanks to the company's inventory reduction efforts which are supporting stronger pricing, gross margin expanded by 170 bps yr and 40 bps sequentially to 44.6%. Additionally, despite operating in a retail environment that NKE characterized as highly promotional, NKE expects Q3 gross margin to expand by 160-180 bps, followed by a 225-250 bps increase in Q4.
- Amid this challenging business climate, NKE has also kept a tighter lid on costs. For the quarter, SG&A costs were up by only 1% to $4.1 bln. Combined with the gross margin expansion, the cost containment helped enable NKE to beat earnings expectations as EPS grew 21% yr/yr to $1.03.
This good news, though, is being clouded over by NKE's sluggish sales in Q2 and a more subdued sales outlook
- On the heels of strong earnings reports from Dick's Sporting Goods (DKS) and Foot Locker (FL) last month, sentiment swung to a more bullish stance as NKE's Q2 report approached. Therefore, when NKE reported that revenue in North America fell by 4% with wholesale revenues declining by 2%, it came as a major disappointment. Meanwhile, in Greater China, growth slowed to 8% on a constant currency basis from 12% last quarter.
- Although NKE saw solid demand during busy shopping periods like back-to-school and Black Friday, business was relatively weak outside of those peak shopping days. This was especially true for the company's digital platforms, which experienced lower-than-expected traffic as competitors ramped up promotional activity.
- Making matters worse, NKE doesn't see conditions improving much over the next couple of quarters. In fact, it lowered its FY24 revenue growth outlook to approximately 1% from its prior forecast of mid-single-digit growth. While no one will argue that the business climate for retail isn't strong right now, there is some concern that NKE is losing a bit off its fastball and is losing some share to competitors like lululemon (LULU).
- CEO John Donahoe acknowledged that NKE needs to accelerate its pace of innovation, adding that the company is launching a multi-year product innovation cycle that will introduce new franchises and platforms in the coming years. To help pay for this, the company is implementing a $2 bln cost-savings plan that hinges on greater automation and use of technology, streamlining efforts, and simplifying the product assortment.
The main takeaway, however, is that NKE's disappointing Q2 sales results and 2H24 outlook is creating some concern that it's not just unfavorable macroeconomic factors that are impacting the company. NKE may have lost its edge a bit on the product innovation front, and that's what really driving this steep selloff today.
AAR Corp loses some altitude on top line miss, but calendar 2024 sounds better (AIR)
AAR Corp. (AIR -5%) is losing a bit of altitude today after reporting Q2 (Nov) earnings last night. This provider of aviation services for commercial and defense aircraft buys/sells airplane parts and provides airframe inspection, maintenance, and repair services. The global recovery in commercial air travel has driven increased demand for its services in recent quarters, but AIR stumbled a bit here.
- The company beat on EPS, but just barely. The upside was much smaller than recent quarters. Perhaps more troubling was the top line result. Revenue rose 16.1% yr/yr to $545.4 mln, but that was a good bit below analyst expectations. Sales to commercial customers increased a robust 24% yr/yr, primarily due to strong demand for its new and used parts offerings. The weakness was more on government side as sales increased only 1%. The good news is that sales to commercial customers make up the lion's share of AIR's sales at 71% of total sales in Q2, up from 66% a year ago.
- Parts Supply segment sales were up 24% yr/yr, driven by strong customer demand for used serviceable material and continued expansion of its commercial distribution activities. In Repair & Engineering, sales were up 8%, driven by strong performance across its hangars and component repair operations. AIR said its hangars remained largely full throughout the quarter. In Integrated Solutions, sales were up 23% due to increased flight hours.
- The main trouble spot was its Expeditionary Services segment, where sales declined 34% due to a significant decline in mobility shipments of pallets to the Department of Defense. Mobility products are used in support of US troop movement, which has not increased in the current environment. The decline in sales is the result of funding being diverted to the effort in Ukraine. AIR expects this to return to more normalized levels towards the end of FY24.
- Margins were a bright spot as adjusted operating margin increased to 8.1% from 7.6% in the prior year period and 7.3% in Q1 (Aug). The margin expansion was primarily from growth in commercial sales.
- AIR does not guide, but did say that the macro environment for the commercial aviation aftermarket continues to be very strong. Its customers have signaled strong demand for its services in calendar 2024. Furthermore, AIR noted that continued new aircraft delivery constraints and issues related to newer generation engines are expected to drive increased demand for mid-to-late life aircraft, which is a core market for AIR.
If you look at the chart, AIR has been making an impressive move. Perhaps not to the same extent, but AIR shares have mirrored the huge move seen in Boeing (BA) since late October. The Fed signaling it would ease up on rate hikes was the main catalyst. Our point is that is seems like a lot of bullish sentiment was priced into AIR heading into its Q2 report. As a result, a small EPS beat and a revenue miss was a pretty negative surprise. However, it sounds like calendar 2024 like is shaping up nicely.
Apogee Enterprises' emphasis on improving margins fuels its ninth straight EPS beat in Q3 (APOG)
Commercial window manufacturer Apogee Enterprises (APOG +2%) may not have delivered Earth-shattering Q3 (Nov) results, missing revenue estimates and reducing its FY24 (Feb) revenue growth forecast. However, extending its streak of earnings beats -- registering double-digit upside in Q3 -- increasing its FY24 EPS forecast, and conveying a relatively bullish tone on a potential rebound in commercial construction next year is propelling shares to five-year highs today.
- Margins were a notable standout in the quarter, a testament to the successful execution of APOG's cost-saving measures aimed at improving the cost structures across its segments. Gross margins expanded by 310 bps yr/yr to 26.6%, and operating margins saw a 170 bp lift to 11.1%, nicely above the company's long-term 10% target. The upbeat margin growth also led to APOG's raised FY24 adjusted EPS guidance of $4.55-4.70, up from $4.35-4.65.
- Architectural Glass did most of the heavy lifting during Q3, expanding net sales by 11.6% yr/yr to $91.0 mln and primarily driving APOG's buoyant operating margins. Conversely, Architectural Framing Systems and Architectural Services saw volume pressure, leading to a net sales decline of 15.4% and 7.2% to $139.6 mln and $94.7 mln, respectively. As a result of the underperformance across these two businesses, APOG missed revenue estimates, recording a 7.7% decline yr/yr to $339.7 mln.
- The underwhelming volumes reflect ongoing uncertainty surrounding the construction markets. APOG mentioned that non-residential construction has enjoyed robust growth during the year. However, 60% of the growth stemmed from manufacturing projects, a subsector where APOG has low participation. Meanwhile, across other sectors of non-res construction, much of the year's growth was fueled by inflation-related pricing rather than volumes.
- Looking ahead to 2024, lingering macroeconomic challenges, including higher interest rates, tighter lending standards, and widespread cost inflation, that have weighed on volume growth within non-res construction will likely continue. These factors not only contributed to APOG's weak revenue growth in Q3 but also toward its lowered FY24 guidance, projecting revs to decline by 3% yr/yr instead of holding steady as in its prior forecast.
- However, APOG countered these bearish trends with a glass-half-full view, noting that it still expects commercial construction growth rates in the low single digits in 2024. Furthermore, the company is observing institutional and infrastructure projects that continue to benefit from government funding. Also, the recent Federal Reserve signaling of a pause on interest rates could produce a shorter and shallower downturn for commercial construction. At the same time, this development should loosen the market for M&A, providing APOG with financially accretive acquisition opportunities.
Overall, while not APOG's best quarter, it underscored encouraging developments on the horizon, especially if interest rates start to fall more aggressively. We have repeatedly mentioned that APOG's pivot toward higher margin areas was an intelligent move, and we maintain this view as it provides a solid profitability cushion as the company heads into still-disruptive economic conditions in 2024.
Paychex taking a pay cut today as slowing job growth dents its outlook (PAYX)
Payroll services and human capital management (HCM) company Paychex (PAYX) is taking a pay cut today after reporting mixed Q2 results and issuing revenue growth guidance for Q3 and FY24 that was slightly weaker than anticipated. After indicating last quarter that FY24 revenue growth might be stronger than the 6-7% it had forecasted, PAYX now expects growth will be in the middle of that range.
- Coming off a solid performance last quarter in which PAYX edged past EPS and revenue estimates as demand from small and medium-sized businesses (SMBs) -- the company's bread and butter market -- remained relatively healthy, business conditions became a bit more challenging in Q2.
- During the earnings call, CEO John Gibson commented that PAYX's small business employment watch showed a moderation in both job growth and wage inflation. Furthermore, while he hasn't seen any signs of a recession in the data, he noted that PAYX started to see some softening in its large client business segments, including the HR outsourcing business.
- Still, business remained relatively strong across a number of areas, including Professional Employer Organization (PEO), mid-market, HCM, and retirement. In these businesses, revenue for 1H24 grew by 6%, driven by new client growth across PAYX's suite of HCM offerings and an increase in the number of PEO worksite employees.
- Although the challenging macroeconomic backdrop is creating a headwind for job growth, the tight labor market and rising health care and benefits costs are also causing many companies to reevaluate their HR and benefits strategies.
- PAYX's top-line growth of about 6% doesn't look overly exciting, but the steadiness of its business is an attractive quality. The company's revenue retention remains above pre-pandemic levels as client retention continues to improve. In fact, its HR outsourcing solutions business is at record levels for retention.
Overall, PAYX took a small step backward from last quarter due to external macroeconomic factors that are beyond its control. Despite the tough conditions, the company continues to churn out earnings growth as EPS increased by 9% yr/yr and its Q3 operating margin guidance of 44-45% represents a nice expansion from the 40.2% achieved in Q2. However, it's difficult to see the stock gaining much upward traction unless conditions in the labor market materially pick up.
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