Market Snapshot
| Dow | 34095.86 | +34.54 | (0.10%) | | Nasdaq | 13518.78 | +40.50 | (0.30%) | | SP 500 | 4365.98 | +7.64 | (0.18%) | | 10-yr Note | -33/32 | 4.66 |
|
| | NYSE | Adv 796 | Dec 2023 | Vol 900 mln | | Nasdaq | Adv 1544 | Dec 2765 | Vol 4.3 bln |
Industry Watch
| Strong: Information Technology, Health Care, Consumer Discretionary, Consumer Staples |
| | Weak: Real Estate, Materials, Financials, Energy, Utilities |
Moving the Market
-- Lacking conviction following the best week of the year for the stock market
-- Relative strength in the mega cap space
-- Treasury yields moving higher
-- Profit-taking activity after strong gains last week
|
Closing Summary
06-Nov-23 16:30 ET
Dow +34.54 at 34095.86, Nasdaq +40.50 at 13518.78, S&P +7.64 at 4365.98
[BRIEFING.COM] The market experienced some consolidation today following the best week of the year for the stocks. The major indices were largely supported by mega cap gains while many other stocks declined due to profit-taking activity.
The Vanguard Mega Cap Growth ETF (MGK) rose 0.8% while the market-cap weighted S&P 500 closed with a 0.2% gain. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) fell 0.5% and market breadth was negative at both the NYSE and the Nasdaq. Decliners led advancers by a 5-to-2 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq.
The S&P 500 real estate sector (-1.4%), which jumped 8.6% last week, saw the steepest decline today followed by energy (-1.2%). The next worst performing sector was materials, which closed with a modest 0.5% loss.
The heavily-weighted information technology sector (+0.8%) led the pack followed by health care (+0.7%) and consumer discretionary (+0.2%).
Rising market rates were another factor keeping stocks in check. Like equities, Treasuries experienced some consolidation after last week's big gains. The 2-yr note yield rose eight basis points to 4.94% and the 10-yr note yield rose ten basis points to 4.66%.
The Treasury market will see a rush of new supply this week, beginning with the $48 billion 3-yr note auction on Tuesday, followed by the $40 billion 10-yr note auction on Wednesday and the $24 billion 30-yr bond auction on Thursday.
Separately, some individual stocks made outsized moves on specific news catalysts. Paramount Global (PARA 12.69, -1.07, -7.8%), which was downgraded to Underperform from Buy at BofA Securities, and Albemarle (ALB 119.46, -8.52, -6.7%), which was downgraded to Neutral from Buy at UBS, were among the losing standouts in that respect.
There was no U.S. economic data of note today.
- Nasdaq Composite: +29.2% YTD
- S&P 500: +13.7% YTD
- Dow Jones Industrial Average: +2.9% YTD
- S&P Midcap 400: +1.0% YTD
- Russell 2000: -1.3% YTD
Looking ahead, Tuesday's economic calendar features:
- 8:30 ET: September Trade Balance (Briefing.com consensus -$60.1 bln; prior -$58.3 bln)
- 15:00 ET: September Consumer Credit (Briefing.com consensus $9.0 bln; prior -$15.6 bln)
Market moves sideways
06-Nov-23 15:35 ET
Dow +10.67 at 34071.99, Nasdaq +18.65 at 13496.93, S&P +1.82 at 4360.16
[BRIEFING.COM] The major indices are mostly sideways ahead of the close.
The 2-yr note yield rose eight basis points to 4.94% and the 10-yr note yield rose ten basis points to 4.66%.
D.R. Horton (DHI), Uber (UBER), Fidelity Nat'l Info (FIS), GlobalFoundries (GFS), KKR (KKR), Melco Resorts & Entertainment (MLCO), and Squarespace (SQSP) are among the notable names reporting earnings ahead of Tuesday's open.
Looking ahead, Tuesday's economic calendar features:
- 8:30 ET: September Trade Balance (Briefing.com consensus -$60.1 bln; prior -$58.3 bln)
- 15:00 ET: September Consumer Credit (Briefing.com consensus $9.0 bln; prior -$15.6 bln)
Energy complex futures settle mixed; Some notable earnings after the close
06-Nov-23 15:05 ET
Dow +13.35 at 34074.67, Nasdaq +18.69 at 13496.97, S&P +2.95 at 4361.29
[BRIEFING.COM] The major indices moved higher over the last half hour.
WTI crude oil futures rose 0.4% to $81.10/bbl and natural gas futures fell 5.9% to $3.57/mmbtu. On a related note, the S&P 500 energy sector (-1.1%) has extended its early loss, trading near the bottom of the lineup now.
Goodyear Tire (GT), NXP Semi (NXPI), Intl Flavors (IFF), Coterra Energy (CTRA), Coherent (COHR), and TripAdvisor (TRIP) are some of the names reporting earnings after today's close.
SolarEdge hit with two sell side downgrades; Constellation Energy atop S&P 500 after earnings
06-Nov-23 14:30 ET
Dow -49.29 at 34012.03, Nasdaq -14.30 at 13463.98, S&P -7.04 at 4351.30
[BRIEFING.COM] The S&P 500 (-0.16%) is today's worst declining average, though trading is just off lows as it currently stands.
S&P 500 constituents SolarEdge Technologies (SEDG 69.65, -5.95, -7.87%), Moderna (MRNA 72.06, -5.47, -7.06%), and Norwegian Cruise Line (NCLH 13.01, -0.79, -5.76%) pepper the bottom of the standings. SEDG caught an HSBC downgrade to Hold and a Well Fargo downgrade this morning, MRNA had a few sell side firms cut their tgts, while NCLH gives back most of Friday's rally.
Meanwhile, Baltimore-based energy firm Constellation Energy (CEG 124.10, +7.03, +6.00%) outperforming after earnings.
Gold slips from recent rally
06-Nov-23 14:00 ET
Dow -14.02 at 34047.30, Nasdaq -10.91 at 13467.37, S&P -3.92 at 4354.42
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.08%) is narrowly in second place, down just shy of 11 points.
Gold futures settled $10.60 lower (-0.5%) to $1,988.60/oz, giving up some of last month's advance, haven demand dulled somewhat as a lack of further escalation in the Middle East has put a pause on the yellow metal's rally.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $105.15.
Page One
Last Updated: 06-Nov-23 09:03 ET | Archive
Waiting on what comes next
How does the stock market follow up its best week of the year? Well, we will find out soon enough. At the moment, it is laying down some protective covering, which is to say it is fighting to hold its ground while aiming to reclaim more of the ground it lost in the selloff that began in August.
Currently, the S&P 500 futures are up five points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 24 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up five points and are trading fractionally above fair value.
The translation from the futures market is that it will be a relatively subdued start to the trading day. That's perfectly understandable as last week's rally, which showed yet again the difficulty of trying to time the market, produced gains between 5.1% and 7.6% for the major indices.
There should be some natural cooling after that hot run, but what remains notable at this point is that there isn't any concerted selling interest after such a massive move.
Last week's move was all parts technical (clearing resistance at the 200-day and 50-day moving averages), fundamental (huge drop in rates), and positioning (large degree of short covering and a flat squeeze rooted in the fear of missing out on further seasonal gains).
Everything came together, so it only made sense that last week was an "everything rally." Now, the stock market is back on a proving ground, needing to show it can retain its positive bias.
There hasn't been any news to upset it, but market rates are showing some leakage, which is likely a bit of a holdback factor. The 2-yr note yield is up three basis points to 4.89% and the 10-yr note yield is up six basis points to 4.62%.
There is going to be a large amount of debt issuance this week, beginning with a $48 billion 3-yr note auction on Tuesday and followed by a $40 billion 10-yr note auction on Wednesday, and a $24 billion 30-yr bond auction on Thursday.
That is a lot of debt to digest. There will be fewer earnings reports to digest this week with approximately 50 S&P 500 companies reporting their results, yet the earnings news will remain a key part of the narrative.
Today's narrative doesn't include any economic data of note, but it does include a huge rally in South Korea's KOSPI (+5.7%) following the news that South Korea has banned short selling until at least June 2024, a CNBC report that Citigroup (C) is mulling job cuts of 10%+ for several of its businesses, and word from Berkshire Hathaway (BRK.B), which reported a 40% increase in third quarter operating earnings, that it ended the third quarter with a record $157.2 billion in cash.
Later today (2:00 p.m. ET), the narrative will also feature the release of the Senior Loan Officer Opinion Survey. That release will be looked at closely for the direction of lending standards and how that might translate into future lending activity -- or a lack thereof.
-- Patrick J. O'Hare, Briefing.com
DISH Network is losing its connection with investors after registering a surprise loss in Q3 (DISH)
DISH Network (DISH -32%) is rapidly losing its connection with investors, selling off to multi-decade lows today following its Q3 report. Today's glaring headline was DISH's surprise net loss in the quarter, registering EPS of $(0.26), a striking reversal from the $0.31 figure delivered last quarter. DISH is amid plenty of change, with a pending combination with EchoStar (SATS) and a spectrum purchase agreement with T-Mobile (TMUS). With a 5G deadline continuing to loom, losses starting to pile up, and significant changes on the horizon, investors are fleeing from DISH, reflecting extraordinary uncertainty surrounding whether the long-established satellite services provider can avoid bankruptcy.
- What happened that led to the surprise loss? A few factors were at play, including higher marketing expenses, a change in commission structure, and elevated equipment costs as a higher percentage of handsets on DISH's 5G were deployed.
- Part of the problem with wireless was last year's dispute with TMUS, leading to T-Mobile shutting down its 3G CDMA network, causing DISH to replace these customers' handsets with new, compatible ones. Unfortunately, given the timing, these phones were not compatible with DISH's current network, causing another replacement cycle this year, eating into profitability. Also not helping matters is that wireless continued to hemorrhage subscribers in Q3, down 3% sequentially, an acceleration from the 2% drop qtr/qtr in Q2.
- Marketing is also not translating to much benefit. Recall that DISH partnered with Amazon (AMZN) this past summer, offering wireless service to Prime subscribers at $25 monthly. Although a competitive price point, awareness is not high, making marketing efforts seem futile. After conceding that it is not doing a great marketing job, DISH noted that it is working with AMZN to improve the overall storefront presentation. As such, perhaps numbers will improve in subsequent quarters as more Prime members become aware of the attractively priced phone service.
- Meanwhile, pay-TV remains a vanishing medium, with cord-cutting the central theme amongst TV-goers. This trend is reflected in DISH's subscriber growth, falling by 1% sequentially in Q3, following a 3% drop in Q2. Despite being a less popular aspect of DISH, given its emphasis on meeting its 5G deadline, pay-TV remains a critical component of cash flow. As a result, it will be crucial for DISH to stop bleeding pay-TV customers.
Bottom line, DISH's Q3 net loss was startling. Its wireless service marketing efforts are falling short while its pay-TV subscribers are fading. Its Q3 report did not change the fact that DISH continues staring at an extensive uphill battle as it takes on giants in its respective industries.
Post dips lower after soft Q4 sales guidance and announcing CEO medical leave of absence (POST)
Packaged food company Post (POST) continues to benefit from the return-to-office trend and the recovery in the travel industry as illustrated by the solid growth in its Foodservice segment, but an overall slowdown in consumer spending is offsetting that strength. Accordingly, POST guided Q4 revenue slightly below expectations this morning, and that wasn't the only downbeat news the company had to share.
- POST also announced that President and CEO Robert Vitale will be taking an unexpected medical leave of absence. At this point, the company is unsure of his recovery timeline. Fortunately for POST, the company has a seasoned executive in place to assume the role of interim CEO as Jeff Zadoks, who currently serves as COO, will take the reins for the time being. Mr. Zadocks has served in various roles with POST since 2011.
- This leadership transition, though, comes at a difficult time because the company is in the middle of completing, and then integrating, another significant acquisition. On October 10, POST expanded its pet food business with its $235 mln acquisition of Perfection Pet Foods. The acquisition comes on the heels of POST purchasing select pet food brands such as Rachael Ray Nutrish, Nature’s Recipe, 9Lives, and Kibbles ‘n Bits, from J.M Smucker (SJM) last February for $1.2 bln.
- In Q2, the addition of the pet food business from SJM helped push net sales and adjusted EBITDA higher by 22% and 35%, respectively. Furthermore, due to ongoing supply chain improvements, gross margin expanded by 310 bps yr/yr to 27.0%.
- Looking ahead, POST is anticipating the pet food acquisitions to drive healthy growth again in FY24. In regard to Perfection Pet Foods, the company forecasted the acquisition to contribute approximately $25 mln of adjusted EBITDA in the next 12 months following the close of the deal.
- In total, POST guided for FY24 adjusted EBITDA of $1.20-$1.26 bln today, which is an improvement from its prior outlook of adjusted EBITDA modestly exceeding the midpoint of its FY23 outlook of $1.18-$1.20 bln.
- From an organic standpoint, though, growth is likely to slow as the Foodservice segment normalizes and as consumers lower their spending. On that note, volumes decreased by 5.7% in Q2 when excluding the benefit from the pet food business.
The main takeaway is that business conditions remain mixed for POST as the expansion of its pet foods business should help mitigate the impact of declining volumes in retail and a return to more normalized growth rates in Foodservice.
TreeHouse Foods loses a few branches as stock falls on weak Q3/Q4 sales (THS)
TreeHouse Foods (THS -8%) is heading lower today following its Q3 results this morning. This huge supplier of private label food and beverages missed on revs and guided Q4 revenue below expectations. THS performed a bit better in terms of profitability with adjusted EBITDA of $89.9 mln, topping prior guidance of $81-89 mln as the company was able to raise prices to offset inflation.
- Revenue was impacted by a voluntary product recall and a discrete supply chain disruption late in the quarter. These issues, combined with weaker co-manufacturing and food-away-from-home revenue coupled with lower than anticipated consumption in select categories resulted in sales below expectations. However, THS was pleased that it was able to post 1% unit growth in its core retail business.
- THS saw continued strength in private brand volume in Q3 compared to national brands. Private brand unit sales in the measured retail channel were flat compared to national brands, which continued to decline.
- In terms of food consumption trends, THS says retailers have seen changes in basket size/mix. Also, retailers are more closely aligning orders to current demand as the industry moves further past supply chain disruptions in recent years. THS has found that among consumers who changed at-home eating habits, their focus has been on reducing waste and switching to less expensive options, which is good for TreeHouse.
- Furthermore, THS says private brands have gained unit share for 92 consecutive weeks, reaching an all-time high for Q3. THS is seeing private brands gain share with Gen Z and millennials, showing it is winning over the next generation of consumers. THS also says it's attractively positioned at the intersection of two powerful long-term consumer trends: the growth of private brand groceries and a consumer shift towards snacking.
Overall, investors are disappointed in TreeHouse's Q3 results. The company missed pretty substantially on the top line and the Q4 revenue guidance was well below analyst expectations. We could understand a one-quarter hit from the recall and supply chain disruption, but this was a pretty big hit to two quarters, including the important holiday period. It was good to see THS able to perform well in terms of profitability thanks to price hikes, but the results were disappointing overall.
With the consumer feeling the pinch, private label groceries would seem like a good place to be for investors. However, the stock has been heading lower since THS reported Q2 results in early August as the company has faced some operational issues. We think the name is worth keeping on the radar once it stabilizes.
Freshpet tracks ahead of its FY27 goals as premiumization trends continue in Q3 (FRPT)
The premiumization of the pet food industry benefitted fresh pet food supplier Freshpet (FRPT +17%) nicely during Q3. FRPT's modest earnings and sales beats, as well as a mild bump to its FY23 revenue forecast, may not seem substantial enough to trigger such a sizeable upward move in its share price today. However, after giving up nearly 30% since its Q2 report in early August, coinciding with the broader correction amongst consumer packaged goods giants, FRPT's relatively moderate Q3 performance is providing much-needed relief. Also, most notably, FRPT's Q3 results have put the company firmly ahead of the pace required to deliver the 2027 financial goals it outlined at the beginning of the year, including 25% annual top-line growth, resulting in $1.8 bln in revenue in 2027, and 18% adjusted EBITDA margins.
- Revenue growth accelerated in Q3, expanding by 32.6% yr/yr to $200.6 mln, well ahead of its annual growth target, fueled primarily by a 23% increase in volume, emanating from ongoing household penetration growth and a continuously improving number of heavy and super heavy users, a cohort FRPT refers to as HIPPOHs. These customers, which grew by 25% over the past year and upped their buying rate by 6%, are the lifeblood of FRPT, accounting for 88% of its total volume.
- FRPT conceded that margins are its weak point, requiring the most work to achieve its 2027 targets. Adjusted gross margins remain 500 bps below the company's long-term goal; adjusted EBITDA margins are also below where they need to be. Still, over the past several quarters, FRPT's bottom line has improved nicely, coming in at $(0.15) in Q3, up from $(0.35) in Q2 and $(0.52) in Q1.
- FRPT's fridge network is vital to its success as a fresh pet food supplier. As a result, it must have branded fridges placed in retail stores, expanding its fridge totals its number one priority. On that front, FRPT is advancing its agenda successfully, placing slightly under 4,500 new, upgraded, and second or third fridges in Q3-to-date. A fifth of its over 26,000 stores now have multiple fridges, and FRPT is tracking above its initial commitment of 5,000 fridge placements in 2023.
- With FRPT firing on all cylinders during Q3, it was more than confident in raising its FY23 forecasts, projecting revs of approximately $755 mln, up $5 mln from its prior forecast, and adjusted EBITDA of around $62 mln, up from its previous estimate of at least $55 mln. Heading into FY24, management remarked that it added incremental staffing at its production sites, providing the capacity needed to position it to meet the demand anticipated in 1Q24.
High-quality pet food is proving to be among the last items consumers trim from their budgets during challenging economic times. Potentially highlighting this trend are consumer packaged goods companies facing private label trade down and reduced overall basket sizes, reflecting households trying to do what it takes to maintain premium food for their pets. Given FRPT's recent upward momentum, we like its positioning to capitalize on this sustained tailwind.
Carvana's relief rally continues following sustained profitability in Q3 (CVNA)
After a more than 50% correction since September highs, Carvana (CVNA +9%) shares are finally kicking into gear today, sparked by better-than-feared Q3 results. The used vehicle retailer registered a massive jump in net income compared to last quarter, underscoring the company's focus on improving profitability.
- After rival CarMax (KMX) registered disappointing profitability in AugQ in late September, concerns started that CVNA could endure a similar outcome in Q3. What made KMX's mild EPS performance glaring was that it had been purposefully giving up some market share to preserve its margin profile, further highlighting a potentially challenging economic backdrop for CVNA.
- Nevertheless, CVNA's attention to margins has helped boost profitability despite facing unfavorable demand conditions, evidenced by retail vehicle sales tumbling 21% yr/yr in the quarter. Although worth noting is that this is slightly better than CVNA's prediction last quarter of retail units remaining flat sequentially in Q3.
- Specifically, adjusted EBITDA remained in positive territory for the second straight quarter, albeit contracting slightly sequentially. Margins also remained positive, soaring from negative 5.5% in 3Q22 to a healthy 5.3% this quarter, a 10 bp improvement from Q2. With CVNA's return to positive adjusted EBITDA being a major factor in lifting shares to one-year highs in Q2, maintaining this trend in Q3 is reassuring that perhaps CVNA is finally on a path to sustainable profitability.
- Revenue still fell yr/yr for the fifth consecutive quarter, tumbling 18% to $2.77 bln. However, this was mostly in-line with analyst expectations. Meanwhile, non-GAAP total gross profit per unit (GPU) contracted by $634 sequentially to $6,396, driven by smaller benefits compared to Q2.
- Looking ahead, macroeconomic and industry dynamics remain uncertain, which keeps a layer of volatility in play over the near term. However, as long as the environment remains relatively stable, CVNA is confident in achieving a non-GAAP total GPU above $5,000 for the third straight quarter in Q4. Meanwhile, CVNA anticipates significant total GPU and adjusted EBITDA expansion in 2024.
Generating meaningful net income and free cash flow remains CVNA's long-term goal. Given CVNA's past and the immediate future with heightened macroeconomic volatility, bumps along the way to reaching these financial goals are expected. While its debt restructuring deal last quarter went a long way in easing financial pressures, there are still plenty of doubters surrounding whether CVNA can come out of the current lackluster demand backdrop in a healthy financial position. However, so far, CVNA is making solid progress toward being a fierce contender in the used car retail space.
|
