Market Snapshot
| Dow | 39291.97 | -52.82 | (-0.13%) | | Nasdaq | 18429.29 | +25.55 | (0.14%) | | SP 500 | 5576.98 | +4.13 | (0.07%) | | 10-yr Note | -1/32 | 4.30 |
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| | NYSE | Adv 1033 | Dec 1744 | Vol 798 mln | | Nasdaq | Adv 1921 | Dec 2436 | Vol 4.8 bln |
Industry Watch
| Strong: Financials, Health Care, Utilities, Consumer Discretionary, Real Estate, Communication Services, Information Technology |
| | Weak: Energy, Materials, Industrials, Consumer Staples |
Moving the Market
-- Digesting Fed Chair Powell testimony today
-- Hesitation in front of inflation data Thursday and Friday
-- Gains in mega cap names boosting index performance
-- Lacking conviction in front of earnings season
| Closing Summary
09-Jul-24 16:25 ET
Dow -52.82 at 39291.97, Nasdaq +25.55 at 18429.29, S&P +4.13 at 5576.98
[BRIEFING.COM] It was another lackluster day in the stock market. The three major indices traded slightly higher or slightly lower than prior closing levels, ultimately settling in mixed fashion. Today's price action led the S&P 500 (+0.1%) and Nasdaq Composite (+0.1%) further into record territory.
There wasn't a lot of conviction on either side of the tape in front of influential economic data this week. The June Consumer Price Index and Producer Price Index will be released Thursday and Friday, respectively.
The muted action is also in front of the start of earnings season. JPMorgan Chase (JPM 207.63, +2.46, +1.2%), Wells Fargo (WFC 59.88, +0.87, +1.5%), and Citigroup (C 66.55, +1.81, +2.8%) were among the top performing names in the heavily-weighted financial sector (+0.7%) ahead their quarterly results on Friday.
The SPDR S&P Bank ETF (KBE) closed 1.7% higher and the SPDR S&P Regional Banking ETF (KRE) jumped 1.8%.
Fed Chair Powell's testimony before the Senate Banking Committee today did not garner a big reaction from the stock or bond market. Mr. Powell will also appear before the House Financial Services Committee tomorrow. There were no surprises in today's remarks, which featured an acknowledgement that the "likely next direction" of policy will be a loosening of policy, indicating a rate hike is not likely.
The 10-yr note yield settled three basis points higher at 4.30% and the 2-yr note yield rose one basis point to 4.63%. This price action was also in response to today's $58 billion 3-yr note auction, which met strong demand.
- Nasdaq Composite: +22.8% YTD
- S&P 500: +16.9% YTD
- Dow Jones Industrial Average: +4.3% YTD
- S&P Midcap 400: +3.8% YTD
- Russell 2000: +0.1% YTD
Today's economic data was limited to the NFIB Small Business Optimism Survey, which rose to 91.5 in June from 90.5.
Wednesday's economic data features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.6%)
- 10:00 ET: May Wholesale Inventories (Briefing.com consensus 0.6%; prior 0.1%)
- 10:30 ET: Weekly crude oil inventories (prior -12.16 mln)
Market holding steady in front of close
09-Jul-24 15:35 ET
Dow -25.80 at 39318.99, Nasdaq +12.23 at 18415.97, S&P +5.02 at 5577.87
[BRIEFING.COM] The three major indices are trading slightly higher or slightly lower than prior closing levels.
The 10-yr note yield settled three basis points higher at 4.30% and the 2-yr note yield rose one basis point to 4.63%.
Wednesday's economic data features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.6%)
- 10:00 ET: May Wholesale Inventories (Briefing.com consensus 0.6%; prior 0.1%)
- 10:30 ET: Weekly crude oil inventories (prior -12.16 mln)
Bank stocks outperform ahead of earnings
09-Jul-24 15:00 ET
Dow -66.04 at 39278.75, Nasdaq +26.95 at 18430.69, S&P +5.17 at 5578.02
[BRIEFING.COM] The S&P 500 is trading up 0.1%, led by the financial sector (+0.8%).
JPMorgan Chase (JPM 208.05, +2.88, +1.4%), Wells Fargo (WFC 59.89, +0.88, +1.5%), and Citigroup (C 66.43, +1.69, +2.6%) are among the top performing names in the financial sector in front of their earnings reports on Friday.
The SPDR S&P Bank ETF (KBE) is up 1.3% and the SPDR S&P Regional Banking ETF (KRE) is 1.3% higher.
Corning, Principal Fincl outperforming in S&P 500 on Tuesday
09-Jul-24 14:25 ET
Dow -18.00 at 39326.79, Nasdaq +18.54 at 18422.28, S&P +6.83 at 5579.68
[BRIEFING.COM] The S&P 500 (+0.12%) is now in first place, up about 7 points as the Dow Jones Industrial Average (-0.05%) sinks back into the red.
Elsewhere, S&P 500 constituents Corning (GLW 44.81, +1.76, +4.09%), Incyte (INCY 60.53, +2.36, +4.06%), and Principal Fincl (PFG 80.95, +2.49, +3.17%) pepper the top of today's standings. GLW and PFG move higher owing to analyst upgrades.
Meanwhile, Albemarle (ALB 91.61, -7.54, -7.60%) is today's top laggard, catching some analyst target cuts this morning while also being the subject of a Barron's piece which highlighted slacking lithium prices.
Gold holds up well even as dollar, yields also push higher
09-Jul-24 14:00 ET
Dow +31.94 at 39376.73, Nasdaq +15.52 at 18419.26, S&P +8.60 at 5581.45
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.08%) climbed out of the red in the last half hour, up now about 15 points.
Gold futures settled $4.40 higher (+0.2%) to $2,367.90/oz, this even as the dollar and yields show modest gains.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $105.15.
Masimo slips to 2024 lows despite encouraging Q2 sales guidance; uncertainty remains an issue (MASI)
Masimo (MASI -2%) slips to 2024 lows today despite projecting Q2 revs modestly ahead of consensus, underpinned by meaningfully improved market share, and noting that its order backlog is robust heading into Q3. Plenty of news surrounds MASI, which operates two distinct healthcare and non-healthcare segments. The company has been discussing separating its consumer business, i.e., the non-healthcare side of its operations, for the past few months.
Yesterday, management updated shareholders on the possible consumer business separation, remarking that the "Potential JV Partner" (the company seeking to purchase MASI's non-healthcare unit) was prepared to offer $850-950 mln for MASI's consumer business on a cash and debt free basis. The offer represents around 1.2x FY24 revs. Investors did not react strongly to the offer, keeping shares from moving significantly in any direction.
Today's muted response to MASI's uplifting Q2 outlook reflects an uneasy investor sentiment over the direction MASI will pursue.
- MASI's consumer business, selling audio products, was never well-received by investors, given it never complimented its core healthcare unit, which consists of hospital monitoring products. The company's non-healthcare revs have also struggled constantly over the past several quarters, typically sliding by a wide percentage yr/yr, offsetting the relative strength of its healthcare unit.
- As such, investors are likely itching for MASI to divest of its non-healthcare unit even though the potential suitor's price was not overly compelling. In fact, even at the high end, the price offered did not reach the $1.025 bln MASI paid for the consumer unit two years ago. With discretionary spending hampered by inflationary forces, MASI's consumer business faces intense headwinds over the near term, hence the relatively weak offer.
- Alongside the uncertainty surrounding M&A, there has been some turbulence from a major shareholder, Politan Capital, which has engaged in some back-and-forth with MASI over board nominees. MASI also released a presentation highlighting the risks of ceding control to Politan Capital. Meanwhile, MASI is in the middle of litigation with Apple (AAPL) over technology used in the Apple Watch, seeking licensing for its technology.
The main takeaway is that although MASI's Q2 preliminary revenue was encouraging, too many unknowns are swirling about, pushing aside this uplifting development. Still, if focusing purely on MASI's core healthcare business, the company is in good shape, boasting strong sensor orders across the U.S. and Europe in Q1, with this upward momentum trickling into Q2 and possibly Q3. The company also continues to gain market share, putting it in a solid position to extract future upside once the current clouds clear.
CAVA Group has been serving up new highs; Mediterranean cuisine for QSR channel
CAVA Group (CAVA) has been trading to new post-IPO highs this week. And with it being a slow news day, we wanted to profile this Mediterranean fast-casual restaurant chain. CAVA's goal is to create the next large scale cultural cuisine category. Its customers span gender lines and age groups, but CAVA has a strong Millennial and a growing Gen Z contingent.
- CAVA believes it is in the early stages of fulfilling its total restaurant potential. CAVA sees an opportunity for more than 1,000 CAVA restaurants in the US by 2032 vs ending 2023 with 309 locations. Its acquisition of Zoes Kitchen in 2018 allowed CAVA to rapidly expand in new and existing markets by converting Zoes Kitchen locations to the CAVA brand, which has now been completed.
- Over 85% of its restaurants are in the suburbs. Most of its restaurants are in the Southeast, across the Sunbelt, and in the West. However, CAVA recently made its first foray into the upper Midwest, including Chicago and its suburbs.
- At a recent investor conference, the company explained that the Mediterranean diet has been the number one ranked diet seven years in a row. However, despite the health halo associations with Mediterranean cuisine, it is very underserved in the US from a restaurant cuisine category. CAVA also says it is benefitting from the country becoming more diverse and as that happens, people's palates are shifting. They are seeking bolder, more adventurous flavors but they don't want to sacrifice health.
- CAVA makes the point that this translates to incredible broad appeal across both lunch and dinner. CAVA allows customer to build a bowl to any dietary needs and preferences. Customers can eat vegan or vegetarian, or maybe they want to eliminate lactose or gluten, or they just want spicy options.
- Importantly, CAVA says its offering appeals across the income strata. The traditional full service dining model is struggling to deliver a compelling value. At the same time, fast food has been raising prices in recent years. However, consumers are saying, for $1-2 more or even the same price, they can have a healthy meal at CAVA, a great bowl of fresh food. CAVA feels it sits at the nexus of that, the convergence coming down from the higher end full service and coming up from lower end fast food.
In late May, CAVA reported Q1 results, its largest EPS beat in the last three quarters. Revenue rose a healthy 27.5% yr/yr to $259 mln. However, Q1 comps at +2.3% were maybe a bit disappointing following a +11.4% comp in Q4 and +17.9% comps for all of 2023. In fairness to CAVA, it was lapping a huge +28.5% comp last year when there was a lot of buzz around the brand as it was preparing for its IPO debut in June 2023. Also, it was good to see CAVA increase its FY24 comp guidance to +4.5-6.5% from +3-5%. That tells us that CAVA's Q1 comps were perhaps better than internal expectations. Overall, CAVA is a name worth keeping on the radar.
Helen of Troy plunges as intensifying headwinds in Q1 lead to huge top and bottom-line misses (HELE)
Helen of Troy (HELE -30%) sinks to decade lows today after economic headwinds picked up during Q1 (May), proving to be the personal care and houseware product manufacturer's Achilles heel, leading to wide earnings and revenue misses alongside slashed FY25 (Feb) guidance. With no apparent signs of a recovery in discretionary spending, HELE, which owns Oxo and Vicks, was up against low expectations ahead of its Q1 report. Nevertheless, investors did not anticipate the extended cumulative effects of inflation weighing as considerably as they did on the end consumer during Q1.
While some of HELE's brands could be classified as non-discretionary, most products are not critical for daily functions. At the same time, HELE competes in categories heavily exposed to competitors, including name brands and private labels. HELE is also dependent on third-party retailers, with Amazon (AMZN), Walmart (WMT), and Target (TGT) comprising 40% of its FY24 revenue, which display HELE's competitors prominently, possibly nudging consumers toward alternatives, particularly those with lower price points.
- These characteristics culminated in a dismal Q1 report. HELE registered adjusted EPS of $0.99, its lightest quarter and first earnings miss in five years. The miss was particularly frustrating given that HELE is amid a restructuring plan -- Project Pegasus -- which targets annualized operating profit improvements of $75-85 mln by the end of FY27, with 35% of savings to be achieved in FY25.
- Sales falling by 12.2% yr/yr to $416.8 mln primarily contributed to HELE's steep bottom-line miss. While Beauty & Wellness was the main drag, Home & Outdoor also declined. In Beauty, hair products lagged, a similar issue that peers faced in recent quarters, including Ulta Beauty (ULTA) and L'Oreal (LRLCY). In Home, lower replenishment orders from retailers were the culprit. HELE also attributed some supply issues to be an underlying factor.
- Management admitted that it was disappointed in its performance and would act immediately to reset its business, essentially initiating two restructuring programs simultaneously. Even though troubling demand dynamics played a role, this reset primarily led to HELE's slashed FY25 earnings outlook. The company now expects EPS of $7.00-7.50, a massive pullback from its initial $8.70-9.20 forecast.
- Meanwhile, stubborn economic headwinds led to HELE's reduced sales estimate of $1.89-1.94 bln from $1.965-2.025 bln. The company's updated segment growth targets paint an alarming picture of how quickly demand has pulled back. HELE changed its Home & Outdoor growth target to negative 1.0-3.0% from positive +1.0-4.0%. Additionally, Beauty & Wellness sales are now set to fall by as much as 8.0% compared to a worst-case scenario of negative 4.5%.
HELE's Q1 report resulted from several headwinds mixing with the most apparent problem: inflation. Higher prices have hindered HELE's growth for many consecutive quarters. However, even as disinflationary forces take hold, with inflation lasting so long, prices merely rising at a slower pace are not enough to prevent consumers from constantly cutting items from their budgets. With shares now at 2014 levels, today's sell-off may seem like an overreaction. Still, it will likely take a few quarters of noticeable recovery signs before investors feel comfortable that HELE's business reset and restructuring are sufficient to reignite growth.
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.
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