| | | Market Snapshot
| Dow | 39760.08 | +477.75 | (1.22%) | | Nasdaq | 16399.52 | +83.82 | (0.51%) | | SP 500 | 5248.49 | +44.91 | (0.86%) | | 10-yr Note | +3/32 | 4.20 |
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| | NYSE | Adv 2271 | Dec 487 | Vol 953 mln | | Nasdaq | Adv 3104 | Dec 1156 | Vol 4.7 bln |
Industry Watch
| Strong: Utilities, Real Estate, Health Care, Industrials, Financials, Consumer Staples, Materials |
| | Weak: -- |
Moving the Market
-- Ongoing inclination to buy on weakness after yesterday's late slide
-- Weakness in mega cap names, which are down on profit-taking activity, limiting index performance
-- Resilience following yesterday's afternoon slide
-- Treasury yields moving slightly lower |
Closing Summary
27-Mar-24 16:20 ET
Dow +477.75 at 39760.08, Nasdaq +83.82 at 16399.52, S&P +44.91 at 5248.49
[BRIEFING.COM] Today's trade had a positive bias. Advancers led decliners by a 9-to-2 margin at the NYSE and by a 5-to-2 margin at the Nasdaq. The upside moves were driven by an ongoing inclination to buy on weakness following yesterday's afternoon slide.
Some normal consolidation activity in heavily-weighted names kept a limit on index gains in the early going. By the close, though, many stocks were participating in upside moves, sending the major indices sharply higher. The market ultimately closed at or near session highs, which had the S&P 500 at a fresh all-time high.
NVIDIA (NVDA 902.50, -23.11, -2.5%), Meta Platforms (META 493.86, -2.03, -0.4%), Microsoft (MSFT 421.43, -0.22, -0.1%), and Broadcom (AVGO 1318.79, -12.70, -1.0%), which are all sitting on large gains since the start of the year, were left out of the broad afternoon rally.
Meanwhile, the Russell 2000 continued its recent outperformance today, climbing 2.2%. The small cap index benefitted from strength in regional bank stocks, which also boosted the SPDR S&P Regional Banking ETF (KRE) (+3.7%). Other bank stocks outperformed, too, as evidenced by a 3.2% gain in the SPDR S&P Bank ETF (KBE).
Regional banks received some extra attention after Standard & Poor's lowered the outlook on First Commonwealth Bank (FCF 13.80, +0.47, +3.5%), M&T Bank (MTB 144.80, +3.57, +2.5%), Synovus Financial (SNV 39.82, +1.32, +3.4%), Trustmark (TRMK 28.06, +0.81, +3.0%), and Valley National Bancorp (VLY 7.90, +0.29, +3.8%) to Negative from Stable due to ongoing stress in commercial real estate, but that didn't deter buying activity in the space.
On a related note, the S&P 500 financial sector jumped 1.2%. Eight of the 11 S&P 500 sectors gained more than 1.0% from yesterday's close. The rate-sensitive utilities (+2.8%) and real estate (+2.4%) sectors were the top performers, responding to a drop in yields.
The 10-yr note yield settled four basis points lower at 4.20% and the 2-yr note yield fell three basis points to 4.57%.
- S&P 500:+10.0% YTD
- Nasdaq Composite: +9.3% YTD
- S&P Midcap 400: +9.1% YTD
- Dow Jones Industrial Average: +5.5% YTD
- Russell 2000: +4.3% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index declined 0.7% with purchase applications falling 2% and refinance applications down 0.2% from the prior week
- Weekly EIA Crude Oil Inventories had a build of 3.17 million barrels; prior week showed a draw of 1.95 million barrels
Thursday's calendar features a slate of economic releases, including:
- 8:30 ET: Q4 GDP -- third estimate (Briefing.com consensus 3.2%; prior 3.2%), Q4 GDP Deflator -- third estimate (Briefing.com consensus 1.7%; prior 1.6%), Weekly Initial Claims (Briefing.com consensus 213,000; prior 210,000), and Continuing Claims (prior 1.807 mln)
- 10:00 ET: Final March University of Michigan Consumer Sentiment (Briefing.com consensus 76.5; prior 76.5) and February Pending Home Sales (Briefing.com consensus 2.1%; prior -4.9%)
- 10:30 ET: Weekly natural gas inventories
Treasury yields settle lower
27-Mar-24 15:30 ET
Dow +353.61 at 39635.94, Nasdaq +23.49 at 16339.19, S&P +26.09 at 5229.67
[BRIEFING.COM] The market turned higher heading into the close. The S&P 500 is up 0.5% near its high of the day.
The 10-yr note yield settle four basis points lower at 4.20% and the 2-yr note yield fell three basis points to 4.57%.
Thursday's calendar features a slate of economic releases, including:
- 8:30 ET: Q4 GDP -- third estimate (Briefing.com consensus 3.2%; prior 3.2%), Q4 GDP Deflator -- third estimate (Briefing.com consensus 1.7%; prior 1.6%), Weekly Initial Claims (Briefing.com consensus 213,000; prior 210,000), and Continuing Claims (prior 1.807 mln)
- 10:00 ET: Final March University of Michigan Consumer Sentiment (Briefing.com consensus 76.5; prior 76.5) and February Pending Home Sales (Briefing.com consensus 2.1%; prior -4.9%)
- 10:30 ET: Weekly natural gas inventories
Russell 2000 continues to outperform
27-Mar-24 15:05 ET
Dow +305.45 at 39587.78, Nasdaq +10.75 at 16326.45, S&P +19.69 at 5223.27
[BRIEFING.COM] The major indices traded in relatively narrow ranges over the last half hour.
The Russell 2000 continues to build on gains, trading up 1.6%. It is benefitting from strength in regional bank stocks, which is also boosting the SPDR S&P Regional Banking ETF (KRE) (+2.4%). Other bank stocks are outperform, too, as evidenced by a 2% gain in the SPDR S&P Bank ETF (KBE).
Elsewhere, mega cap stocks are steepening losses. The Vanguard Mega Cap Growth ETF (MGK) is down 0.3%.
Norwegian Cruise Line rides peer Carnival's earnings to S&P 500 pole position; Arista slides
27-Mar-24 14:30 ET
Dow +293.95 at 39576.28, Nasdaq +31.66 at 16347.36, S&P +22.86 at 5226.44
[BRIEFING.COM] The S&P 500 (+0.44%) is in second place, having moved modestly higher over the prior half hour.
Elsewhere, S&P 500 constituents Albemarle (ALB 127.65, +8.64, +7.26%), Norwegian Cruise Line (NCLH 21.54, +1.38, +6.87%), and United Airlines (UAL 47.28, +1.86, +4.11%) pepper the top of today's standings. NCLH gains alongside peer CCL, which moves higher after earnings/guidance.
Meanwhile, Arista Networks (ANET 286.53, -11.30, -3.79%) is the worst performer in the average, despite a dearth of corporate news.
Gold rises as yields dip
27-Mar-24 14:00 ET
Dow +258.56 at 39540.89, Nasdaq +16.47 at 16332.17, S&P +17.80 at 5221.38
[BRIEFING.COM] With about two hours remaining on Wednesday the tech-heavy Nasdaq Composite (+0.10%) remains at the bottom of the major averages, albeit off lows of the session of about -0.2%.
Gold futures settled less than $13.50 higher (+0.6%) to $2,212.70/oz, rising as treasury yields dip.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $104.38.
nCino's upbeat remarks overshadow a few blemishes from Q4, sending shares to one-year highs (NCNO)
nCino (NCNO +17%) is cashing in on its upbeat Q4 (Jan) report as shares reach one-year highs today. While the cloud banking platform provider topped adjusted EPS by a wider margin than in Q3 (Oct), revenue was moderately on the lighter side. Likewise, NCNO's revenue guidance for Q1 (Apr) and FY25 fell short of analyst estimates, underscoring pockets of persistent macroeconomic weakness.
So why are investors so pleased today? Management touched on several encouraging developments. The company noticed strength across all U.S. customer segments, with international demand significantly outpacing overall revenue growth. NCNO added that its Q4 results reflected a return to more normal buying patterns and behavior, including from its U.S. enterprise customers, which were disproportionately hurt by the regional banking crisis last year.
As such, investors are viewing NCNO's Q4 results, including a high single-digit earnings beat and 13.3% revenue growth yr/yr to $123.69 mln, through a more positive lens.
- International growth, representing 20% of NCNO's total revenue, was a notable highlight, delivering a 48% jump in revs yr/yr. Expansion overseas is one of NCNO's key growth pillars, making the development from Q4 incredibly encouraging for the company's long-term success.
- AI is also playing a factor. NCNO mentioned that it is observing strong traction across all three of its AI products. It added its largest Auto Spreading deal outside the U.S. during Q4, which followed the signing of its largest Portfolio Analytics deal in Q3. While management acknowledges that AI remains early in its lifecycle, it anticipates accelerating opportunities in FY25 and beyond.
- Management maintained an optimistic attitude throughout its conference call, noting that its customer base has been conveying a more upbeat tone lately. Part of why customer sentiment is shifting positively stems from stabilizing interest rates, providing customers with ample opportunity to advance their strategic investments despite elevated economic uncertainty. NCNO observed more customers ready to close on pending deals, giving it a robust pipeline entering FY25.
- Still, if there was a weak point from Q4, it was NCNO's guidance. The company projected adjusted EPS of $0.60-0.64 and revs of $538.5-544.5 mln for FY25. While NCNO's earnings forecast was better than expected, revenue was somewhat disappointing. An underlying factor was an estimated $31 mln subscription revenue headwind emanating from heightened churn during FY24, half of which was due to turmoil in the U.S. mortgage market. Nevertheless, NCNO anticipates churn will continue moderating toward historical norms as the mortgage market normalizes.
By operating in the financial services industry, NCNO has faced several setbacks over the past year, from a liquidity crisis in March 2023 to decades-high mortgage rates in October. However, the tide is shifting, and NCNO is well-positioned to pounce on improving demand trends coinciding with outsized AI-related opportunities.
Carnival trading modestly higher following earnings; seeing robust bookings volume (CCL)
Carnival (CCL +2.5%) is trading roughly modestly higher following its Q1 (Feb) earnings report this morning. The cruise line reported a narrower than expected loss. Revenue rose an impressive 22% yr/yr to $5.41 bln, which was in-line. CCL guided to a Q2 adjusted loss of $(0.03), which was in-line. The company did raise its FY24 EPS outlook, but that was roughly the same amount as the Q1 upside, so a bit of a non-issue.
- Adjusted EBITDA is a good metric to use given the huge depreciation generated by capital-intensive cruise ships. That came in at $871 mln in Q4, which was above prior guidance of $800 mln and more than double the year ago result of $382 mln. Adjusted EBITDA guidance for Q2 (May) is approx. $1.05 bln and for FY24 it is approx. $5.63 bln.
- Carnival says that FY24 has been off to a fantastic start. It outperformed guidance on every measure, while concluding a monumental wave season that achieved all-time high booking volumes at considerably higher prices. CCL says these Q1 results are a continuation of the strong demand it has been generating across its brands.
- In terms of bookings, CCL says it experienced an early start to a robust wave season with record booking volumes for all future sailings that exceeded expectations. The company achieved considerably higher prices (in constant currency) than last year as it entered 2024 with less inventory remaining for sale, in line with the company's strategy to pull the booking curve forward.
- Even with less inventory available for the remainder of the year, booking volumes hit an all-time high, driven by demand for 2025 sailings and beyond. Its booked position for the remainder of the year continues to be the best on record, with both pricing and occupancy considerably higher than 2023.
Overall, this was a solid quarter for Carnival. The company has now posted EPS upside in each of the past six quarters. And that followed five consecutive EPS misses, so we are seeing a noticeable change in pattern for CCL. Probably what stood out to us was CCL saying its booked position for the remainder of the year being the best on record despite higher prices.
Cintas jumps higher following huge EPS beat, record revs; trades above $700 for first time ever
Cintas (CTAS +9%) is trading nicely higher after reporting strong results for Q3 (Feb) this morning. This was Cintas's largest EPS beat in six quarters. After a much more narrow beat in Q1, Cintas has now posted back-to-back double-digit EPS beats with Q3 being particularly large. The revenue upside was more modest, but was larger upside than usual for Cintas. This report has sent shares of CTAS to new all-time highs and above $700 for the first time ever.
- In addition to the big EPS upside, another important highlight was Cintas again raising its FY24 EPS and revenue outlook by more than the current quarter upside, which implies upside EPS guidance for Q4 (May). That happened in Q1, Q2 and now again in Q3. That is a good sign of management's confidence in its outlook.
- We like to keep an eye on Cintas because it is a window into how businesses see their near term prospects. Cintas is best known as the largest supplier of work uniforms in the US, but it also gets more than half of its revenue from facility services (cleaning supplies, mops, first aid cabinets, PPE, fire extinguishers, alarms etc.)
- Its Uniform Rental and Facility Services is the much larger segment of the two. Segment revenue rose 9.4% yr/yr to $1.88 bln. Other revenue, of which its First Aid segment accounts for a big part, rose 11.8% yr/yr to $529.5 mln. Total revenue grew 9.9% to a record $2.41 bln. Cintas said its revenue growth remains robust, and it has good momentum in the business. New business remains strong.
- Cintas is seeing broad success across many verticals, particularly its focus verticals as well as its cross-selling efforts and penetration of new products. Its growth flowed through to the bottom line and helped margins.
- Speaking of margins, they were a bright spot in Q3 as gross margin improved to a record 49.4% from 48.0% in Q2 and from 47.2% a year ago. Cintas said that each of its operating segments continues to execute at a high level, which led to robust revenue growth, record high gross margin, record high operating margin of 21.6% and 22.3% EPS growth. Energy expenses comprised of gasoline, natural gas and electricity were 40 bps lower yr/yr. Cintas drives a lot of trucks to make uniform deliveries, so gas prices make a big difference.
Overall, we are impressed with the huge EPS beat and upside guidance. The company benefitted from strong volumes, which helped push margins higher and led to greater cost efficiencies. More broadly, we remain a fan of Cintas. Its business tends to be consistent and predictable with a strong recurring revenue component. Also, Cintas benefits from the trend toward businesses wanting to outsource functions so that its employees can focus on their core business.
GameStop's two-day rally stopped in its tracks following disappointing Q4 results (GME)
GameStop's (GME -14%) Q4 (Jan) results prompted a swift sell-off today, sending shares toward all-time late December lows. While the video game retailer continued improving its bottom line, its top-line performance deteriorated. With how vital the holiday quarter is to GME, its paltry sales are primarily fueling today's gap lower. It also does not help that management has not held a conference call in over a year and provides little to no additional commentary.
- Starting with the good, GME expanded its adjusted EPS by 38% yr/yr to $0.22 on gross margin expansion of roughly 90 bps to 23%. GME has been steadily lowering its SG&A expenses, which were down by over 20% compared to 4Q23, providing a modest bump to its bottom-line performance.
- Unfortunately, without decent revenue growth, GME can only pull on so many levers to improve earnings. Despite the healthy holiday shopping season seen from multiple retailers lately, such as competitors Best Buy (BBY) and Amazon (AMZN), GME recorded a 19% decline in revs yr/yr to $1.79 bln, its lightest holiday quarter in over five years and a sharp deceleration from the -9.1% posted in Q3 (Oct) and +2.4% in Q2 (Jul).
- Lackluster sales were also frustrating, given that consumer spending on video games, hardware, and accessories data was mostly robust throughout Q4, up +4% yr/yr in December and +15% in January.
- Even though GME sells video game software, most of its sales are derived from hardware (61% of the total), i.e., consoles, PCs, controllers, etc. If there were a silver lining to GME's declining sales growth, it was that its hardware category outperformed, posting a 12% decrease yr/yr compared to a 26% and 31% drop in collectibles and software, respectively.
What went wrong?
- Competition is GME's biggest challenge. In an increasingly digital world, GME does not boast much that separates it from e-commerce leaders, such as AMZN and eBay (EBAY), not to mention online stores hosted by gaming console makers Microsoft (MSFT), Sony (SONY), and Nintendo (NTDOY). Likewise, hardware OEMs, primarily PC and accessory manufacturers, are bolstering their DTC offerings, adding another headwind for GME.
- GME is also not doing much to attract in-person shopping. The company operates nearly 3,000 stores across the U.S., with an additional 1,000 in Canada, Europe, and Australia. With this sizeable footprint, GME could host events, offer promotions, or leverage its physical presence to give consumers a compelling reason to enter its stores.
- It also does not help that, given its focus on video games, GME is heavily exposed to trends and is subject to publishers' release cycles. For instance, when the all-time top-selling video game GTA V (TTWO) was released during 3Q14, GME's comparable store sales exploded by over +20%, vastly outpacing the +3.8% delivered for that year. Titles with similar hype and popularity leading up to release are dwindling, especially as digital channels continue taking over.
Bottom line, unless GME begins implementing more sweeping changes, subsequent quarterly performance may continue to disappoint.
Krispy Kreme, Inc. looking much sweeter after teaming up with McDonald's (MCD) today (DNUT)
A Krispy Kreme (DNUT +25%) and McDonald's (MCD) partnership is setting shares of the donut maker ablaze today, pushing the stock firmly in the green on the year after a steady downtrend dragged it down by around -17%. The partnership brings Krispy Kreme donuts into McDonald's U.S. restaurants later in the year as part of a phased nationwide rollout. All participating restaurants will host the donuts nationwide by the end of 2026.
Since DNUT's IPO in the summer of 2021, its shares have languished. Even when incorporating today's record gain, DNUT still trades below its $17.00 IPO price. Many of the hurdles DNUT has had to clear emerged from an inflationary environment as consumers started slashing nonessential luxuries, such as grabbing a coffee and donut. As a double-edged sword, inflation also kept pushing DNUT's labor and commodity costs higher, taking a bite out of its margins, which it tried to counter through pricing actions.
While DNUT's situation over the near term looked grim, its recent disinflationary trends, offered a glimmer of hope. At the same time, DNUT discussed expanding its existing MCD partnership last month. However, even though DNUT remarked that the discussions with MCD were productive, investors brushed this off, not making too much of it. As a result, today's announcement comes as a welcoming surprise.
- During DNUT's Q4 earnings call last month, COO Joshua Charlesworth noted that access is the number one reason someone may not buy the company's donuts. This is what makes today's partnership with MCD so enticing to investors. By moving into MCD locations, of which there are over 13,000, DNUT immediately expands its footprint by 36-fold from around 350 locations, solving the company's number one problem.
- A partnership with MCD in the U.S. may be the beginning if MCD finds selling Krispy Kreme donuts lucrative enough to keep it going. With thousands more locations outside the U.S., DNUT could expedite its overseas expansion plans. The company already expects to launch Krispy Kreme in three to five new countries this year, with priority markets identified in Europe and Brazil.
- While DNUT only commands a few hundred locations, its existing partnerships have expanded its reach considerably. Since its locations act as distribution hubs, delivering fresh donuts to nearby stores and restaurants, DNUT has been well-positioned to partner with grocery stores, convenience stores, restaurants, and many other outlets. As such, it is no stranger to partnerships, a likely welcoming attribute for MCD.
- Given the competitive fast food landscape, DNUT may be approached by others to keep up with a potential uptick in donut demand. Many fast food brands offer an assortment of desserts, and donuts from a familiar brand like Krispy Kreme could be a welcoming addition.
Teaming up with MCD was just what DNUT needed to kick off a potentially long-awaited turnaround. Inflationary pressures will remain a headwind. However, by moving into MCD's locations, DNUT solves its biggest dilemma surrounding a lack of access, which could provide a long-lasting tailwind.
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