| | | Market Snapshot
| Dow | 44556.34 | +10.26 | (0.02%) | | Nasdaq | 20041.26 | +14.49 | (0.07%) | | SP 500 | 6129.58 | +14.95 | (0.24%) | | 10-yr Note | -27/32 | 4.54 |
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| | NYSE | Adv 1590 | Dec 1132 | Vol 1.0 bln | | Nasdaq | Adv 2275 | Dec 2114 | Vol 8.7 bln |
Industry Watch
| Strong: Energy, Materials, Industrials, Utilities, Financials, Information Technology |
| | Weak: Communication Services, Consumer Discretionary, Health Care |
Moving the Market
-- Positive bias acting as its own upside catalyst, leading S&P 500 to fresh record
-- Not a lot of conviction, lacking market-moving news
-- Mixed showing in mega caps
-- Treasury yields are higher
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Closing Summary
18-Feb-25 16:25 ET
Dow +10.26 at 44556.34, Nasdaq +14.49 at 20041.26, S&P +14.95 at 6129.58
[BRIEFING.COM] It was a mostly lackluster day until the final 10 minutes of trading. The S&P 500 flirted with its prior close until a surge of buying interest propelled the index to a fresh record high (6,129) in the late afternoon. The Dow Jones Industrial Average, which also closed at its best level of the day, logged a fractional gain and the Nasdaq Composite closed 0.1% higher.
There was a positive bias under the index surface even as major indices traded lower, which acted as an upside catalyst and invited more buying in the final moments of the day.
The tepid price action through most of the session followed a long weekend that didn't present much market-moving news and a limited economic calendar today. The February Empire State Manufacturing survey, which jumped to 5.7 from -12.6, and the February NAHB Housing Market Index, which dropped to 42 from 47, garnered muted responses from the equity market.
Losses in some mega cap stocks were another limiting factor through the session. Apple (AAPL 244.47, -0.13, -0.1%), Meta Platforms (META 716.37, -20.30, -2.6%), Amazon (AMZN 226.65, -2.03, -0.9%), Tesla (TSLA 354.11, -1.73, -0.5%), and Alphabet (GOOG 185.80, -1.07, -0.6%) were influential laggards in that respect.
Some of the aforementioned names weighed down their respective S&P 500 sectors. The communication services (-1.3%) and consumer discretionary (-0.5%) sectors closed at the bottom of the pack.
On the flip side, the energy sector registered the biggest gain, responding to rising oil prices ($71.81/bbl, +1.13, +1.6%).
- Dow Jones Industrial Average: +4.7% YTD
- S&P 500: +4.2% YTD
- Nasdaq Composite: +3.8%
- S&P Midcap 400: +3.4% YTD
- Russell 2000: +2.7% YTD
Reviewing today's economic data:
- February Empire State Manufacturing 5.7 (Briefing.com consensus -2.0); Prior -12.6
- February NAHB Housing Market Index 42 (Briefing.com consensus 47); Prior 47
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.3%)
- 8:30 ET: January Housing Starts (Briefing.com consensus 1.400 mln; prior 1.499 mln) and Building Permits (Briefing.com consensus 1.450 mln; prior 1.483 mln)
Treasuries settle with losses
18-Feb-25 15:35 ET
Dow -102.90 at 44443.18, Nasdaq -54.30 at 19972.47, S&P -0.87 at 6113.76
[BRIEFING.COM] The Dow Jones Industrial Average sports a 0.2% decline. The S&P 500 trades fractionally lower while the Nasdaq Composite shows a 0.3% decline.
Treasuries settled with losses. The 10-yr yield settled seven basis points higher at 4.54% and the 2-yr yield settled four basis points higher at 4.30%.
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.3%)
- 8:30 ET: January Housing Starts (Briefing.com consensus 1.400 mln; prior 1.499 mln) and Building Permits (Briefing.com consensus 1.450 mln; prior 1.483 mln)
ADI, ETSY, GRMN trade up ahead of earnings
18-Feb-25 15:10 ET
Dow -131.56 at 44414.52, Nasdaq -52.25 at 19974.52, S&P -1.84 at 6112.79
[BRIEFING.COM] The major indices are little changed in recent trading.
Some names reporting earnings ahead of Wednesday's open trade higher. Analog Devices (ADI 219.67, +5.06, +2.4%), Etsy (ETSY 57.24, +0.04, +0.1%), and Garmin (GRMN 213.04, +0.42, +0.2%) are among them.
Market breadth was positive at the open but shows mixed action now. Advancers lead decliners by a 4-to-3 lead at the NYSE while decliners have a fractional lead at the Nasdaq.
S&P 500 drops to session low
18-Feb-25 14:30 ET
Dow -178.56 at 44367.52, Nasdaq -68.65 at 19958.12, S&P -5.30 at 6109.33
[BRIEFING.COM] The S&P 500 dropped to a fresh session low in recent trading, down 15 points at its worst level.
The move coincided with some mega caps extending losses and with selling picking up in the Treasury market. The 10-yr yield, which was at 4.51% earlier, sits at 4.54% now. The 2-yr yield moved to 4.29%.
Still, many stocks trade higher as evidenced by the 0.5% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
Russell 2000 fading from earlier highs
18-Feb-25 14:05 ET
Dow -95.04 at 44451.04, Nasdaq -63.39 at 19963.38, S&P -2.05 at 6112.58
[BRIEFING.COM] It is largely more of the same for the major indices, which haven't been in a hurry to get anywhere today. The Russell 2000, up 0.6% at its earlier high, has faded and is now up just 0.2%.
Market participants haven't been compelled by today's headlines to show much conviction outside of individual stocks like Walgreens Boots Alliance (WBA 10.81, +1.11, +11.5%), which is reportedly still engaged in talks with Sycamore Partners about a possible buyout. Earlier, CNBC's David Faber said there are "signs of life" for a deal with Sycamore as opposed to discussions being completely dead.
WBA is one of the best-performing S&P 500 components today, trailing behind only Super Micro Computer (SMCI 54.32, +6.41, +13.5%), which is putting up another macro gain in a momentum-backed trade.
SMCI is up 102% since February 3.
Baidu's sluggish advertising business clouding over its fast-growing AI Cloud products (BIDU)
Chinese internet giant Baidu.com (BIDU) surpassed analysts' muted 4Q24 expectations, but that wasn't enough to stave off a sharp selloff in the stock as the company's bread-and-butter online advertising business continues to struggle under tough macroeconomic conditions. Furthermore, while BIDU's AI Cloud business generated solid revenue growth of 26%, concerns are mounting that its GenAI chatbot called "ERNIE" could lose momentum following the launch of DeepSeek's chatbot last month.
- Despite the strong growth in the AI Cloud business, Baidu Core revenue still fell by 7% yr/yr to RMB 17.9 bln, reflecting macro-related pressures and rising competition in the social media space. BIDU has been banking on its ERNIE chatbot to provide its advertising business with a competitive edge and revenue boost, but that hasn't played out in a substantial way just yet. The fact that a high percentage of BIDU's advertising customers are smaller, offline businesses doesn't help its cause.
- The emergence of DeepSeek has created another major challenge for BIDU, especially since its open source, causing BIDU to reverse its original plan of charging a fee to use ERNIE. Starting on April 1, BIDU will offer the ERNIE chatbot for free on both desktop and mobile phone platforms.
- These headwinds in BIDU's advertising business, which accounts for over half of the company's total revenue, are also impacting its margins and profits. Adjusted EBITDA margin decreased by six percentage points on qtr/qtr basis to 20%, and adjusted EPS dipped by 12% to RMB 19.18. During this rough stretch that includes three consecutive quarters of yr/yr revenue declines, BIDU hasn't let up in terms of investing in AI and autonomous driving technology. In Q4, capex came in at RMB 2.33 bln compared to RMB 1.65 bln last quarter.
- On the topic of autonomous driving, BIDU is seeing good momentum with its Apollo Go ride-hailing service. For Q4, Apollo Go provided over 1.1 mln rides, up 36% yr/yr, and strong growth should continue after BIDU secured permits to conduct autonomous driving tests in Hong Kong last November.
BIDU's sluggish online advertising business is clouding over the stronger growth of its AI Cloud business, which did have a strong quarter. However, concerns are mounting that DeepSeek and other emerging chatbots will derail BIDU's ambitious AI growth aspirations.
Intel jumps on report that Broadcom (AVGO) is mulling bid for its product business (INTC)
Once the preeminent force in the global semiconductor industry, Intel's (INTC) technological edge has steadily faded over the past decade, opening the door for competitors like Taiwan Semiconductor Manufacturing (TSM), Advanced Micro Devices (AMD), and NVIDIA (NVDA) to fly by the company and to lead the AI-powered chip boom. Mired in one of the worst slumps in its history, as illustrated by yr/yr revenue declines in ten of its past twelve quarters and a stock price that has plunged by over 50% since the beginning of 2024, INTC is now drawing M&A interest. Over the weekend, the Wall Street Journal reported that Broadcom (AVGO) is considering making a bid for INTC's product business, while TSM is evaluating the possibility of acquiring some or all of INTC's chip manufacturing plants.
The story has sent shares of INTC sharply higher, while AVGO and TSM are sliding lower. For INTC, which struggled to kickstart its recently formed Foundry segment under former CEO Pat Gelsinger, untethering its chip design business from Foundry and the substantial losses that it continues to accumulate would likely unlock plenty of shareholder value. Despite its troubles, INTC is still a dominant player in the PC/laptop market, making the company a compelling strategic fit for AVGO and its stronger presence in the wireless and networking markets.
- Prior to this development, INTC had announced last September that it was planning to spin-off the Foundry segment into an independent subsidiary with separate financials. In Q4, the unit experienced a 13% yr/yr drop in revenue to $4.5 bln, and in FY24, it racked up an operating loss of $13.0 bln. In order for AVGO to consider acquiring INTC's product business, AVGO will first need to find a partner for Foundry, which may be easier said than done given Foundry's financial issues.
- Furthermore, attaining shareholder approval for an acquisition of INTC may not be a slam dunk considering the vast risks involved with such a huge transaction. Unlike INTC, AVGO is capitalizing on the AI boom. In Q4, the company's AI networking revenue surged by 158% yr/yr, driven by a doubling of its AI XPU shipments to three hyperscale customers. Meanwhile, revenue in INTC's Data Center and AI segment fell by 3%, while revenue in the Client Computing Group slipped by 9%.
- Regulatory hurdles could also stand in the way of a deal getting done since the combination of two of the largest chip companies could pose a competitive threat. However, the fact that the Trump Administration wants to strengthen the country's positioning in the global semiconductor market, lessening our dependence on China and Taiwan, could work in this deal's favor.
- The same can't be said for TSM's reported interest in buying some of INTC's facilities. Under Mr. Gelsinger, INTC announced plans to construct new plants in Arizona and Ohio and it's highly unlikely that the Trump Administration would allow TSM to take a controlling interest in those facilities -- or any preexisting facilities.
The main takeaway is that the prior vision of INTC transforming into both a chip designer and manufacturer is fading and that's a positive from the perspective of its shareholders. A transaction with AVGO is far from a lock, but the odds of a major deal getting done are steadily rising.
Medtronic's recent gains sliced today on weakness in its Medical Surgical business in Q3 (MDT)
Recent gains from Medtronic (MDT -7%) are being cut into today despite the medical device maker delivering its 11th consecutive earnings beat in Q3 (Jan) and reiterating its FY25 (Apr) adjusted EPS and organic revenue forecasts. The stock is amid one of its single-worst days of the past few years as it erases gains from the past month.
Today's setback branches from MDT's Medical Surgical portfolio, the only segment to post a yr/yr net sales decline, contracting by 1.9% on a reported basis and 0.4% on an organic basis, resulting in a minor top-line miss in the quarter. MDT posted total revenue of $8.29 bln, a 2.5% increase yr/yr. The company has been dealing with a disruption in its U.S. distributor buying patterns, clipping a couple hundred basis points off growth in Q3. Meanwhile, Medical Surgical is running into some competitive pressures, which MDT noted it is offsetting by winning share in one of its product suites and extracting high single-digit growth in emerging markets.
CEO Geoffrey Martha stressed that the relative weakness in Medical Surgical was not the result of any market share losses. In fact, the CEO commented that he believes the company continues to outperform slightly in the non-robotic space. Although there are headwinds in the U.S. robotics market.
- Outside Medical Surgical, MDT delivered a healthy performance in Q3. Consolidated organic revenue growth (excludes FX impacts and revenue adjustments) moved 4.1% higher yr/yr, led by a 10.4% jump in MDT's Diabetes segment. The company delivered its fifth consecutive quarter of double-digit growth in Diabetes, underpinned by a shift to more advanced automated insulin delivery (AID) systems to improve diabetes management.
- MDT's Cardiovascular and Neuroscience portfolios also performed well, expanding organic sales by 5.0% and 5.2% yr/yr, respectively.
- In Cardiovascular, the company's PulseSelect and Affera platforms are driving sustained gains. Likewise, hypertension and MDT's Simplicity blood pressure procedure continue to support growth. Last month, it was announced that MDT will have Medicare coverage in place sometime over the next eight months, which the company believes will act as an immediate growth driver.
- In Neuroscience, MDT noted that its surgical instruments in the spine business are creating market disruption, causing competitors to exit the market and expanding the company's economic moat.
- Looking ahead, MDT reiterated its FY25 adjusted earnings outlook of $5.44-5.50 and organic revenue growth prediction of +4.75-5.00% yr/yr. While Medical Surgical will continue to face headwinds, MDT noted that utilization is continuing to increase overseas, with Hugo procedure volumes doubling yr/yr. Hugo is MDT's robotic-assisted surgery system. Management added that in the U.S., it is on track to submit Hugo for FDA approval by the end of next month. Furthermore, MDT expects the distributor headwinds to resolve upon entering 1Q26 (Jul).
Bottom line, MDT's Q3 performance was decent. However, for a stock that has appreciated roughly +17% since the start of the year, the meaningful issues in Medical Surgical were sufficient to spark concern, driving today's sharp pullback.
Waystar is showing investors the way, stock trades to a new post-IPO on Q4 results (WAY)
Waystar (WAY) is trading modestly lower after wrapping up FY24 with a solid Q4 report this morning. This is just the third earnings report for this provider of healthcare payment software since it made its IPO in June 2024. This was by far its largest EPS beat since coming public. Revenue rose 18.1% yr/yr to $244.1 mln, nicely above analyst expectations, which has been the case in all three earnings reports.
- What really jumped off the page was its FY25 guidance with adjusted EPS at $1.29-1.32, which was well ahead of analyst expectations. The revenue guidance of $1.000-1.016 bln was still upside, but more modest. In 2024, Waystar achieved a record number of implementation activations. In 2025, it starts off with a strong pipeline of projects ready for implementation. Additionally, Waystar says recent activations are ramping as expected, reinforcing its view into 2025 outlook.
- The operating metrics were also quite good as 1,203 clients contributed over $100,000 in LTM revenue, up 15% yr/yr. Also, net revenue retention (NRR) rate came in at 110%, at the high end of its historical range of 108-110%. Subscription revenue rose 18% yr/yr to $121.6 mln.
- Revenue growth in Q4 was driven by the strength of its software business model, which includes an ability to drive cross-sell and upsell with existing clients. Waystar explained on the call that administrative waste costs more than $350 bln annually, which creates extra work and stress for health care providers. The Waystar software platform is purpose-built to reduce administrative waste, manual work, and errors.
- Waystar talked about its recent launch of AltitudeAI, its AI platform to simplify healthcare payments and transform revenue cycle processes for healthcare organizations. Its AltitudeCreate product accelerates denial recovery by autonomously drafting appeal letters across multiple denial types, improving efficiency and reimbursement speed. In its first month, early access clients are already seeing meaningful results.
- The EPS upside in Q4 appears to have been driven by robust margins. In Q4, adjusted EBITDA grew 16% yr/yr to $100 mln for a 41% margin. For FY24, Waystar delivered on its target of 40% adjusted EBITDA margins with full year margins of 40.6%, although that was down slightly from 42.2% in 2023. Waystar argues that its robust margin demonstrates its operating leverage as it scales up.
Overall, Waystar is really showing the way for investors since its IPO debut in June. It has now reported three consecutive impressive quarters with a huge EPS beat in Q4. Also, as providers prioritize ways to get paid faster and more efficiently, WAY is smartly investing in AI-driven automation. Impressive operating metrics and very robust adjusted EBITDA margins have allowed Waystar to stand out during its first few months as a public company.
TreeHouse Foods provides a tasty snack for investors following big EPS beat (THS)
TreeHouse Foods (THS +4%) is trading nicely higher today after reporting a huge EPS beat. In fact, this major supplier of private label food and beverages reported its largest EPS upside since 1Q23. Revenue dipped 0.5% yr/yr to $905.7 mln, which was in-line, maybe a bit light. The Q1 and FY25 guidance were below analyst expectations.
- THS wrapped up what was a challenging year in 2024. The company had to navigate a slower macro environment and two significant supply chain issues in 2024. The good news is that THS has made steady progress executing on its supply chain improvements despite a difficult consumer backdrop across food and beverage categories.
- Digging into the Q4 results a bit, sales were nearly flat as volume/mix was positively impacted by strong performance in multiple categories including pretzels, in-store bakery, and cookies. However, this was offset by lost volume from the griddle product facility restoration following a recall. Additionally, commodity-driven pricing adjustments in select categories contributed to the decrease.
- Notably, THS says it is focusing more on a more profitable business, including making decisions based on margin management with a goal of prioritizing gross profit dollars. THS is also focused on additional efficiency across its operations. That, coupled with declining levels of capex, should drive improved profitability and cash flow. That appears evident in its Q4 results with a big EPS beat despite a slight miss on revs. That tells us margins were better than expected.
- In terms of the guidance, THS explained that private brand unit sales experienced a rather sharp deceleration during Q4 due to continued macro pressure. THS is experiencing similar trends thus far in Q1.
- Despite the macro trends, THS says the overall private label industry dynamics remain favorable. Price gaps are healthy and they maintained their historical cadence during the holiday period despite weaker consumption. Looking ahead, THS believes an increase in promotional activity is likely given industry volume, softness and overall consumption patterns.
- Bigger picture, THS said on the call that it's clear that many grocery retailers see further runway for growth in private brands and are making investments accordingly. For example, Walmart (bettergoods) and Albertsons (Overjoyed) both launched new private label brands in 2024. Costco's Kirkland brand is well-established, and Aldi continues its store base expansion across the US with an assortment that is focused almost exclusively on private brands.
Overall, we view Q4 as a mixed quarter with strong EPS upside but weak guidance. We are a bit surprised to see the stock up so much. However, we think the big EPS upside really shows that THS is making progress on being more profitable. Also, THS was fairly positive on the private label industry going forward. And there has been a lot of negativity already priced into the stock given its recent struggles, so investors are seeing Q4 as a buying opportunity.
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