| | | Market Snapshot
| Dow | 39344.79 | -31.08 | (-0.08%) | | Nasdaq | 18403.74 | +50.98 | (0.28%) | | SP 500 | 5572.85 | +5.66 | (0.10%) | | 10-yr Note | 0/32 | 4.27 |
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| | NYSE | Adv 1465 | Dec 1295 | Vol 848 mln | | Nasdaq | Adv 2368 | Dec 1880 | Vol 5.3 bln |
Industry Watch
| Strong: Information Technology, Materials, Real Estate, Industrials |
| | Weak: Communication Services, Energy, Consumer Staples, Financials, Health Care |
Moving the Market
-- Positive bias under index surface driven by carryover momentum following last week's record highs
-- Mixed action in mega caps limiting moves for the major indices
-- Calm activity in Treasuries acting as support for equities
-- Wait-and-see in front of influential events this week
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Closing Summary
08-Jul-24 16:30 ET
Dow -31.08 at 39344.79, Nasdaq +50.98 at 18403.74, S&P +5.66 at 5572.85
[BRIEFING.COM] The S&P 500 (+0.1%) and Nasdaq Composite (+0.3%) closed at fresh record highs after a somewhat mixed session. The Russell 2000 (+0.6%) also closed with a gain while the Dow Jones Industrial Average declined 0.1%.
Mixed price action in the mega cap space contributed to the lackluster showing in the S&P 500 and Nasdaq Composite, but the underlying vibe was positive through the entire session. Advancers led decliners by an 11-to-10 margin at the NYSE and by a 4-to-3 margin at the Nasdaq.
Meta Platforms (META 529.32, -10.59, 2.0%) logged a solid decline, weighing on the communication services sector (-1.0%). Alphabet (GOOG 190.48, -1.48, -0.8%), Microsoft (MSFT 466.24, -1.32, -0.3%), Amazon.com (AMZN 199.29, -0.71, -0.4%) also registered losses.
Meanwhile, semiconductor stocks outperformed the broader market, providing a measure of support. The PHLX Semiconductor Index (SOX) showed a 1.9% gain at the close. NVIDIA (NVDA 128.20, +2.37, +1.9%) and Broadcom (AVGO 1745.86, +42.55, +2.5%) were winning standouts from the space.
This price action contributed to the gain in the information technology sector (+0.7%).
The muted action today was also related to some hesitation in front of market-moving events this week. Specifically, the June Consumer Price Index and Producer Price Index are released on Wednesday and Thursday, respectively, and earnings season starts this week when large cap banks like JPMorgan Chase (JPM 205.17, +0.38, +0.2%), Wells Fargo (WFC 59.01, -0.61, -1.0%), and Citigroup (C 64.74, +0.71, +1.1%) report.
The 10-yr note yield settled unchanged at 4.27% and the 2-yr note yield rose two basis points to 4.62%.
- Nasdaq Composite: +22.6% YTD
- S&P 500: +16.8% YTD
- Dow Jones Industrial Average: +4.4% YTD
- S&P Midcap 400: +4.5% YTD
- Russell 2000: +0.6% YTD
Reviewing today's economic data:
- Consumer credit increased by $11.3 bln in May (Briefing.com consensus $9.5 bln) after increasing an upwardly revised $6.5 bln (from $6.4 bln) in April.
- The key takeaway from the report is that revolving credit growth accelerated strongly after a slight contraction in May, so the question is whether consumers are turning to revolving credit because of need or increased optimism about economic prospects.
Tuesday's economic lineup is limited to the June NFIB Small Business Optimism survey at 6:00 ET.
Key takeaway from economic data
08-Jul-24 15:35 ET
Dow -36.29 at 39339.58, Nasdaq +16.85 at 18369.61, S&P -0.74 at 5566.45
[BRIEFING.COM] The major indices moved mostly sideways in recent action.
Consumer credit increased by $11.3 bln in May (Briefing.com consensus $9.5 bln) after increasing an upwardly revised $6.5 bln (from $6.4 bln) in April. Revolving credit increased by $7.0 bln to $1.345 trln. while Nonrevolving credit increased by $4.4 bln to $3.720 trln.
The key takeaway from the report is that revolving credit growth accelerated strongly (+6.3% after a slight contraction in May, so the question is whether consumers are turning to revolving credit because of need or increased optimism about economic prospects.
Tuesday's economic lineup is limited to the June NFIB Small Business Optimism survey at 6:00 ET.
Consumer credit rises in May
08-Jul-24 15:05 ET
Dow -37.61 at 39338.26, Nasdaq +32.04 at 18384.80, S&P +1.30 at 5568.49
[BRIEFING.COM] The major indices remain near session lows. The S&P 500 is fractionally higher and the Dow Jones Industrial Average shows a 0.1% decline.
Consumer credit increased to $11.3 billion in May (Briefing.com consensus $9.5 billion) from $6.4 billion in April.
Treasury yields are little changed after the data. The 10-yr note yield is at 4.27% and the 2-yr note yield is at 4.62%.
Super Micro Computer, Best Buy among top S&P 500 performers on Monday
08-Jul-24 14:30 ET
Dow -42.41 at 39333.46, Nasdaq +46.72 at 18399.48, S&P +4.74 at 5571.93
[BRIEFING.COM] The S&P 500 (+0.09%) is in second place on Monday afternoon, up about 5 points.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 916.34, +69.76, +8.24%), Norwegian Cruise Line (NCLH 18.30, +0.82, +4.69%), and Best Buy (BBY 85.93, +3.48, +4.22%) pepper the top of the standings.
Meanwhile, Chipotle Mexican Grill (CMG 59.39, -3.36, -5.35%) is lagging despite a dearth of corporate news.
Gold retreats to open up the week
08-Jul-24 14:00 ET
Dow -36.07 at 39339.80, Nasdaq +46.71 at 18399.47, S&P +5.11 at 5572.30
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.25%) remains atop the major averages, up now about 47 points.
Gold futures settled $34.20 lower (-1.4%) to $2,363.50/oz, stepping back from a strong Friday session which came in reaction to weaker-than expected jobs data.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.93.
Vista Outdoor hugs its flatline as it leans toward selling part of its business (VSTO)
The doors continue to open for Vista Outdoor (VSTO) as it has two potential routes to take surrounding M&A. Today, Czechoslovak Group, or CSG, increased its purchase price for VSTO's Kinetic Group business to $2.1 bln from $2.0 bln. The deal would leave VSTO as a leaner publicly-traded firm, paying shareholders $21.00 per share, a $3.00 bump from CSG's previous offer.
Meanwhile, last week, MNC Capital expressed final efforts to purchase VSTO outright in an all-cash transaction valued at $42.00 per share, a roughly 14% premium over Friday's closing price. MNC's increased offer was first announced on June 26 and represented an approximately 25% premium to VSTO's price at the time. It also represented an increase from MNC's earlier offer of $39.50 per share.
With two decent offers on the table, the question now is what route VSTO will choose.
- The Kinetic Group comprises just over half of VSTO's annual sales and consists primarily of ammunition brands. Unfortunately for VSTO, its largest segment has been its worst performer over the past several quarters, registering a 17.4% decline in sales yr/yr in FY24 (Mar).
- Still, VSTO's other segments have not been pulling their weight either. The company's Outdoor and Adventure segments, which comprise most of the remaining annual revs, slipped by 2.3% and 2.8% yr/yr, respectively, last year. As such, investors likely favor MNC's offer of a complete buyout as VSTO's other brands may not have much success on their own.
- With MNC staying firm on its $42.00/share offer, shares are likely to be capped at that number over the immediate term. The offer is also an all-cash deal, keeping financing conditions off the table and paving the way for a smoother transaction. Furthermore, since MNC would be buying all of VSTO's assets and taking them private, there are likely fewer regulatory barriers to overcome relative to the CSG deal.
- However, VSTO has constantly rejected MNC's offers. Instead, the Board is leaning toward the merger with CSG, noting that MNC's final offer significantly undervalues VSTO and the CSG agreement delivers $7-16 more per share to investors than MNC's purchase price.
With uncertainty surrounding VSTO, it is better to employ a wait-and-see approach. VSTO is leaning toward a merger, which may not appeal to shareholders as much as MNC's offer, possibly resulting in profit taking.
Greenbrier heads lower following earnings miss timing of railcar deliveries weighs on revs (GBX)
Greenbrier (GBX -14%) is heading lower following its Q3 (May) earnings report this morning. This supplier of freight railcars and marine barges reported an EPS miss following two double-digit EPS beats in Q1-Q2. Also, revenue fell 21% yr/yr to $820.2 mln, which was well below analyst expectations. GBX also shaved the high end of its FY24 revenue guidance to $3.5-3.6 bln from $3.5-3.7 bln.
- The company announced diverse new railcar orders for 6,300 units valued at $830 mln and delivered 5,400 units, resulting in new railcar backlog of 29,400 units with an estimated value of $3.7 bln. Nevertheless, GBX slightly lowered the high end of its FY24 railcar delivery guidance to 23,500-24,000 units from 23,500-25,000 units.
- In terms of revenue, it declined 21% yr/yr and 5% sequentially. GBX said that the sequential decline was primarily related to the timing of new railcar deliveries. Manufacturing segment revenue fell 6.8% sequentially to $685.1 mln. Despite the revenue decline, GBX was able to posted sequential adjusted EBITDA growth of 9.5% to $104 mln, which was good to see.
- GBX also operates a railcar leasing segment that owns and manages a portfolio of leased railcars that originate primarily from Greenbrier's manufacturing operations. In Q3, GBX grew its lease fleet by 600 units to 15,200 units with lease fleet utilization of nearly 99%. GBX's Q3 earnings call has not started yet, but on its Q2 call, management said that the supply of available railcars was near trough levels, which has led to robust lease rate growth, renewals and term length. GBX's Q3 result from its leasing segment sems to support that view.
- Gross margin in Q3 improved to 15.1% from 14.2% a year ago with improved performance in Manufacturing and Maintenance Services along with increased syndication activity. The company noted that gross margin was in the mid-teens for a third consecutive quarter. GBX cited its focus on efficiencies gained over the last several quarters. Looking ahead, GBX says its outlook is optimistic as it expects revenue to grow based on the pace of its delivery schedule.
Overall, this was a disappointing quarter following the EPS and revenue miss. In particular, revenue came in well below analyst expectations. In fairness, GBX said that was more related to the timing of new railcar deliveries. If it is just timing and not a decline in demand, that would be good news. However, investors do seem a bit worried.
On the positive side, its leasing business seems to be performing well. However, revenue from this segment is only a fraction of what is generated by its manufacturing segment, so that dominates the overall results. Longer term, nearshoring trends should support long-term growth in traffic, particularly across the southern border.
Corning shatters expectations with upbeat Q2 guidance today, sending shares to 52-week highs (GLW)
Corning (GLW +9%) shatters market expectations with its uplifting Q2 guidance today, projecting EPS at the high end of its prior outlook and raising its revenue forecast by $200 mln. Consistent with remarks from last quarter, Q1 appears to have firmly marked the bottom for the specialty glass and ceramics manufacturer known for its Gorilla Glass, as Q2 estimates underpin healthy sequential and yr/yr improvements. In fact, by raising its Q2 revenue forecast to $3.6 bln from $3.4 bln, GLW anticipates delivering its first quarter of yr/yr growth since 3Q22, a refreshing development following numerous headwinds, the bulk of which emanated from a soft overall demand environment.
GLW does not just supply glass for displays used in smartphones and TVs. While this comprised 45% of FY23 sales, a considerable portion of GLW's revenue stems from its Optical Communications segment (30% of FY23 revenue), which includes low-loss optical fiber used across telecommunications networks. Since 2022, both segments have been dealing with constrained end demand, as consumers opt to upgrade their smartphones and TVs less often while telecommunications companies work through excess inventory built up during the pandemic. Too much inventory also hindered growth across GLW's Environmental Technologies and Life Sciences businesses.
However, last quarter marked a turning point for GLW, with the company's upbeat Q2 outlook providing further affirmation that the demand landscape may have finally shifted.
- The rise of Gen AI has generated meaningful demand for GLW's Optical business, boasting significant wins for AI data centers, which management anticipated in late April would translate into order and sales growth throughout FY24. Given the computational demands of AI, customers are turning to fiber-rich connectivity for GPUs, expanding GLW's market opportunity beyond telecoms.
- After a lackluster past few years, TV panel makers are beginning to increase their utilization levels in response to growth in retail demand. With GLW choosing to reduce its production to better align with lower volumes last quarter, resulting in a hit to profitability, the company anticipates this move to generate much higher profitability in Q2, supported by the uptick in demand. PCs have also been gaining momentum, especially as the excitement over AI PCs mounts, providing another 2H24 tailwind.
- GLW projects a similar development unfolding across the smartphone industry, lifting its Specialty Materials segment. As the supplier to Apple's (AAPL) latest iPhones, GLW stands to benefit immensely from a surge in demand for the newest AI iDevice. AAPL has already enjoyed a spike in China-related sales, a possible sign of what could materialize domestically this year.
As GLW's Q2 guidance signals, the worst of the macroeconomic headwinds may be finally behind the company as it turns a corner and looks to pounce on a jump in AI demand and a broader recovery in retail spending. Challenges still exist as there have been no clear signs that the end consumer will be flocking to stores to upgrade their TVs, purchase new AI PCs, or grab the latest iPhone. However, investors are more than willing to buy in now, expecting that, at the very least, economic conditions will not worsen.
Instructure jumps on reports of takeover interest; boasts solid fundamentals (INST)
Instructure (INST +5%) leaps to five-month highs today on a Bloomberg report that KKR (KKR) and Francisco Partners were interested in acquiring the educational software company, taking it private again after a short stint as a publicly traded firm. After being acquired by private equity group Thoma Bravo in late 2019, INST was taken public in 2021, opening at $20/share. Thoma Bravo still controls around 80% of INST shares.
INST's core platform, Canvas, is used across all levels of education, including universities, in numerous markets globally. When taking it public, Thoma Bravo was looking to capitalize on a hot IPO market and the explosion in online learning sparked by the pandemic. However, the pandemic-induced tailwinds never really accelerated. Meanwhile, competition in the educational software market only intensified as companies looked to pounce on the e-learning spike. As a result, Thoma Bravo was shopping INST around as early as May.
With the stock not panning out precisely as Thoma Bravo may have anticipated, the possibility of a deal being reached to take INST private is becoming all the more likely.
- While shares have underperformed major indices since first becoming available to trade, INST's quarterly numbers have been respectable, registering double-digit sales growth in all but one quarter while delivering consistent profitability. In March, INST outlined its medium-term growth targets, projecting a +5-10% growth rate for its core products on an ARR basis and a +10-15% rate for its growth products, culminating in a +9-11% organic growth rate overall.
- Given the multitude of competitors in the market, INST's medium-term goals were commendable. Tech titans like Alphabet's (GOOG) Google Classroom to firmly-established names like Blackboard operate in the same market, each looking for a slice of a pie that is essentially fixed as the number of learning institutions stays relatively flat yr/yr.
- INST's total addressable market was recently bolstered by the acquisition of Parchment, which opened the door to an estimated $2.0 bln in possible revenue. Parchment's platform enables schools to securely issue transcripts, diplomas, etc., digitally, a critical feature in an increasingly digital world.
- As a software company, INST's margins are strong. As of last quarter, INST boasted adjusted operating margins of 40.8%, a 420 bp improvement yr/yr. Additionally, the company's recurring gross margins are above 80%. Management also commented that AI could bring further internal improvements.
- Speaking of AI, INST noted in June that it is being thoughtful about how it introduces AI into the classroom. The company is still running tests to determine if customers would be willing to pay for AI. With the technology still in the experimentation phase, INST is not aggressively pursuing it just yet, at least not externally.
With INST possibly returning to being a privately held organization, its upside is likely capped. However, the company commands several competitive advantages and compelling fundamentals, which could allow it to command a high price tag. As such, INST is worth a look.
Macy's rings up solid gains on an increased takeover offer; doubts remain over striking a deal (M)
Macy's (M +12%) rings up meaningful gains today after Arkhouse Management and Brigade Capital Management upped their bid to take the department store chain private. The WSJ reported on July 3, well after the closing bell, that the investor group increased their offer to $24.80 per share from $24.00 per share, a roughly $300 mln increase. The offer values Macy's at just under $7.0 bln, a nearly 40% premium to its previous closing price.
- With the stock still trading significantly below Arkhouse and Brigade's updated purchase price, investors remain skeptical about Macy's accepting the deal. This doubt is not without good reason. In March, the same investor group increased their offer from $21.00/share to no avail. Macy's chose to execute its restructuring plan instead, looking to monetize up to $750 mln of assets through 2026 with annual run-rate savings hitting $235 mln.
- CEO Tony Spring stepped in this past February to steer Macy's through a tumultuous period as discretionary spending wanes in light of sticky inflation while e-commerce competitors remain a considerable threat. Under relatively new leadership, Macy's may choose the turnaround route, especially given Mr. Spring's past as head of Bloomingdale's while overseeing Bluemercury, Macy's luxury banners. Both brands consistently outperformed over the past several quarters, possibly providing Mr. Spring the confidence to bring similar success to Macy's.
- However, one of Macy's peers is looking to fortify its competitive position today. The parent company of Saks Fifth Avenue agreed to acquire Neiman Marcus Group for $2.65 bln to establish a more fortified luxury retail banner. Meanwhile, takeover offers have been extended to another Macy's competitor, as Nordstrom (JWN) has seen several offers to go private. These developments may spur Macy's to act now, especially following an increase in a previous takeover offer.
- Furthermore, competitive and economic pressures generate plenty of headwinds for Macy's. The low end of the company's FY25 comp guidance of negative 1.0% to positive 1.5% assumes no improvement in end demand and constant competitive challenges. In contrast, the high-end anticipates internal improvements to drive increased store traffic. The outlook was not exactly confidence-inspiring; another weak quarter could be all that is needed for enough shareholder pressure to nudge Macy's toward a deal to go private.
The market remains skeptical over Macy's accepting a takeover deal even as Arkhouse and Brigade hike their offer to represent a sizeable premium over Macy's current stock price. If Macy's continues to reject the takeover deal, opting to bet on its turnaround plan, investors could grow impatient if no signs the plan will work unfold over the next quarter or two. By then, the prices offered by any takeover group could drop. |
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