Market Snapshot
| Dow | 42906.95 | +66.69 | (0.16%) | | Nasdaq | 19803.38 | +192.29 | (0.98%) | | SP 500 | 5973.77 | +43.22 | (0.73%) | | 10-yr Note | -6/32 | 4.60 |
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| | NYSE | Adv 1388 | Dec 1365 | Vol 906 mln | | Nasdaq | Adv 2028 | Dec 2334 | Vol 6.8 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Consumer Discretionary |
| | Weak: Consumer Staples, Materials, Industrials |
Moving the Market
-- Not a lot of conviction in front of holiday-related closures
-- Strength in the mega cap and chipmaker spaces; QCOM outperforms after a jury verdict go in its favor in its case with Arm Holdings (ARM)
-- Rising Treasury yields keeping pressure on equities
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Closing Summary
23-Dec-24 16:30 ET
Dow +66.69 at 42906.95, Nasdaq +192.29 at 19803.38, S&P +43.22 at 5973.77
[BRIEFING.COM] The major indices registered gains at the start of this holiday-shortened week. The "Santa Claus rally" period (i.e. the last five trading days of the year and the first two trading days of the new year) begins tomorrow and usually leads to positive moves in equities. Today doesn't fall within the official Santa Claus rally, but many stocks finished higher.
The Dow Jones Industrial Average traded slightly lower than Friday's close through most of the session, but settled 0.2% higher. The S&P 500 (+0.7%) and Nasdaq Composite (+1.0%) traded above their prior closing levels through most of the session, bolstered by gains in mega cap and semiconductor-related names.
Qualcomm (QCOM 158.24, +5.35, +3.5%) was a winner from the chipmaker space after jurors found that the chip company didn't violate terms of its agreement covering Arm Holding's (ARM 126.87, -5.28, -4.0%) designs.
NVIDIA (NVDA 139.67, +4.97, +3.7%) and Broadcom (AVGO 232.35, +12.15, +5.5%) were also top performers from the semiconductor space, contributing to the 3.1% gain in the PHLX Semiconductor Index (SOX).
Fellow mega cap Eli Lilly (LLY 796.28, +28.52, +3.7%) was another story stock after the FDA approved Zepbound (tirzepatide) as the first and only prescription medicine for moderate-to-severe obstructive sleep apnea in adults with obesity.
Eight of the S&P 500 sectors closed higher and three logged declines. LLY helped boost the health care sector (+1.0%) while gains in mega caps and semiconductor shares boosted the communication services (+1.4%) and information technology (+1.4%) sectors.
- Nasdaq Composite: +31.7% YTD
- S&P 500: +25.3% YTD
- Dow Jones Industrial Average: +13.8% YTD
- S&P Midcap 400: +12.7% YTD
- Russell 2000: +10.4% YTD
Reviewing today's economic data:
- November Durable Orders -1.1% (Briefing.com consensus -0.3%); Prior was revised to 0.8% from 0.2%, November Durable Goods -ex transportation -0.1% (Briefing.com consensus 0.3%); Prior was revised to 0.2% from 0.1%
- The key takeaway from the report is that it showed a rebound in business spending in November, evidenced by a 0.7% increase in new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- following a 0.1% decline in October.
- December Consumer Confidence 104.7 (Briefing.com consensus 113.5); Prior was revised to 112.8 from 111.7
- The key takeaway from the report is that consumers were substantially less optimistic about future business conditions and incomes than they were last month.
- November New Home Sales 664K (Briefing.com consensus 670K); Prior was revised to 627K from 610K
- The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, increased in November with the help of lower selling prices that were needed to help offset affordability constraints driven by rising mortgage rates.
No US economic data of note tomorrow.
Major indices near session highs ahead of the close
23-Dec-24 15:40 ET
Dow +27.09 at 42867.35, Nasdaq +182.44 at 19793.53, S&P +34.07 at 5964.62
[BRIEFING.COM] The Dow Jones Industrial Average is in positive territory heading into the close. The S&P 500 (+0.5%) and Nasdaq Composite (+0.8%) are at or near session highs while the Russell 2000 underperforms, showing a 0.6% decline.
Mega caps continue to lead the equity market. Apple (AAPL 254.57, +0.08, +0.04%) had been trading down earlier, but reached a new 52-week high in recent trading.
The Vanguard Mega Cap Growth ETF (MGK) trades 0.9% higher.
Stocks sit near highs; yields also near highs
23-Dec-24 15:05 ET
Dow -46.90 at 42793.36, Nasdaq +148.56 at 19759.65, S&P +23.78 at 5954.33
[BRIEFING.COM] The S&P 500 (+0.4%) and Nasdaq Composite (+0.7%) are near session highs.
The 10-yr yield hit 4.60% a short time ago. The 2-yr yield is up four basis points from Friday at 4.35%.
Looking ahead, there is no US economic data of note tomorrow. The NYSE closes at 1:00 p.m. ET and the bond market closes at 2:00 p.m. ET.
S&P 500 climbs led by AMD, Amentum, and Humana; Carnival sinks despite analyst comments
23-Dec-24 14:30 ET
Dow -27.62 at 42812.64, Nasdaq +192.68 at 19803.77, S&P +34.54 at 5965.09
[BRIEFING.COM] The S&P 500 (+0.58%) is in second place on Monday afternoon, just below HoDs.
Briefly, S&P 500 constituents Advanced Micro Devices (AMD 125.02, +5.81, +4.87%), Amentum Holdings (AMTM 19.86, +0.69, +3.60%), and Humana (HUM 255.57, +8.47, +3.43%) pepper the top of the standings despite a dearth of corporate news.
Meanwhile, Carnival (CCL 25.61, -1.19, -4.44%) is today's worst laggard, giving back most of Friday's rally despite analyst target increases from Stifel, Citi, and Barclays.
Gold slips as strong dollar and rising treasury yields apply pressure
23-Dec-24 14:00 ET
Dow -15.68 at 42824.58, Nasdaq +173.93 at 19785.02, S&P +32.30 at 5962.85
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.90%) holds the lead, up about 174 points.
Gold futures settled $16.90 lower (-0.6%) to $2,628.20/oz, slipping as a strong dollar and gains in treasury yields weigh.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $108.08.
Boston Beer Co lowers its FY24 GAAP EPS outlook following production contract amendment (SAM)
Boston Beer Co (SAM -3%) slips after lowering its FY24 GAAP EPS outlook on Friday after the close following its announcement of restating an existing production agreement with Rauch North America. The agreement included a commitment to minimum capacity availability by Rauch, with SAM obligated to meet annual minimum volume commitments. If it did not, it was subject to contractual shortfall fees.
Under the amendment, SAM agreed to pay $26 mln in cash to better match SAM's future capacity requirements, allowing heightened production flexibility and more advantageous termination rights. This payment is expected to clip $1.70 in after-tax GAAP EPS in Q4, resulting in a lowered GAAP EPS guidance for the year to $3.80-$5.80 from $5.50-$7.50. However, SAM still reiterated its FY24 adjusted EPS and depletions and shipments forecasts.
- Heading into FY24, SAM anticipated falling short of its future annual volume commitments at various third-party production facilities, resulting in expected shortfall fees. On Friday, SAM reiterated its expectation that these fees will hurt gross margins by 65-75 bps in FY24. When adding in production and prepayment amortization, SAM sees a 160-180 bp impact on margins.
- Shortfall fees do not always mean that volumes are missing internal goals. Instead, it can mean that SAM's regional mix changed. It also could be due to SAM's expansion in international markets. This shows up in SAM reiterating its FY24 depletions and shipments outlook for the year, continuing to project a low single-digit percentage decline. This outlook was reduced last quarter, taking the possibility of flat depletions and shipments growth off the table, reflecting lingering challenges associated with SAM's Truly Hard Seltzer brand.
- Truly Hard Seltzer business endured an 11% volume decline in measured channels in Q3. SAM continues testing various strategies to reignite Truly demand, such as being more discerning over flavors. At the same time, SAM's once-resilient Twisted Tea brand encountered softening demand last quarter. While SAM has seen positive signals from the early rollout of its American Light beer across new markets, overall depletion trends were not shaping up favorably exiting Q3, resulting in its lowered guidance.
SAM commented in late October that as its contractual terms expire, it will reassess its capacity needs and commitments with production partners. Shortfall fees tend to weigh considerably on Q4 margins. Reducing these headwinds can help preserve the annual margin drop-off SAM has experienced in recent years. Nevertheless, other headwinds remain, from a saturated hard seltzer market to slowing demand for its typically resilient Twisted Tea banner. As we mentioned following Q3 results in October, SAM may struggle over the near term until a sustained turnaround within its Truly Hard Seltzer business emerges.
Qualcomm secures favorable ruling in Arm Holdings (ARM) case against company, boosting shares (QCOM)
Qualcomm (QCOM) scored a major win in the courtroom last Friday after a jury ruled that the company's license to use Arm Holdings' (ARM) chip architecture for laptops and PCs is valid, allowing it to continue selling chips into that market. At the heart of the matter was whether QCOM was covered by a less costly license agreement that ARM worked out with Nuvia -- a CPU design company QCOM acquired in 2021 -- or whether QCOM was obligated to rework that deal, resulting in higher royalty fees to ARM.
The jury found that QCOM did not breach its contract by sticking to the arrangement that Nuvia forged with ARM, reducing the risk that the margins and profits of its burgeoning PC business will take a substantial hit due to costlier royalty rates. However, that risk hasn't been totally eliminated just yet.
- On the question of whether Nuvia violated the terms of its license agreement with ARM upon the QCOM acquisition, the jurors couldn't come to a consensus, resulting in a hung jury. Therefore, this piece of the litigation can be retried, which looks like a near certainty. In fact, ARM's attorneys have vowed to keep fighting, setting the stage for another trial in 2025.
- While the PC/laptop market is currently a relatively small portion of QCOM's business -- handsets still account for roughly 60% of total revenue -- it is a key component of the company's revenue diversification strategy. As new AI technologies, such as GenAI chatbots, are increasingly infused into new laptop models, QCOM expects growth for its Snapdragon X chipset to accelerate in the coming quarters.
- On that note, in 4Q24, IoT revenue jumped by 22% yr/yr to $1.68 bln, after that end market posted declines in each of the prior three quarters as the stubborn inventory glut across the company's OEM customer base finally eased. PCs and laptops, which make up part of the IoT business, played a role in the turnaround as the Snapdragon X chip made its way into 58 platforms.
- Furthermore, during an analyst event in mid-November, QCOM said that its projecting PC revenue of $4.0 bln by FY29. That estimate could prove to be conservative if the company achieves its goal of reaching 100 design wins by 2026, providing it with access to approximately 70% of the PC market.
Overall, the verdict is a positive development for QCOM, eliminating some risk for its up-and-coming PC business. However, the company isn't out of the woods yet as ARM looks to appeal the decision, and as the prospect of Apple (AAPL) launching its own modem chips in the next couple of years looms.
Despegar.com investors get a stocking stuffer; Prosus to acquire DESP at a 33% premium (DESP)
Shareholders of Latin American online travel company Despegar.com (DESP +32%) got a stocking stuffer this holiday season. Prosus, an e-commerce-based technology company, announced it will acquire DESP for $19.50 per share, all in cash for an enterprise value of approximately $1.7 bln. That represents a 33% premium from Friday's close. DESP's board has approved the transaction and the deal is expected to close 2Q25.
- Despegar has some attractive features. It operates in over 19 Latin American markets, serving customers through two primary business models: an omnichannel B2C platform and a rapidly expanding B2B segment that offers services to partners such as banks, airlines, and retailers. Despegar has grown into a leading position in the Latin American online travel space. It handles over 9.5 mln transactions annually, generating $5.3 bln in gross bookings and $706 mln in revenue.
- An attractive feature of DESP is that it recently achieved two significant milestones in Q3: a new 10-year Lodging Outsourcing Agreement with Expedia starting in 2025, which will expand DESP's lodging supply; second, DESP announced improvements in its AI travel assistant, Sofia, into an SaaS offering. This would open up opportunities for Despegar to leverage its AI technology beyond its own platform, allowing partners to integrate SOFIA into their platforms. DESP expects it become a growing source of recurring revenue.
- Prosus sees significant potential in leveraging its extensive consumer ecosystem in the region to drive user growth and engagement on Despegar, while introducing new products and services. Prosus plans to create synergies between Despegar and its other regional businesses, such as iFood, Latin America's largest food delivery platform with 60 mln customers per year, and Sympla, a prominent events platform.
- Despegar recently reported impressive Q3 results. Revenue grew just 8.9% yr/yr, however, that was 53% growth on an FX neutral basis to $193.9 mln. DESP said it focused on profitability in key markets such as Brazil (its largest and most important market) and it benefitted from a notable demand recovery in Argentina. As a result, adjusted EBITDA jumped 94% yr/yr to $48.0 mln, representing an all-time high margin of 24.8%. Despite FX challenges, DESP said that demand remains strong across the region.
Overall, we think the 33% premium is attractive for DESP investors and we can see why Prosus would find DESP attractve. The company has been seeing a recovery in travel demand in Latin America in recent quarters. The recent Expedia lodging deal was a big positive and the leveraging of its Sofia AI technology to integrate into other platforms was a win as well. Prosus clearly saw some value here, given the stock recent pullback in recent weeks.
Xerox's constant scanning of M&A opportunities results in a $1.5 bln purchase of Lexmark today (XRX)
Under its current Reinvention turnaround plan, Xerox (XRX +6%) has been scanning the M&A market for investment opportunities to support long-term growth. In October, the print and digital document products and services supplier announced its $400 mln purchase of Itsavvy, an IT services organization that XRX would bring to its mid-market clients. Today, XRX made another splash in the M&A space, this time significantly bigger, announcing its intent to acquire Lexmark International for $1.5 bln.
In connection with the deal, XRX will slice its annual dividend in half, providing investors with $0.50 per share, a 6.0% annual yield when using Friday's closing price compared to the previous 12.0% yield. The slashed dividend marks the first time XRX changed its annual payout since 2017. Despite the dividend cut, investors are responding positively toward XRX's Lexmark deal today.
- Lexmark International manufactures multiuse printers aimed at business owners and has been a long-time partner and supplier to XRX. The complementary lines of business between the two organizations open the door to significant cost synergies; XRX anticipates over $200 mln of synergies to be realized within two years of transaction close, which is expected during 1H25.
- The addition of Lexmark also allows XRX to bolster its presence in the A4 color market (relatively smaller, less expensive printers) while diversifying its geographical footprint, particularly in the APAC region. The A4 market benefits from the sale of high-margin supplies, such as ink cartridges. As such, XRX expects the transaction to be immediately accretive to its EPS and free cash flow.
- With over half of its annual revenue stemming from supplies, Lexmark has enjoyed stable sales growth this year despite operating in a volatile economic environment. Over the past 12 months, Lexmark has grown revs by 4%. On the flip side, XRX has endured considerable yr/yr revenue compression over that same period, struggling to deliver yr/yr growth since 2Q23.
- Together, XRX and Lexmark delivered over $8.0 bln in trailing twelve-month revenue. Furthermore, including expected run rate synergies, the combined company would have posted adjusted operating margins of 8.4%, significantly better than the 5.2% XRX registered last quarter. Like XRX, Lexmark has streamlined its operations over the past few years, providing a steady boost to its margins. Over a longer timeframe, XRX anticipates the transaction to result in double-digit adjusted operating margins.
Shares of XRX have been in a constant downward spiral this year, tumbling by over 50%, sparked by many hurdles, from a major reorganization to the company's sales team to product launch disruptions. However, part of its reinvention plan was to free up its balance sheet to invest in growth areas. Today's Lexmark deal underscores further turnaround progress by XRX, keeping it on track toward sustained and profitable growth. Management added earlier this month that as the fixes surrounding past setbacks are in place, sales productivity should improve. At the same time, M&A supports growth in areas that should offset a secular decline.
Carnival is cruising higher after it wrapped up FY24 with impressive results (CCL)
Carnival (CCL +6%) wrapped up FY24 on a solid note. The cruise line operator reported a nice EPS beat for Q4 (Nov). It was not the double-digit EPS beats we saw in Q2 and Q3, but still was good upside. CCL swung to adjusted EPS of $0.14 from a $(0.07) loss in the year ago period. Perhaps more importantly, Carnival expects Q1 (Feb) EPS to be roughly breakeven while analysts were expecting a slight loss. The company did guide FY25 adjusted EPS to $1.70, which was below analyst expectations.
- Revenue rose 10.0% yr/yr to $5.94 bln, which was in-line. Adjusted EBITDA is a good metric to use given the huge depreciation generated by capital-intensive cruise ships. Adjusted EBITDA in Q4 jumped 29% yr/yr to a record $1.22 bln, which was ahead of the $1.14 bln prior guidance. Adjusted EBITDA guidance for Q1 is approx. $1.04 bln and for FY25 it is approx. $6.60 bln.
- For 2024, prices were up in all of its major brands and trades between mid-single digits to mid-teens. Furthermore, onboard spending levels actually accelerated sequentially each quarter throughout the year.
- Carnival said this was an incredibly strong finish to a record year. Revenues hit an all-time high driven by a strong demand environment. CCL was able to drive strong pricing in 2024 vs 2023 across its major cruise lines and trades. Looking ahead, CCL is actively working on an enhanced destination strategy to provide guests with yet another reason to take a cruise. CCL says 2025 is shaping up to be another banner year with yield growth expected to far outpace historical growth rates.
- Furthermore, even with less inventory available, booking volumes taken during Q4 for 2025 were higher than the prior year for a strong 2024, despite the traditionally slower period around the election. Booking volumes taken during Q4 for 2026 continued to break records, reflecting sustained demand even for further out sailings. CCL says its North American and European segments are each at their longest advanced booking windows on record.
Overall, this was a solid way to close out FY24 and CCL sounds pretty bullish about FY25. What stands out to us is that CCL was able to raise prices in FY24 and still attracted good demand. CCL also sounds excited about FY25 as booking trends point to another solid year. Briefing.com profiled CCL as an Investment Idea in 2021 as we figured cruises would be among the last modes of travel to recover following the pandemic. The recovery has taken longer than we expected, but it seems that the stock is finally reflecting a healthy demand environment.
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