| | | Market Snapshot
| Dow | 38747.42 | -120.62 | (-0.31%) | | Nasdaq | 17343.55 | +151.02 | (0.88%) | | SP 500 | 5375.32 | +14.53 | (0.27%) | | 10-yr Note | +5/32 | 4.400 |
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| | NYSE | Adv 1023 | Dec 1737 | Vol 863 mln | | Nasdaq | Adv 1974 | Dec 2276 | Vol 5.0 bln |
Industry Watch
| Strong: Information Technology, Communication Services |
| | Weak: Financials, Utilities, Consumer Discretionary, Industrials, Energy |
Moving the Market
-- Gains in some mega cap stocks providing offsetting support; AAPL up big as developer conference continues today
-- Consolidation efforts after record closing highs
-- Drop in market rates following today's $39 billion 10-yr note reopening, which met stellar demand
-- Hesitation in front of the May Consumer Price Index and the latest FOMC policy decision tomorrow
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Closing Summary
11-Jun-24 16:30 ET
Dow -120.62 at 38747.42, Nasdaq +151.02 at 17343.55, S&P +14.53 at 5375.32
[BRIEFING.COM] The S&P 500 (+0.3%) and Nasdaq Composite (+0.9%) climbed further into record territory today. A big jump in shares of Apple (AAPL 207.15, +14.03, +7.3%), which also hit a fresh record high today, provided a nice boost to index performance following yesterday's product/AI presentation at its Worldwide Developers Conference.
Other mega cap stocks also picked up steam in the afternoon trade, reacting to a drop in market rates. The Vanguard Mega Cap Growth ETF (MGK) settled 1.1% higher.
The 10-yr note yield fell seven basis points lower at 4.40% and the 2-yr note yield fell five basis points to 4.83% in response to a strong $39 billion 10-yr note sale. This price action is also ahead of the May Consumer Price Index, which is released at 8:30 ET tomorrow.
Wednesday's calendar also features the FOMC policy directive, which features an updated Summary of Economic Projections, at 2:00 p.m. ET followed by Fed Chair Powell's press conference at 2:30 p.m. ET. Hesitation in front of these market-moving events kept the broader market in check despite the outperformance in mega caps.
The Dow Jones Industrial Average fell 0.3% and the Russell 2000 closed 0.4% lower.
Only two S&P 500 sectors closed with gains -- information technology (+1.7%) and communication services (+0.5%) -- while the financial sector (-1.2%) saw the largest decline by a decent margin.
In other news, shares of Paramount Global (PARA 11.04, -0.94, -7.9%) settled sharply lower after news that National Amusements has failed to reach deal with Skydance.
- Nasdaq Composite: +15.5% YTD
- S&P 500:+12.7% YTD
- S&P Midcap 400: +4.8% YTD
- Dow Jones Industrial Average: +2.8% YTD
- Russell 2000: -0.1% YTD
Today's economic data was limited to the NFIB Small Business Optimism survey, which rose to 90.5 in May from 89.7 in April.
Looking ahead, market participants will receive the May Consumer Price Index at 8:30 ET. Other data include:
- 7:00 ET: Weekly MBA Mortgage Index (prior -5.2%)
- 10:30 ET: Weekly crude oil inventories (prior 1.23 mln)
14:00 ET: May Treasury Budget (prior $209.5 bln)
Treasuries settle with gains after auction results
11-Jun-24 15:30 ET
Dow -172.65 at 38695.39, Nasdaq +103.69 at 17296.22, S&P +3.79 at 5364.58
[BRIEFING.COM] The major indices are holding steady near intraday highs ahead of the close.
The 10-yr note yield settled seven basis points lower at 4.40% and the 2-yr note yield is down five basis points to 4.83% in response to a strong $39 billion 10-yr note sale.
Looking ahead, market participants will receive the May Consumer Price Index at 8:30 ET. Other data include:
- 7:00 ET: Weekly MBA Mortgage Index (prior -5.2%)
- 10:30 ET: Weekly crude oil inventories (prior 1.23 mln)
14:00 ET: May Treasury Budget (prior $209.5 bln)
ORCL slightly lower in front of earnings
11-Jun-24 15:05 ET
Dow -111.85 at 38756.19, Nasdaq +119.19 at 17311.72, S&P +9.61 at 5370.40
[BRIEFING.COM] Stocks continue to climb in the final hour of trading.
Shares of Oracle (ORCL 124.11, -0.39, -0.3%) are slightly lower in front its earnings report after the close.
Separately, mega cap stocks continue to lead the market higher. The Vanguard Mega Cap Growth ETF (MGK) is up 0.9%.
Stocks climb with AAPL leading S&P 500 components
11-Jun-24 14:35 ET
Dow -141.02 at 38727.02, Nasdaq +112.56 at 17305.09, S&P +6.87 at 5367.66
[BRIEFING.COM] The major indices trade at session highs. The S&P 500 is 0.2% higher.
Apple (AAPL 205.67, +12.54, +6.5%) is the top performing stock in the S&P 500 after reaching a record high.
NextEra Energy (NEE 72.21, -4.76, -6.2%) is the worst performing stock in the S&P 500 after reaffirming EPS guidance for FY24, FY25, and FY26.
Major indices hit fresh highs, Treasury yields slide
11-Jun-24 14:00 ET
Dow -209.16 at 38658.88, Nasdaq +72.85 at 17265.38, S&P -2.81 at 5357.98
[BRIEFING.COM] The S&P 500 (-0.04%) and Nasdaq Composite (+0.4%) hit fresh session highs over the last half hour.
Many stocks are participating in upside moves despite the overall negative vibe in today's trade. The Invesco S&P 500 Equal Weight ETF (RSP) is still down 0.5%, but trades at its best level of the day.
Elsewhere, Treasury yields continue to pullback after today's pleasing auction results. The 10-yr note yield is down seven basis points to 4.41%.
H & R Block's dividend, buybacks, and innovation set the stage for further upside potential (HRB)
H & R Block (HRB), a relatively new addition to our Yield Leaders rankings, has been buying back stock at an impressive clip while paying a consistent and steady dividend for decades. As such, the tax prep, financial products, and small business systems provider is worthy of a deeper dive, particularly given its additional upstanding attributes.
- HRB owns TurboTax, a DIY software to help individuals file their taxes. TurboTax was the primary driver behind solid paid volume growth last quarter. TurboTax's competitive edge lies in its ease of use and user interface, helping outpace the broader DIY category this past tax season, resulting in further market share capture.
- HRB's AI-powered Tax Assist function has also supported market share gains. Gen AI is ripe for helping individuals file taxes without a professional as it can better answer complex questions arising from a tax return's uniqueness than traditional chatbots, which typically extract answers from FAQ pages. HRB mentioned that feedback indicated that its AI tool was helpful in the tax prep process and that clients found value in it. More importantly, HRB noticed greater conversion among new clients leveraging AI Tax Assist.
- AI is also playing a role in materially assisting future revenue growth within HRB's Assisted segment (being helped by a human; stepping into an office). HRB commented last quarter that too many clients that started tax prep in physical offices did not finish. Management is addressing this issue, leaning on AI to improve call center operations and overall customer experience. CEO Jeffrey Jones noted that improving Assisted volumes is a major focus in FY25 (Jun).
- While U.S. tax prep still comprises nearly three-quarters of HRB's total annual revenue, the company has taken strides to diversify its income stream, helping fill some of the holes created by seasonal weaknesses that follow peak tax time. HRB offers a variety of products centered on finance, from Block Horizons to assist small businesses with taxes, payrolls, and bookkeeping, to Wave, which offers similar small business services, and Spruce, HRB's mobile banking offering.
HRB may not top the charts with its dividend yield. It also is not as exciting as the several AI-related stocks continuously carving out fresh all-time highs. However, HRB offers a historically stable dividend, a testament to its financial profile. At the same time, the company has been buying back stock aggressively, completing $350 mln in buybacks or 5.5% of its outstanding shares during the first half of the year. Lastly, HRB has been implementing AI, which tucks in nicely with its DIY tax prep services. This innovation could provide the competitive edge needed to continue fortifying its market position while helping lift its Assisted segment. As always, a 15-20% stop loss is recommended.
Calavo Growers sprouting higher as jump in avocado prices help fuel upside Q2 results (CVGW)
Calavo Growers (CVGW), a producer and distributor of avocados, tomatoes, and prepared foods, is sprouting sharply higher after reporting Q2 results that easily beat EPS and revenue expectations. On the surface, the near 25% drop in revenue to $184.4 mln doesn't look good, but the yr/yr decline is solely due to the sale of its fresh cut business, which has yet to be completed, but still meets the requirements to be classified as a discontinued operation.
- On an organic basis, CVGW generated healthy growth, especially in its Grown segment. Bolstered by a 28% yr/yr increase in the average selling price of avocados, net sales jumped by about 19% in the Grown segment to $166.8 mln. That increase came despite a 13% drop in volume as CVGW continues to prioritize margins in its sourcing and sales decisions. On that note, gross margin in the Grown segment expanded by 110 bps yr/yr to 11.0%.
- Meanwhile, the Prepared segment is achieving stronger results following the divestiture of the fresh cut business. Rewinding to the company's 3Q23 earnings report last September, which included results from the fresh cut business, net sales declined by 14% while gross profit decreased by $3.1 mln in the Prepared segment. The main driver for the gross profit decline was an $8.1 mln drop in the fresh cut division as softer volume and higher input costs pressured its results.
- In contrast, Prepared segment gross profit grew by $1.2 mln to $4.3 mln and gross margin expanded to 24% from 17%. The margin improvement was mainly driven by lower input costs and the divestiture.
- After announcing the sale of the fresh cut business with F&S Fresh Foods in mid-January, the deal has yet to be finalized. In the Q2 earnings report, CVGW disclosed that some of the terms of the deal, including price and structure, are still being negotiated. Back in January, CVGW stated that the total transaction value is estimated to be $100 mln, but it's unclear whether that figure will change. Whatever number the companies ultimately agree upon, CVGW intends to use those proceeds to reduce its debt and for shareholder return actions.
The main takeaway is that CVGW's strategy to focus on margins at the expense of volume, including through the divestiture of the fresh cut business, is paying dividends and should set the company up for solid earnings growth moving forward.
Yext heads lower as customers remain cautious; also Yext acquisition seems a bit risky (YEXT)
Yext (YEXT -4%) is trading lower after reporting Q1 (Apr) results last night and announcing an acquisition. Yext, which operates a platform that helps brands manage their digital presence, missed slightly on EPS. Revenue fell 3.5% yr/yr to $96.0 mln, which was in-line. The Q2 (Jul) guidance was disappointing with downside EPS even as revenue guidance was in-line. Full year EPS guidance was above expectations, but revenue guidance was light.
- Adjusted EBITDA fell 33% yr/yr to $9.6 mln, in-line with prior guidance of $9.5-10.0 mln. However, Yext guided to a sequential decline in Q2 at $8.0-8.5 mln, although that includes severance costs related to its restructuring. In a bit of a surprise, Yext raised its FY25 adjusted EBITDA guidance to $65-67 mln from $60-62 mln.
- Recall that last week Yext announced a 12% workforce reduction and there was a Reuters report that the company was exploring strategic options. As such, things are not great right now. Yext provided some good color. Basically, demand for its products remains strong. It also continues to see a desire from customers to consolidate their software partnerships. However, Yext also remains cautious on its ability to convert that demand into bookings given the difficult selling environment.
- In Q1, Yext saw continued headwinds in deal cycles, budget pressures and scrutiny. As a result, Yext slowed the pace of its sales hiring in Q1. It expects to grow its quota carrying capacity this year, but at a slower pace than originally expected. Furthermore, Yext said some deals got pushed out of Q1 and into either Q2 or, in some cases, the second half of the year. Enterprise IT buyers remain cautious in their spending.
- Turning to the acquisition, Yext announced it will acquire Hearsay Systems, a digital client engagement platform for financial services. Hearsay Systems has a sizable customer base among some of the world's leading financial firms. The deal will combine Yext's expertise in digital presence management with Hearsay's compliant engagement offerings across social media, websites, texting and voice messaging.
Overall, this was a weak quarter for Yext as the company's troubles continue. It continues to see headwinds in deal cycles, budget pressures and scrutiny. We suspect this Hearsay deal is adding to the weakness in the stock today. And we think it's not so much for it being a bad strategic fit, but more because of its hefty price tag at $125 mln plus an additional $95 mln if certain performance targets are met. Yext has a market cap of around $600 mln, so that is a huge purchase and makes it a bit risky.
Furthermore, the timing is not great. Yext just announced a restructuring and a 12% workforce reduction. So it's maybe not the best time to make such a large purchase. Finally, we think investors may be surmising that the deal may put the kibosh on Yext possibly exploring strategic options, as was reported last week. So that is a downer as well.
Academy Sports + Outdoors misses the target in Q1 as soft consumer spending weighs on sales (ASO)
Macroeconomic headwinds are taking a toll on Academy Sports + Outdoors' (ASO) customers, who continued to shy away from making bigger-ticket purchases in Q1, such as for fitness equipment and bikes. As a result, the company's sales growth dipped backed into negative territory, declining by 1.4% to $1.36 bln, slightly missing expectations, while EPS of $1.08 also fell short of estimates by a fairly wide margin.
- What's especially discouraging about ASO's earnings report is that the company was unable to build off the modest momentum it garnered in Q4 and instead took a step backwards. Last quarter, ASO generated positive sales growth of +2.8% -- its first yr/yr increase since 4Q22 -- and comps improved to -3.6% compared to the -7.6% comp ASO posted during the first three quarters of the year. In Q1, comps weakened to -5.7%.
- During the Q4 earnings call, CEO Steven Lawrence commented that the surge in sales and traffic that ASO experienced during the holiday shopping season was sustained in the post-Christmas time period. Based on the company's lackluster Q1 results, though, it's evident that the upswing in sales trends faded as the quarter progressed.
- ASO's downside results also stand in stark contrast to competitor Dick's Sporting Goods (DKS), which delivered an impressive beat-and-raise Q1 report on May 29 that featured same-store sales growth of +5.3%. The divergence in growth indicates that DKS is continuing to gain market share against ASO and other sports retailers due to its distinct competitive advantages: namely, its large-format stores, some of which offer experiences like batting cages and climbing walls, and its on-trend product assortment.
However, it's not all bad news for ASO.
- The company raised its FY25 EPS guidance to $6.05-$7.05 from its prior forecast of $5.90-$6.90, while reaffirming its sales and comp guidance of $6.07-$6.35 bln and -4% to +1%, respectively. ASO's improved EPS outlook is a function of the company's share repurchase activity in Q1. More specifically, in Q1, ASO repurchased $124 mln in stock.
Overall, it was a disappointing earnings report for ASO as sluggish consumer spending trends continue to weigh on its topline. Longer-term, the company remains bullish about its growth potential as it reiterated its plan to grow sales to $10+ bln with adjusted EBIT margins of 13.5%.
DXC Technology moving lower today following reported takeover talks from KD and APO (DXC)
DXC Technology (DXC -2%), an IT analytics and security services provider, took off yesterday right before the close following a Reuters report disclosing that Apollo (APO) and Kyndryl (KD) were in talks about a potential joint bid for DXC. The price APO and KD discussed in acquiring DXC is around $22.00-25.00 per share, translating to a roughly 40% premium to DXC's current stock price. The potential acquisition price would represent a forward P/E multiple of around 9.1x, a relatively palatable valuation, especially when stacked against KD's 15.1x forward earnings ratio.
Shares of KD, an IBM (IBM) spin-off specializing in infrastructure IT services, moved lower. KD recently reached record highs following upbeat Q4 (Mar) results and a decent FY25 (Mar) outlook last month, leading to some profit-taking on the news. KD shareholders also may find the potential acquisition a bad move, especially given DXC's ongoing struggles. Shares have tumbled by 30% over the past 52 weeks, selling off in August on reduced FY24 (Mar) guidance and again last month following bearish FY25 financial forecasts. DXC's yr/yr revenue growth has been negative for over 20 straight quarters, partly weighing on a similarly consistent decline in quarterly earnings.
- What has been going so wrong for DXC over the years? The company's business is split between Global Business Services (GBS) and Global Infrastructure Services (GIS). The latter segment has been the weak link for DXC for several years, as organic revenue has stayed in negative growth territory and margins continued contracting.
- GIS's woes have partly led to a CEO shakeup, with Raul Fernandez appointed DXC's new leader on February 1, 2024. One of Mr. Fernandez's first actions was initiating a restructuring program in GIS.
- Meanwhile, DXC's insurance software business has started growing stale. As the world's largest insurance software provider, boasting 21 of the top 25 global insurance carriers, DXC is no slouch in this vertical. However, while insurance revs did grow mildly yr/yr in Q4, its boot-to-bill ratio was just 0.8x, a striking drop from 1.6x in the previous quarter, underpinning possible structural demand issues. Management attributed the volatility to the timing surrounding large renewals. Nevertheless, this blemish may have KD shareholders concerned.
With shares of DXC trading well below the reportedly discussed price between APO and KD, investors are skeptical that DXC is ready to sell. Given that DXC is under new leadership, perhaps the new CEO wants time to see if restructuring can turn GIS around. The company has also reportedly solicited bids to offload its insurance software business, highlighting a possible desire to remain an independent but leaner organization. It is worth noting that around the fall of 2022, rumors swirled that a private equity firm, Baring Private Equity Asia, was interested in taking over DXC, only for the talks to ultimately break down.
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