Market Snapshot
| Dow | 39872.99 | +66.22 | (0.17%) | | Nasdaq | 16832.63 | +37.75 | (0.22%) | | SP 500 | 5321.41 | +13.28 | (0.25%) | | 10-yr Note | +3/32 | 4.41 |
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| | NYSE | Adv 1315 | Dec 1423 | Vol 834 mln | | Nasdaq | Adv 1789 | Dec 2450 | Vol 6.3 bln |
Industry Watch
| Strong: Utilities, Financials, Consumer Staples, Consumer Discretionary, Information Technology |
| | Weak: Industrials, Energy, Real Estate |
Moving the Market
-- Mixed responses to earnings news from the likes of Lowe's (LOW), Macy's (M), AutoZone (AZO), Palo Alto Networks (PANW), and Zoom Video (ZM)
-- Lacking strong directional catalysts in front of NVDA earnings on Wednesday afternoon
-- Increased buying in mega cap stocks in afternoon trade propels market to session highs
-- Pullback in market rates has not translated into support for stocks
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Closing Summary
21-May-24 16:30 ET
Dow +66.22 at 39872.99, Nasdaq +37.75 at 16832.63, S&P +13.28 at 5321.41
[BRIEFING.COM] Today's trade featured lackluster price action through most of the session. The major indices were trading either slightly above or slightly below prior closing levels. Index levels improved, though, over the last hour of trading, which left the major indices at session highs.
Gains in some mega cap names acted as support for the entire session, picking up momentum in front of the close. The Vanguard Mega Cap Growth ETF (MGK) was down as much as 0.3% earlier, but closed with a 0.4% gain near its high of the day.
NVIDIA (NVDA 953.86, +6.06, +0.6%) was a winner from the mega cap space after exhibiting volatile price action in front of its earnings report after Wednesday's close. NVDA shares had been up as much as 0.7% today and traded down as much as 1.7%, which contributed to the overall mixed feeling in the market.
Some high-profile stocks that reported earnings since yesterday's close received negative responses their results. Palo Alto Networks (PANW 311.66, -12.11, -3.7%) was among the standouts in that respect.
Retailers Lowe's (LOW 224.86, -4.31, -1.9%) and AutoZone (AZO 2820.83, -103.21, -3.5%) also received negative responses to their earnings news, acting as a limiting factor for the S&P 500 consumer discretionary sector along with a loss in Amazon.com (AMZN 183.15, -0.39, -0.2%). The sector still logged a gain thanks to a jump in shares of Tesla (TSLA 186.60, +11.65, +6.7%).
Macy's (M 20.08, +0.98, +5.1%) is not an S&P 500 component, but it is another retailer that reported earnings, logging a solid gain in response.
Target (TGT 155.78, -0.93, -0.6%), TJX (TJX 97.70, -0.09, -0.1%), Petco Health and Wellness (WOOF 2.45, -0.13, -5.0%), and Williams-Sonoma (WSM 314.38, -2.20, -0.7%) report earnings in front of tomorrow's open.
Treasury yields settled slightly lower, but that didn't translated into support for stocks. The 2-yr note yield settled one basis point 4.83% and the 10-yr note yield fell two basis points today to 4.41%.
There was no US economic data of note again today, but Wednesday's calendar features the release of the Minutes from the April 30-May 1 FOMC meeting and the Existing Home Sales report for April. Wednesday's lineup also features the weekly MBA Mortgage Index and the weekly EIA Crude Oil Inventories.
- Nasdaq Composite: +12.1% YTD
- S&P 500:+11.6% YTD
- S&P Midcap 400: +8.4% YTD
- Dow Jones Industrial Average: +5.8% YTD
- Russell 2000: +3.5% YTD
Treasuries settle little changed
21-May-24 15:30 ET
Dow +60.74 at 39867.51, Nasdaq +24.13 at 16819.01, S&P +11.30 at 5319.43
[BRIEFING.COM] The major indices hit fresh session highs in front of the close.
The 2-yr note yield settled one basis point 4.83% and the 10-yr note yield fell two basis points today to 4.41%.
Looking ahead, Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.5%)
- 10:00 ET: April Existing Home Sales (Briefing.com consensus 4.20 mln; prior 4.19 mln)
- 10:30 ET: Weekly crude oil inventories (prior -2.51 mln)
- 14:00 ET: May FOMC Minutes
Stocks move mostly sideways; Retailers trade down in front of earnings
21-May-24 15:05 ET
Dow +14.30 at 39821.07, Nasdaq +9.73 at 16804.61, S&P +4.10 at 5312.23
[BRIEFING.COM] The market moved mostly sideways in recent action.
Retailers Urban Outfitters (URBN 41.29, -0.17, -0.4%), Target (TGT 155.41, -1.35, -0.9%), TJX (TJX 97.83, +0.04, +0.04%), Petco Health and Wellness (WOOF 2.38, -0.20, -7.4%), and Williams-Sonoma (WSM 314.96, -1.62, -0.6%) report earnings this afternoon or tomorrow morning.
Other names reporting earnings this afternoon include Toll Brothers (TOL), XP (XP), and Viasat (VSAT). Pinduoduo (PDD), Vipshop (VIPS), and Analog Devices (ADI) are among the names reporting earnings in front of Wednesday's open.
S&P 500 ekes into first place on Tuesday afternoon
21-May-24 14:30 ET
Dow +35.06 at 39841.83, Nasdaq +5.71 at 16800.59, S&P +5.44 at 5313.57
[BRIEFING.COM] The S&P 500 (+0.10%) is narrowly in first place, up about 5 points on Tuesday afternoon.
Elsewhere, S&P 500 constituents First Solar (FSLR 208.48, +12.14, +6.18%), Dollar General (DG 143.26, +5.43, +3.94%), and Eli Lilly (LLY 803.62, +20.44, +2.61%) pepper the top of the average. FSLR is helped along by a couple of analyst tgt raises, while DG caught positive comments from Citigroup, and LLY benefits from positive data for mirikizumab, its Crohn's disease treatment.
Meanwhile, Walgreens Boots Alliance (WBA 16.66, -1.16, -6.51%) is near the bottom of the standings, sliding to levels last seen in the spring of 1998.
Gold slips on Tuesday
21-May-24 14:00 ET
Dow +40.49 at 39847.26, Nasdaq +13.87 at 16808.75, S&P +7.61 at 5315.74
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.08%) is near HoDs, but ultimately only good enough for third place among the major averages.
Gold futures settled $12.60 lower (-0.5%) to $2,425.90/oz, slipping a bit off the recent rally even as treasury yields show modest weakness.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.66.
Zoom Video turns modestly lower following a minor bump on a decent beat-and-raise in AprQ (ZM)
With shares remaining range-bound for nearly two years, hovering around $60-80, it will likely take several quarters of uplifting results before Zoom Video (ZM -1%) embarks on a more meaningful comeback since selling off aggressively in late 2021. However, following the video conferencing service provider's Q1 (Apr) numbers, delivering decent top and bottom-line upside while increasing its FY25 (Jan) guidance, ZM may be finally turning a corner.
- Revenue growth remained in low-single-digit territory in Q1, inching 3.2% higher yr/yr to $1.14 bln, ZM's fifth straight period of low-single-digit revenue growth and eighth consecutive quarter without delivering double-digit growth. However, the top-line stability ZM has experienced lately underscores an encouraging trend, especially given how it has consistently expanded its customer base.
- During Q1, ZM grew its larger customer base -- contributing more than $100K in TTM revenue -- by around 8.5% yr/yr, relatively consistent with the +9.8% jump last quarter. Meanwhile, ZM's total Enterprise customers remained steady compared to last quarter, staying around 218,000 when adjusting for the number of Enterprise users ZM transitioned to its Online product given their relatively low annualized recurring revenue (ARR).
- Enterprise revenue outpaced total revenue growth again in Q1, a promising sign for ZM's longer-term revenue growth as enterprises tend to have less fluidity switching from certain tech products. ZM may also have an easier time upselling to enterprises, given their more expansive budgets compared to small and medium-sized businesses (SMBs). ZM also delivered its lowest Online average monthly churn ever at 3.0% when backing out a slight uptick related to tightening grace periods for unmade payments, which pulled some churn forward.
- Profitability remains vital to attracting investor interest. In Q1, ZM continued progressing, expanding its bottom line by 16% yr/yr to $1.35 per share. While non-GAAP gross margins compressed by 120 bps yr/yr to 79.3%, this was primarily attributable to AI investments. Further investments to upgrade its data center will cause margins to dip again next quarter before expanding again. As such, ZM left its FY25 margin outlook of approximately 79% unchanged.
- ZM did increase its FY25 guidance, projecting adjusted EPS of $4.99-5.02, up from $4.85-4.88, and revs of $4.61-4.62 bln, up from $4.60 bln. However, the enthusiasm surrounding raised guidance was tempered by the fact that ZM increased both figures by the size of its upside in Q1.
Bottom line, ZM's Q1 report presented more of the same from the past few quarters. While this is not an alarming trend, it will do little to push shares meaningfully higher. Nevertheless, ZM is making the right moves to reignite growth over a longer timeframe, including investing in its Zoom Contact Center, Phone, and AI Companion offerings, all of which have enjoyed robust growth lately. Meanwhile, as it inks deals with larger organizations, it is steadily carving out an economic moat as switching to another video conferencing competitor can be costly and time-consuming.
Lowe's sales pressured by familiar set of headwinds, but delivers another earnings beat (LOW)
Echoing Home Depot's (HD) sentiments from last week when it reported Q1 results, Lowe's (LOW) described the home improvement environment as challenging with consumers remaining hesitant to make big-ticket purchases amid a high interest rate environment. However, LOW still comfortably exceeded Q1 EPS and revenue expectations and reaffirmed its FY24 outlook, bolstered by its Total Home Strategy and its Perpetual Productivity Improvement (PPI) initiatives.
- LOW's Total Home Strategy revolves around the company's mission to provide a full range of products and services to DIY and Pro customers. In particular, the company has focused on expanding its offerings in the Pro business, which was once again relatively stronger than DIY with Q1 comps in positive territory. Overall, Q1 comps were down 4.1%, but that was also better than feared.
- While the Pro business is a centerpiece of the growth strategy for both LOW and HD, the companies are taking different paths to build out their Pro businesses. For instance, on March 28, HD acquired SRS Distribution for $18.25 bln, turning HD into a go-to destination for contractors who work on more complex jobs. Meanwhile, LOW is focused on taking share in the small-to-medium sized Pro market, including with repair and remodel contractors, property managers, and trades people.
- LOW estimates that this segment represents approximately half of the $500 bln total Pro market.
- Improving the company's efficiency and operating profits is another key facet of LOW's multi-year strategy. On that note, in 2021, LOW launched its Perpetual Productivity Improvement (PPI) initiative, which utilizes new processes and technology to drive enhanced productivity.
- Some examples include investing in modernized check-out lanes, providing in-store employees with new technology like touchscreen point-of-sale handheld devices, and updated inventory management systems.
- These initiatives, along with share buybacks and solid cost containment are the key ingredients that enabled LOW to beat EPS expectations for the fourteenth consecutive quarter. In Q1, LOW repurchased 3.0 mln shares, while SG&A expense as a percentage of revenue increased by only 170 bps yr/yr to 18.8%.
Overall, LOW continues to execute well in a difficult business climate and the national rollout of its new DIY loyalty program in Q1 should provide a lift in the coming quarters. Until interest rates ease and the housing market strengthens, though, both LOW and HD will struggle to meaningfully reignite their growth.
Palo Alto Networks heads lower following small earnings beat; call was pretty positive (PANW)
Palo Alto Networks (PANW -3%) is heading lower after reporting Q3 (Apr) results last night. The cybersecurity giant reported a nice EPS beat but the upside was notably smaller than usual. PANW has consistently reported double digit EPS upside quarters, but this was just a $0.07 beat. Revenue rose 15.3% yr/yr to $1.98 bln, which was in-line with analyst expectations. PANW has been more hit-or-miss with guidance with guide downs in two of the past three quarters. So its in-line guidance was decent.
- By geography, the Americas grew 15% in Q3, EMEA was up 20% and JPAC was up 8%. Its lower JPAC revenue growth was driven by lower product bookings in the region, offset by higher subscription bookings, which benefit revenue over time. Margins were a bright spot as non-GAAP operating margin grew 200 bps to 25.6%. Also, PANW narrowed its FY24 billings guidance to $10.13-10.18 bln from $10.10-10.20 bln after lowering guidance last quarter.
- In terms of market dynamics, PANW says cyberattacks continue unabated with a consistent stream of nation-state activity. With AI, PANW expects the attacks to come at an even faster pace. As a result, PANW sees no changes in pace or trajectory in terms of spending for cybersecurity. Most customers have a series of projects they want to get done, and the only limiting factor seems to be the execution capability.
- PANW firmly believes that the answer to keep up with security threats is platformization of cybersecurity over time. PANW has been focusing on this and, despite investor concerns around its platformization approach after last quarter, PANW says the customer feedback has been nothing but encouraging. In short, demand is robust, and PANW expects that will continue over the next many quarters.
- A topic getting attention on the call was billings. The stock sold off last quarter when PANW lowered FY24 bookings guidance. Billings in Q3 were within its guidance range, although PANW is focusing less on this metric. The company notes that RPO is mainly comprised of contracts that carry ratable revenue. Billings, on the other hand, is significantly influenced by the invoicing terms on contract signings, which adds significant volatility. PANW does not see billings as a true indicator of business trends.
- PANW also touched on its recently announced partnership with IBM. It involves migrating the QRadar customers of IBM to XSIAM, where IBM will be able to deliver industry-specific capabilities on XSIAM using Watson X. Also, enabling over 1,000 IBM security consultants on the entire Palo Alto Networks portfolio will allow PANW to drive platformization in an accelerated fashion. PANW will be IBM's preferred cybersecurity partner across network, Cloud and SOC.
Overall, investors appear to be disappointed with the small EPS upside and perhaps wanted to see better billings guidance for Q4 (Jul). Our sense is that management also calmed fears a bit on the call as the stock moved off its lows. Last call, PANW was talking about spending fatigue by some customers. However, management was more positive on this call. It also calmed nerves about its platformization strategy as it seems to be catching on well. It was a decent report overall.
AutoZone drives through Q3 EPS estimates but hits a wall with a rare sales miss (AZO)
AutoZone (AZO -3%) drove right through Q3 (May) earnings estimates, a frequent occurrence for the aftermarket auto parts retailer. However, by delivering revenue growth short of the consensus, a rarity for AZO, its shares are under modest selling pressure today.
- AZO seldom misses bottom-line estimates, registering decent-sized upside for over five years. However, AZO's beat in Q3 was its slimmest since its pandemic quarter. Similarly, AZO missed revenue estimates just once over that same timeframe, making its sales shortfall in Q3, recording growth of 3.6% yr/yr to $4.24 bln, somewhat surprising.
- Underpinning the lighter-than-anticipated revenue growth was a deceleration in domestic same-store sales growth from +0.3% in Q2 (Feb) to flat in Q3. With AZO exiting the previous quarter with upward momentum, as its domestic business enjoyed a +4.4% comp during the last four weeks of Q2, its flat comps in Q3 are deflating.
- Driving the domestic weakness were tax refund delays and cooler-than-usual weather across many parts of the country. These trends resembled what rival O'Reilly Automotive (ORLY) discussed last month, noting that while the tax refund delays moderated toward the beginning of March, unseasonably cool weather posed another headwind. ORLY stated that as of its Q1 (Mar) earnings call on April 25, the unfavorable weather-related trends had stuck around, keeping it from enjoying a usual uptick in demand to start the spring season.
- However, given ORLY's warnings, the market likely expected similar developments to negatively affect AZO in Q3, particularly on the DIY side, as gloomy weather prevents customers from working on their cars in the driveway or garage.
- On a more positive note, AZO's international business, which saw explosive +18.1% comp growth in Q3, helped pull total company comps firmly in positive territory at +1.9%, a decent acceleration from the +1.5% posted last quarter. AZO has not let off the gas surrounding its expansion in Mexico and Brazil, opening 13 new stores across both regions in Q3 to bring its total to 763 in Mexico and 109 in Brazil.
- ORLY is also penetrating the Mexican market, commanding around 60 stores south of the border. ORLY mentioned how fragmented the market is in Mexico and how lucrative the opportunities are, citing the average age of vehicles in the region at over 16 years compared to around 12 in the U.S. However, given AZO's considerable lead over ORLY, it commands a much firmer position to capitalize on the opportunities presented in Mexico.
- Looking ahead, AZO does not tend to issue formal guidance. Instead, management provided some commentary, expressing excitement over the start of the summer selling season and healthy inventory availability.
Facing similar headwinds as ORLY, AZO's Q3 results were uninspiring, sparking modest selling activity today. Still, with much of the challenges encountered during the quarter attributed to tax refunds and weather, instead of structural demand weakness, AZO remains poised to break free from consolidation.
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