| | | Market Snapshot
| Dow | 42740.42 | -324.80 | (-0.75%) | | Nasdaq | 18315.59 | -187.10 | (-1.01%) | | SP 500 | 5815.26 | -44.59 | (-0.76%) | | 10-yr Note | +5/32 | 4.04 |
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| | NYSE | Adv 1335 | Dec 1325 | Vol 935 mln | | Nasdaq | Adv 2089 | Dec 2159 | Vol 6.5 bln |
Industry Watch
| Strong: Real Estate, Financials, Consumer Staples, Utilities, Materials |
| | Weak: Energy, Health Care, Information Technology |
Moving the Market
-- Weakness in chipmakers after news that the Biden administration is mulling capping exports of advanced AI chips to certain nations, with a focus on Persian Gulf countries; also, ASML reported disappointing Q3 earnings and net bookings, and issued disappointing Q4 and FY25 guidance
-- Reacting to earnings from the financial sector
-- Earnings from UnitedHealth (UNH) weighing on health care stocks
-- Drop in oil prices after reports that Israel will not strike oil or nuclear targets in its retaliation on Iran
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Closing Summary
15-Oct-24 16:30 ET
Dow -324.80 at 42740.42, Nasdaq -187.10 at 18315.59, S&P -44.59 at 5815.26
[BRIEFING.COM] The S&P 500 (-0.8%), Nasdaq Composite (-1.0%), and Dow Jones Industrial Average (-0.8%) settled with solid losses while the Russell 2000 eked out a 0.1% gain.
Index-level losses were impacted by weakness in semiconductor-related names. Initial weakness in the semiconductor space followed a Bloomberg report that the Biden administration is looking at curbing sales of advanced AI chips to certain countries, with a focus on Persian Gulf countries.
Selling intensified in the space in response to ASML's (ASML 730.43, -141.84, -16.3%) Q3 results.
The semiconductor equipment maker's results were released early and disappointed investors due to below-consensus EPS, revenues, and net bookings. The company also issued weaker-than-expected FY25 revenue guidance saying, "While there continue to be strong developments and upside potential in AI, other market segments are taking longer to recover."
This news sharply undercut most semiconductor stocks, including NVIDIA (NVDA 131.83, -6.23, -4.5%), which helped pace an outsized 5.3% decline in the Philadelphia Semiconductor Index (SOX).
Market participants were also reacting to earnings news from influential names. UnitedHealth (UNH 556.29, -49.11, -8.1%), the largest component in the price-weighted DJIA, weighed down other health care stocks. The S&P 500 health care sector declined 1.2%.
Goldman Sachs (GS 522.38, -0.37, -0.1%), Bank of America (BAC 42.14, +0.23, +0.6%), Citigroup (C 62.64, -3.37, -5.1%) are also among the names that reported earnings since yesterday's close. The financial sector settled 0.3% higher despite mixed responses to the quarterly results.
The 10-yr yield settled three basis points lower at 4.04% and the 2-yr yield settled one basis point higher at 3.95%.
- Nasdaq Composite: +22.0% YTD
- S&P 500: +21.9% YTD
- S&P Midcap 400: +13.8% YTD
- Dow Jones Industrial Average: +13.4% YTD
- Russell 2000: +11.0% YTD
Reviewing today's economic data:
- October NY Fed Empire State Manufacturing -11.9 (Briefing.com consensus 2.0); Prior 11.5
Wednesday's economic lineup features:
- 07:00 ET: MBA Mortgage Applications Index (Prior -5.1%)
- 08:30 ET: September Import Prices (Prior 0.8%) and Import Prices ex-oil (Prior -0.1%); September Export Prices (Prior-0.7%) and Export Prices ex-agricultural products (Prior -0.6%)
- 10:30 ET: EIA Crude Oil Inventories (Prior +5.81M)
Treasuries settle mixed
15-Oct-24 15:35 ET
Dow -317.56 at 42747.66, Nasdaq -229.63 at 18273.06, S&P -49.95 at 5809.90
[BRIEFING.COM] The three major indices trade at their lows ahead of the close.
The 10-yr yield settled three basis points lower at 4.04% and the 2-yr yield settled one basis point higher at 3.95%.
Wednesday's economic lineup features:
- 07:00 ET: MBA Mortgage Applications Index (Prior -5.1%)
- 08:30 ET: September Import Prices (Prior 0.8%) and Import Prices ex-oil (Prior -0.1%); September Export Prices (Prior-0.7%) and Export Prices ex-agricultural products (Prior -0.6%)
- 10:30 ET: EIA Crude Oil Inventories (Prior +5.81M)
Some stocks trade higher in front of earnings
15-Oct-24 15:00 ET
Dow -272.63 at 42792.59, Nasdaq -195.99 at 18306.70, S&P -41.53 at 5818.32
[BRIEFING.COM] The major indices sit near session lows with about 60 minutes left in the day.
United Airlines (UAL 64.31, +0.78, +1.3%), Omnicom (OMC 104.63, +1.36, +1.3%), J.B. Hunt Transport (JBHT 175.60, +0.14, +0.1%), and Interactive Brokers (IBKR 153.76, +2.46, +1.6%) all trade higher in front of their earnings reports this afternoon.
Looking ahead, Morgan Stanley (MS 112.69, +0.42, +0.4%), Abbot Labs (ABT 116.06, -0.63, -0.6%), and US Bancorp (USB 47.37, +0.25, +0.5%) are among the names reporting results ahead of Wednesday's open.
KLA Corp. slides on ASML sympathy; Schwab higher in S&P 500 after earnings
15-Oct-24 14:25 ET
Dow -242.64 at 42822.58, Nasdaq -153.13 at 18349.56, S&P -32.32 at 5827.53
[BRIEFING.COM] The S&P 500 (-0.55%) is down about 32 points, having slipped to session lows in the last half hour.
Elsewhere, S&P 500 constituents KLA Corporation (KLAC 711.86, -117.79, -14.20%), APA Corp. (APA 25.20, -1.50, -5.62%), and Wynn Resorts (WYNN 99.46, -4.49, -4.32%) dot the bottom of the standings. KLAC slips in reaction to the widely-covered earnings and guidance leak from ASML (ASML 723.96, -148.31, -17.00%), APA falls in part due to 4.6% losses in crude oil futures, while WYNN (which gets a decent portion of its business from China) losses stem from press reports that President Xi's intention related to stimulus efforts is to prevent a financial crisis but not massively stimulate demand.
Meanwhile, Charles Schwab (SCHW 72.83, +5.01, +7.39%) is one of today's top gain getters as Q3 earnings beat expectations, and the company's debt reduction efforts signal recovery from last year’s turmoil.
Gold higher as yields dip
15-Oct-24 14:00 ET
Dow -143.18 at 42922.04, Nasdaq -149.37 at 18353.32, S&P -25.20 at 5834.65
[BRIEFING.COM] The Nasdaq Composite (-0.81%) is today's worst-performing major average with about two hours to go on Tuesday.
Gold futures settled $13.30 higher (+0.5%) to $2,678.90/oz, allowed higher by falling treasury yields.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $103.31.
Walgreens Boots Alliance surges on early restructuring achievements and FY25 sales guidance (WBA)
Walgreens Boots Alliance (WBA +12%) is nicely aligned with investors today, roaring higher following the pharmaceutical retailer's decent-sized Q4 (Aug) earnings and revenue beats. WBA faced enormous setbacks over the past couple of years as its aggressive M&A and investment activity under its former CEO hindered earnings growth at a time when macroeconomic headwinds were intensifying, eviscerating front-store sales volumes.
Without improving economic conditions, WBA -- now under CEO Tim Wentworth since last October -- has already begun enacting sweeping changes. Last quarter, WBA announced the closure of 25% of its stores, with plans to shutter additional locations if performance does not improve. Today, WBA finalized these plans, targeting around 1,200 sites over the next three years (around 14% of total stores), including 500 in FY25. The company anticipates that the closures will be immediately accretive to adjusted EPS and free cash flow.
These actions, alongside several highlights from Q4, including benefits from previous restructuring programs, have sparked a buying frenzy today, fueling a breakout in the stock today as it clears its 50-day moving average (9.44) for the first time since last year.
- Today's central highlight was that WBA successfully achieved its three goals: cutting costs by over $1.0 bln, reducing CapEx by over $700 mln, and realizing over $600 mln in benefits from working capital initiatives. As a result of these early wins, WBA delivered a less pronounced contraction in its EPS yr/yr in Q4, registering a 42% drop to $0.39.
- WBA also recorded a decent 5.9% uptick in sales yr/yr to $37.5 bln, supported by strength across the board. U.S. Retail Pharmacy sales enjoyed a 6.5% jump on comps of +8.3%, led by the pharmacy side as retail sales continued to compress, reflecting a stubbornly challenging demand environment and persistent competitive pressures. In U.S. Healthcare, sales expanded by 7.1% yr/yr, led by Shields, which boasted a whopping 27.8% leap. International revenue edged 3.2% higher.
- A hindrance to top-line growth recently has been lower reimbursement from pharmacy benefit managers or PBMs like Caremark (CVS) and OptumRx (UNH). WBA has been working with PBMs to bring stability and predictability to its reimbursement, achieving high visibility into reimbursement for around 80% of the anticipated script volume in FY25.
- As a result, WBA issued bullish FY25 revenue guidance, predicting $147.0-151.0 bln, the midpoint of which was well ahead of consensus. Earnings will remain wobbly; WBA targeted $1.40-1.80 next year, the midpoint falling short of analyst expectations. However, WBA is focused on cash flow generation to improve its debt position and stabilize its core operations.
After so much turbulence, WBA's Q4 report was a welcomed change of pace. We noted yesterday that benefits from WBA's recent restructuring actions would likely be required before investors warmed up to WBA. Following its achievements in Q4, the market may be coming back around to WBA. However, given its recent history, investors may need to see more proof that Mr. Wentworth's changes are igniting a firm turnaround
Goldman Sachs looking golden again as investment banking business shines amid lower rates (GS)
Goldman Sachs' (GS) strategy to focus on the businesses that it's traditionally best known for -- namely, investment banking and institutional trading -- paid big dividends in 3Q24 as the company cruised past EPS and revenue estimates. It's been a bumpy ride for GS as the company sheds its consumer-centric assets, including divesting GreenSky last year and exiting its credit card partnership with General Motors (GM) last month, but the Federal Reserve's interest rate cut and the prospect for lower rates ahead has provided a spark for the M&A and new issue markets.
- This is reflected in the strong performance of GS's Global Banking & Markets segment, which generated net revenue growth of 7% to $8.55 bln. According to GS, the company held the #1 position in both M&A and common stock offerings during the quarter. On that note, Advisory revenue increased by 5% yr/yr to $875 mln, while a more active IPO market helped drive a 25% yr/yr jump in equity underwriting fees to $385 mln.
- Overall, investment banking revenue grew by 20% to $1.87 bln, with debt underwriting in particular standing out as revenue surged by 46% to $605 mln. The robust growth here was fueled by increases in leveraged finance and investment-grade activity.
- The news on the trading side is more mixed, but that didn't come as a surprise. On September 10, CEO David Solomon stated at the Barclays Global Financial Services Conference that trading revenue was tracking towards a 10% decline, mainly due to weaker conditions in FICC. Although FICC trading was indeed a weak spot with revenue down by 12% due to significantly lower net revenues in interest rate products and commodities, overall trading revenue was actually higher by nearly 2% on a yr/yr basis.
- Offsetting the FICC weakness was an 25% increase in equity trading revenue to $385 mln, reflecting strength in both derivatives and cash products.
- Lastly, GS's Asset & Wealth Management segment also stood out as net revenues grew by 16% to $3.75 bln. Assets Under Supervision (AUS) climbed to a record level of $3.10 trillion, leading to record management and other fees of $2.62 bln.
The main takeaway is that business is quite healthy for GS, but expectations were running high ahead of the earnings report, as illustrated by the stock's 7% rally since the beginning of October, which took shares to all-time highs. The company's better-than-expected results also bode well for rival Morgan Stanley (MS), which is scheduled to issue its Q3 results before the open tomorrow morning.
UnitedHealth falls as rising costs clip FY24 guidance; drives weak prelim FY25 EPS forecast (UNH)
Healthcare costs continue to rise for Dow component UnitedHealth (UNH -7%), pushing its medical care ratio, or MCR, considerably higher yr/yr in Q3 and clipping the high end of its FY24 adjusted EPS outlook. UNH's MCR, the percentage of premiums used in covering costs, moved 290 bps higher yr/yr in Q3 to 85.2%. The underlying factors were the newly released Centers for Medicare & Medicaid Services (CMS) Medicare funding reductions, medical reserve development effects -- UNH added $800 mln to its reserves to cover any potential uptick in claims due to a cyberattack earlier this year -- and member mix.
- Even though UNH's MCR swelled, it still managed to topple earnings estimates by double digits in Q3, expanding its bottom line by 9% yr/yr to $7.15 per share. Likewise, revenue growth edged past analyst forecasts, growing by 9% to $100.82 bln. However, UNH's relatively consistent quarterly upside made today's beats less of a pleasant surprise and more of a given.
- The highlight of Q3 was Optum, a recurring bright spot for UNH, which grew revs by 13% yr/yr, an acceleration from the +11% growth in Q2. Optum continues to enjoy a growing number of patients served under value-based care offerings. Management noted that people served by these models are more likely to receive cancer screeners and 10% less likely to visit the ER than those in fee-for-service Medicare.
- Nevertheless, increasing costs clouded the silver linings from Q3. There were three primary causes for the persistently high patient care patterns, which UNH believes are transitory.
- The coding intensity in certain hospital systems remains high; some systems have upshifted coding intensity factors by over 20%, adding an unnecessary cost burden to the health system.
- Further, a continuous timing mismatch exists between the current health status of Medicaid members and state rate updates.
- Lastly, a rapid acceleration unfolded in the prescribing of high-cost specialty medications, such as those used to treat cardiovascular disease, autoimmune disorders, and cancer. UNH anticipated this would be a more meaningful issue in 2025, but some of the activity has already been pulled into 2024.
- As a result, UNH sliced $0.25 off its previous adjusted EPS outlook for FY24, now targeting $27.50-27.75. Additionally, UNH anticipates projecting the upper bound of its FY25 EPS guidance to be around $30.00. While management did reiterate its long-term earnings growth target of +13-16%, its preliminary FY25 outlook represents under +9% growth if it achieves the high end of its range, well short of its long-term forecast and a deceleration from the expected +11% jump in FY24.
With shares testing all-time highs yesterday following a roughly +17% move since last quarter, UNH was wading into priced-to-perfection territory. Even though the market likely anticipated another round of rising costs, it did not foresee such a sizeable jump, a subsequent guide-down, and troubling preliminary FY25 earnings guidance, spurring today's pullback. UNH's Q3 report now sets the tone ahead of its peers' upcoming results, including Elevance Health (ELV) on October 17, Molina Healthcare (MOH) on October 23, Centene (CNC) on October 25, and Humana (HUM) on October 30.
Johnson & Johnson trades modestly higher despite healthy EPS beat; guidance was a bit weak (JNJ)
Johnson & Johnson (JNJ +3%) is modestly higher after reporting Q3 earnings results. The move is pretty tame considering this was JNJ's largest EPS beat in three years. Revenue rose 5.2% yr/yr to $22.47 bln, a bit better than expected. However, the FY24 guidance was a bit soft as JNJ lowered its adjusted EPS outlook to $9.88-9.98 from $9.97-10.07 and that is despite the strong upside in Q3. JNJ did increase its reported revenue outlook a bit to $88.40-88.80 bln from $88.00-88.40 bln.
- Innovative Medicine segment (formerly known as Pharma) sales in Q3 grew 4.9% yr/yr (+6.3% operational) to $14.58 bln with growth of 7.5% in the US and 4.4% outside of the US. IM segment growth was driven by JNJ's key brands and continued uptake from recently launched products with 11 assets delivering double-digit growth. Results across the portfolio continue to be positively impacted by price increases associated with Argentina hyperinflation.
- JNJ says it continues to drive strong sales across its multiple myeloma portfolio. DARZALEX growth was 22.9% primarily driven by share gains across all lines of therapy. CARVYKTI posted 87% yr/yr growth and 53.2% sequential growth to $286 mln, driven by share gains, capacity expansion and manufacturing efficiencies.
- Turning to its MedTech segment, reported sales grew 5.8% yr/yr (+6.4% operational) to $7.89 bln with growth in the US of 7.8% and 5% outside of the US. MedTech segment growth benefitted from commercial execution and new product introductions, but was partially offset by continued headwinds in Asia Pacific, specifically in China. In Cardiovascular, electrophysiology delivered double-digit growth of 10.7% driven by global procedure growth and new product uptake. Abiomed was a bright spot with revs up 16.3% with strong growth in all regions and continued adoption of Impella 5.5 and Impella RP technology.
- JNJ has bolstered its Cardiovascular segment within MedTech with its recent acquisitions of Abiomed and then Shockwave Medical. Cardiovascular intervention is one of the fastest-growing global medtech markets. JNJ is now a category leader for the highest growth Cardiovascular intervention MedTech markets. In Q3, that translated to another quarter of double-digit growth, which benefitted from the full market launch of the Shockwave E8 refill IVL Catheter.
- In terms of the weakish guidance, it sounds like JNJ is being more cautious due to the Asia-Pacific region and specifically China. It is now taking a more conservative approach by assuming no material improvement in that part of the business for the remainder of the year. As such, JNJ lowered its adjusted operational sales growth for 2024 to be closer to 5% vs 6% prior guidance.
Overall, this was a decent but not great quarter. The EPS upside was impressive, but the guidance was a letdown as China remains a drag in the near term, especially on the MedTech side. On the other hand, it was good to see Abiomed and Shockwave performing well. These acquisitions increased JNJ's exposure to some higher growth markets. However, this was not enough to get the stock moving.
Sirius XM establishes a stronger connection today following Warren Buffett's increased stake (SIRI)
Sirius XM (SIRI +8%) found a stronger connection today with Berkshire Hathaway's (BRK.A / BRK.B) Warren Buffet, who purchased around $86.7 mln worth of the satellite radio and audio streaming company, adding to his existing stake. Mr. Buffett affirmed his 31.01% passive stake last month. The disclosed purchase has investors amped today, pushing the stock toward levels not seen since immediately following the completed split-off from Liberty Media (LSXMA) last month. At the time, SIRI announced that it would continue its recurring dividend and $1.166 bln repurchase program. SIRI also reiterated its FY24 revenue guidance of $8.75 bln.
While SIRI still trades near decade lows, a vote of confidence from Warren Buffet is an encouraging development. There are additional reasons why investors could change their tune surrounding SIRI.
- The separation from LSXMA cuts SIRI free. This provides several benefits, including equity, enhancing the float, and potentially improving trading dynamics. The split-off also allows for possible index inclusion down the road. Furthermore, without LSXMA, SIRI's structure becomes more simplistic, allowing it to focus on growth drivers, which it anticipates will result in greater free cash flow that it can reinvest into the business while continuing its dividend and paying down debt.
- In a world of connected smart devices supplying users with various music and audio streaming options, SIRI, which also owns Pandora, has found itself in a crowded market. However, its primary strength is its partnerships with numerous auto OEMs. Many vehicle purchases include complimentary Sirius XM for a specific period. However, once the free trial ends, only around a third of listeners continue their subscription. Furthermore, among those who do, they eventually leave after 4-5 years, evidenced by churn holding steady around 1.5% as of Q2.
- SIRI is looking to change this trend, recently launching a free access plan and an ad-supported plan for the car. SIRI only has these options in a few OEMs, translating to relatively tiny volumes. However, as SIRI rolls out 360L, a significantly enhanced version of its streaming service, giving customers access to 10,000 channels to additional vehicles, it anticipates building these volumes. Management referenced its ad-supported offering as one of the last terrains for addressable advertising in the car.
Warren Buffett's additional stake in SIRI has rekindled interest in the stock. Many roadblocks could create intense headwinds for SIRI, most of which stem from heightened competition. However, SIRI's established presence in automobiles, the improving monetization of Pandora as SIRI garners more advertisers to the platform, and the ongoing rollout of 360L makes the stock worth keeping on the radar as a compelling turnaround play.
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