Market Snapshot
briefing.com
| Dow | 37545.33 | +159.36 | (0.43%) | | Nasdaq | 15074.57 | +81.60 | (0.54%) | | SP 500 | 4774.75 | +20.12 | (0.42%) | | 10-yr Note | +1/32 | 3.89 |
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| | NYSE | Adv 2066 | Dec 738 | Vol 591 mln | | Nasdaq | Adv 6.1 bln | Dec 2928 | Vol 2928 |
Industry Watch
| Strong: Energy, Information Technology, Utilities, Industrials, Communication Services, Consumer Discretionary |
| | Weak: -- |
Moving the Market
-- Santa Claus rally period (i.e. the last five trading days of the year and the first two trading days of the new year)
-- M&A buzz after news that Bristol-Myers (BMY) is acquiring RayzeBio (RYZB) for $62.50/share in cash and AstraZeneca (AZN) is acquiring Gracell Biotechnologies (GRCL) for an upfront cash portion of $10.00 per ADS
-- Light participation on this last week of the year |
Closing Summary
26-Dec-23 16:30 ET
Dow +159.36 at 37545.33, Nasdaq +81.60 at 15074.57, S&P +20.12 at 4774.75
[BRIEFING.COM] The stock market closed with gains this session amid the Santa Claus rally period, which includes the last five trading days of the year and the first two trading days of the new year. Participation was below-average to begin this holiday shortened week due to investors remaining in vacation-mode ahead of another extended holiday weekend.
The three major indices closed with gains ranging from 0.4% to 0.5% after taking a modest turn lower in the last 30 minutes of trading. The Russell 2000 was a relative outperformer among major indices, climbing 1.2%. The S&P 500 for its part traded within 15 points of its all-time high close (4,796) at its high of the day.
Gains were relatively broad based. The Invesco S&P 500 Equal Weight ETF (RSP) climbed 0.6%; the Vanguard Mega Cap Growth ETF (MGK) rose 0.3%; and the Russell 3000 Growth Index rose 0.4% and the Russell 3000 Value Index rose 0.6%.
In addition to the seasonality factor, today's positive bias was supported by some M&A buzz in the biotech industry. Bristol-Myers (BMY 51.45, -0.84, -1.6%) is acquiring RayzeBio (RYZB 61.40, +30.83, +100.9%) for $62.50 per share in cash, which is a 104% premium over Friday's closing price, and AstraZeneca (AZN 66.50, +0.21, +0.3%) is acquiring Gracell Biotechnologies (GRCL 9.92, +3.73, +60.3%) for an upfront cash portion of $10.00 per ADS, which is a 62% premium over Friday's closing price.
The aforementioned headlines garnered attention due to the premiums being paid rather than the size of the deals.
All 11 S&P 500 sectors settled with gains. The health care sector (+0.2%) saw the slimmest gain while the energy sector (+0.9%) settled at the top of the leaderboard, rising alongside oil prices ($75.66/bbl, +2.04, +2.8%). The move in oil was related to geopolitical angst tied to a weekend report that an oil tanker near India was struck by an Iranian drone.
The 2-yr note yield settled two basis higher at 4.35%. The 10-yr note yield declined two basis points to 3.89%. On a related note, today's $57 billion 2-yr note sale was met with solid demand.
- Nasdaq Composite: +44.0%
- S&P 500: +24.4%
- Russell 2000: +16.9%
- S&P Midcap 400: +15.6%
- Dow Jones industrial Average: +13.3%
Reviewing today's economic data:
- October FHFA Housing Price Index 0.3%; Prior was revised to 0.7% from 0.6%
- October S&P Case-Shiller Home Price Index 4.9% (Briefing.com consensus 5.0%); Prior 3.9%
Looking ahead, there is no US economic data of note on Wednesday.
Treasuries settle somewhat mixed
26-Dec-23 15:35 ET
Dow +209.56 at 37595.53, Nasdaq +106.22 at 15099.19, S&P +28.43 at 4783.06
[BRIEFING.COM] The S&P 500 is trading within 15 points of its all-time closing high (4,796).
The 2-yr note yield settled two basis higher at 4.35% after a solid $57 billion 2-yr note sale in the early afternoon. The 10-yr note yield declined two basis points to 3.89%.
Looking ahead, there is no US economic data of note on Wednesday.
Oil prices climb, boosting energy sector
26-Dec-23 15:00 ET
Dow +176.70 at 37562.67, Nasdaq +82.01 at 15074.98, S&P +22.04 at 4776.67
[BRIEFING.COM] Stocks continue to climb. The S&P 500 is up 0.5% at its high of the day.
WTI crude oil futures are settled 2.8% higher at $75.66/bbl and natural gas futures fell 1.9% to $2.55/mmbtu.
On a related note, the S&P 500 energy sector is trading 1.1% higher.
S&P 500 slips to third place on Tuesday afternoon
26-Dec-23 14:25 ET
Dow +162.11 at 37548.08, Nasdaq +71.92 at 15064.89, S&P +19.74 at 4774.37
[BRIEFING.COM] The S&P 500 (+0.42%) is now in last place among the major averages on Tuesday afternoon, up just shy of 20 points.
Elsewhere, S&P 500 constituents APA Corp (APA 37.17, +1.21, +3.36%), Edison (EIX 71.58, +2.10, +3.02%), and United Rentals (URI 584.72, +14.21, +2.49%) show decent gains.
Meanwhile, Etsy (ETSY 82.67, -2.28%, -2.68%) underperforms.
Gold higher amid slumping dollar
26-Dec-23 14:05 ET
Dow +145.19 at 37531.16, Nasdaq +63.02 at 15055.99, S&P +17.87 at 4772.50
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.42%) is atop the standings, having moved mostly sideways over the prior half hour.
Gold futures settled $18.50 higher (+0.9%) to $2,069.80/oz pushing higher as the greenback sits near five-month lows.
Meanwhile, the U.S. Dollar Index falls -0.1% to $101.55.
RayzeBio investors gets a nice holiday gift; BMY paying a rich premium for its RPT platform (RYZB)
It may have been a day late, but Bristol Myers Squibb (BMY -2%) gave RayzeBio (RYZB +101%) investors a nice stocking stuffer today. BMY will acquire RayzeBio for $62.50 per share in cash, for a total equity value of $4.1 bln, or $3.6 bln net of cash. RayzeBio closed at $30.57 on Friday, so that is a whopping 104% premium. The deal has been unanimously approved by both boards of directors and is expected to close in 1H24.
- RayzeBio is a clinical-stage radiopharmaceutical therapeutics ("RPT") company with a focus on actinium-based RPTs and a pipeline of development programs.
- What seems to make RayzeBio so attractive to BMY is the potential for RPT technology to attack various cancerous tumors. The companies explain that there is a need for more effective treatments in solid tumors. RPTs bind to tumor cells and deliver targeted radiation to induce cancer cell death. Actinium-based RPTs offer potential advantages over currently available RPTs since the high potency and short firing range of the alpha-emitter create the possibility for stronger efficacy and more targeted delivery.
- RayzeBio does not yet have products commercially available. However, its lead program, RYZ101 is in phase 3 development for treatment of gastroenteropancreatic neuroendocrine tumors and early-stage development for small cell lung cancer and potentially other tumor types. So while BMY will not get an immediate financial bump, the company sees the deal as bolstering its oncology portfolio and strengthens its growth opportunities in the back half of the decade and beyond.
- Bristol Myers explains that RPTs are already transforming cancer care, and RayzeBio is at the forefront of pioneering the application of this novel modality. BMY would seek to accelerate RayzeBio's preclinical and clinical programs. Also, acquiring RayzeBio's RPT platform would establish Bristol Myers Squibb's presence in one of the most promising and fastest-growing new modalities for the treatment of patients with solid tumors. Besides just the RPT technology, BMY will also be gaining a manufacturing facility. RayzeBio is completing construction of a state-of-the-art in-house manufacturing facility in Indianapolis. GMP drug production is expected to begin in 1H24.
Clearly, BMY sees a lot of potential in RayzeBio's RPT platform. Paying such a rich premium, and all in cash, speaks volumes about how management sees this potentially transformational technology. BMY currently has a $105 bln market cap, so while RayzeBio's roughly $4 bln price tag is not gigantic, it is still pretty significant.
RayzeBio benefits not just from the premium, which is great. However, having a larger pharma company with deeper pockets like BMY should accelerate its development pipeline and open many doors with potential new customers, assuming approval down the road. On a final note, Fusion Pharma (FUSN) is trading higher in sympathy. It also is a clinical-stage oncology company focused on radiopharmaceuticals as precision medicines.
Synopsys investors disappointed by the potential price the company could pay to acquire Ansys (SNPS)
Synopsys (SNPS), an electronic design automation software supplier used to test and design chips, sold off with under an hour to go in Friday's session on a WSJ report that it was potentially looking into acquiring Ansys (ANSS), an engineering simulation software developer. Further details of the rumored transaction materialized after the close on Friday. Reuters reported that Ansys was receiving takeover offers for over $400 per share, a roughly 17% premium to Friday's opening price.
With no deal formalized, there is no guarantee that Ansys will be acquired by Synopsys, or any company for that matter, or if it will ink a deal at a price tag exceeding $400/share, underscored by Ansys still trading well below those levels. Reuters noted a formal announcement should be made within the next few weeks.
- Why would a Synopsys/Ansys acquisition make sense? Ansys has been developing engineering simulation software for decades, steadily expanding its competitive advantage by penetrating numerous industries through its software's wide application range. Because of the high level of training involved, Ansys' simulation software is costly to switch off from, providing the company with a defensive revenue stream. While Ansys' top line did underwhelm last quarter, this was largely due to the U.S. Department of Commerce's additional export restrictions to certain Chinese businesses, a likely short-term headwind.
- Ansys also commands excellent margins, maintaining gross margins of over 90% in Q3, highlighting management's ability to keep expenses in check. However, by that same token, it does not leave much room for Synopsys to come in and slash bloated expenses, keeping a cap on potential synergies.
- So why did shares of Synopsys drop rapidly on reports of an Ansys takeover? The suspected price Synopsys would pay to add Ansys software to its arsenal was too high. If Synopsys were to purchase Ansys for $400 per share, it would translate to approximately 15x estimated FY23 revenue and 46x adjusted earnings, meaningfully above several other software tech giants like ORCL, ADBE, and CRM.
Reports Synopsys could formally offer at least $400 per share for Ansys were met by an immediate backlash by Synopsys investors, primarily because of the lofty price tag. Ansys boasts a sizeable economic moat given its extensive history, embedding itself in numerous industries, and high switching costs. However, Ansys' revenue has cooled recently, slipping into negative territory in Q3 as China restrictions weighed. Still, adding Ansys would be an excellent move for Synopsys over the long run, especially as semiconductor content increases, with short-term stock fluctuations creating attractive entry points.
Bristol-Myers gains possible blockbuster schizophrenia drug in buyout of Karuna Therapeutics (BMY)
While M&A activity continues to be sluggish overall, deal making in the pharmaceutical and biotech industries has been robust as healthcare companies flush with cash look to bolster their drug portfolios. This heightened activity was on display again this morning when Bristol-Myers Squibb (BMY) announced its intention to acquire Karuna Therapeutics (KRTX), a clinical-stage biotech company focused on treating neurological diseases, for $14.0 bln.
- In the past month alone, we have seen several high-profile deals in the healthcare sector, including Roche Holdings' (RHHBY) $2.7 bln acquisition of Carmot Therapeutics on December 4, along with two acquisitions from AbbVie (ABBV). That company purchased Cerevel Therapeutics (CERE) for $8.7 bln on December, preceded by its $10 bln acquisition of ImmunoGen (IMGN) on November 30.
- In fact, this is BMY's second recent acquisition, coming on the heels of its buyout of oncology company Mirati Therapeutics (MRTX) on October 9. While the MRTX addition will strengthen BMY's cancer treatment portfolio, the acquisition of KRTX has the potential to provide its neuroscience business with a major boost.
- The crown jewel of the acquisition is KarXT, a potential first-in-class treatment for schizophrenia and Alzheimer's disease psychosis that may gain FDA approval next September (current PDUFA date is September 26, 2024). In March, KRTX reported positive Phase 3 data for the drug, disclosing that it met its primary endpoint, demonstrating a statistically significant and clinically meaningful 8.4-point reduction in Positive and Negative Syndrome Scale (PANSS) total score compared to placebo.
- Perhaps equally important, the tolerability and safety profile was also very promising. A major issue for currently available schizophrenia treatments is that people oftentimes stop taking their medications due to the serious side effects, which can include Parkinson's disease-like shaking, sedation, insomnia, and weight gain. Since KarXT targets different receptors (M1/M4 Muscarinic Receptors) than current forms of treatment, the unwanted side effects are less severe according to the clinical trial data.
- Should KarTX receive FDA approval next September, it has the potential to become a blockbuster, multi-billion-dollar drug for BMY. There's an estimated 1.6 mln people treated for schizophrenia in the U.S. alone, and if KarTX gains approval for other indications, such as Alzheimer's disease psychosis, the total addressable market expands significantly.
- With the above in mind, it's understandable why BMY was willing to pay such a hefty price for KRTX -- the $330/share offer price represents a 53% premium from yesterday's closing price. BMY is also facing a sharp slowdown in growth as its chemotherapy treatment Revlimid faces increasing competition from generics. In Q3, Revlimid sales plunged by 41% to $1.4 bln, while its blood thinner treatment Eliquis saw flat sales of $2.7 bln.
- Investors seem to be on board with the splurge as BMY shares trade higher on the news. That's interesting in itself since the acquiring company typically trades lower on buyout news -- especially if the deal is dilutive to EPS, as this one is. BMY estimates that the transaction will be dilutive to EPS by approximately $0.30/share in 2024 due to financing costs as it plans to raise debt to pay for the deal.
Overall, we believe that KRTX is a good fit for BMY as it expands its neuroscience treatment portfolio and provides it with a possible best-in-class treatment for a disease that has been notoriously difficult to treat in schizophrenia.
NIKE running sharply lower as sluggish sales suggest it may have lost a bit off its fastball (NKE)
Ahead of NIKE's (NKE) 2Q24 earnings report, there was a hope and expectation that the sports and athletic footwear giant would display additional margin improvement and a brighter growth outlook, but only one of those prognostications came to fruition.
- Thanks to the company's inventory reduction efforts which are supporting stronger pricing, gross margin expanded by 170 bps yr and 40 bps sequentially to 44.6%. Additionally, despite operating in a retail environment that NKE characterized as highly promotional, NKE expects Q3 gross margin to expand by 160-180 bps, followed by a 225-250 bps increase in Q4.
- Amid this challenging business climate, NKE has also kept a tighter lid on costs. For the quarter, SG&A costs were up by only 1% to $4.1 bln. Combined with the gross margin expansion, the cost containment helped enable NKE to beat earnings expectations as EPS grew 21% yr/yr to $1.03.
This good news, though, is being clouded over by NKE's sluggish sales in Q2 and a more subdued sales outlook
- On the heels of strong earnings reports from Dick's Sporting Goods (DKS) and Foot Locker (FL) last month, sentiment swung to a more bullish stance as NKE's Q2 report approached. Therefore, when NKE reported that revenue in North America fell by 4% with wholesale revenues declining by 2%, it came as a major disappointment. Meanwhile, in Greater China, growth slowed to 8% on a constant currency basis from 12% last quarter.
- Although NKE saw solid demand during busy shopping periods like back-to-school and Black Friday, business was relatively weak outside of those peak shopping days. This was especially true for the company's digital platforms, which experienced lower-than-expected traffic as competitors ramped up promotional activity.
- Making matters worse, NKE doesn't see conditions improving much over the next couple of quarters. In fact, it lowered its FY24 revenue growth outlook to approximately 1% from its prior forecast of mid-single-digit growth. While no one will argue that the business climate for retail isn't strong right now, there is some concern that NKE is losing a bit off its fastball and is losing some share to competitors like lululemon (LULU).
- CEO John Donahoe acknowledged that NKE needs to accelerate its pace of innovation, adding that the company is launching a multi-year product innovation cycle that will introduce new franchises and platforms in the coming years. To help pay for this, the company is implementing a $2 bln cost-savings plan that hinges on greater automation and use of technology, streamlining efforts, and simplifying the product assortment.
The main takeaway, however, is that NKE's disappointing Q2 sales results and 2H24 outlook is creating some concern that it's not just unfavorable macroeconomic factors that are impacting the company. NKE may have lost its edge a bit on the product innovation front, and that's what really driving this steep selloff today.
AAR Corp loses some altitude on top line miss, but calendar 2024 sounds better (AIR)
AAR Corp. (AIR -5%) is losing a bit of altitude today after reporting Q2 (Nov) earnings last night. This provider of aviation services for commercial and defense aircraft buys/sells airplane parts and provides airframe inspection, maintenance, and repair services. The global recovery in commercial air travel has driven increased demand for its services in recent quarters, but AIR stumbled a bit here.
- The company beat on EPS, but just barely. The upside was much smaller than recent quarters. Perhaps more troubling was the top line result. Revenue rose 16.1% yr/yr to $545.4 mln, but that was a good bit below analyst expectations. Sales to commercial customers increased a robust 24% yr/yr, primarily due to strong demand for its new and used parts offerings. The weakness was more on government side as sales increased only 1%. The good news is that sales to commercial customers make up the lion's share of AIR's sales at 71% of total sales in Q2, up from 66% a year ago.
- Parts Supply segment sales were up 24% yr/yr, driven by strong customer demand for used serviceable material and continued expansion of its commercial distribution activities. In Repair & Engineering, sales were up 8%, driven by strong performance across its hangars and component repair operations. AIR said its hangars remained largely full throughout the quarter. In Integrated Solutions, sales were up 23% due to increased flight hours.
- The main trouble spot was its Expeditionary Services segment, where sales declined 34% due to a significant decline in mobility shipments of pallets to the Department of Defense. Mobility products are used in support of US troop movement, which has not increased in the current environment. The decline in sales is the result of funding being diverted to the effort in Ukraine. AIR expects this to return to more normalized levels towards the end of FY24.
- Margins were a bright spot as adjusted operating margin increased to 8.1% from 7.6% in the prior year period and 7.3% in Q1 (Aug). The margin expansion was primarily from growth in commercial sales.
- AIR does not guide, but did say that the macro environment for the commercial aviation aftermarket continues to be very strong. Its customers have signaled strong demand for its services in calendar 2024. Furthermore, AIR noted that continued new aircraft delivery constraints and issues related to newer generation engines are expected to drive increased demand for mid-to-late life aircraft, which is a core market for AIR.
If you look at the chart, AIR has been making an impressive move. Perhaps not to the same extent, but AIR shares have mirrored the huge move seen in Boeing (BA) since late October. The Fed signaling it would ease up on rate hikes was the main catalyst. Our point is that is seems like a lot of bullish sentiment was priced into AIR heading into its Q2 report. As a result, a small EPS beat and a revenue miss was a pretty negative surprise. However, it sounds like calendar 2024 like is shaping up nicely.
Page One
Last Updated: 26-Dec-23 08:54 ET | Archive
Slow to get into the flow
Coming back from the Christmas Day holiday, there are still some glad tidings to be found in the equity futures market.
Currently, the S&P 500 futures are up six points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 22 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 26 points and are trading 0.2% above fair value.
One can imagine that the trading ranks are on the thinner side of things today and probably will be throughout the week, which will end flowing into another three-day weekend. Last week things ended with the major indices flowing into an eighth straight week of gains.
Today's session will be counted in the "Santa Claus Rally" period, which encompasses the last five trading days of the year and the first two trading days of the new year. There isn't a lot of news flow to fly the sleigh so to speak, but Santa's sleigh is hovering with the help of some M&A activity.
The biotech area should be among the more popular trading spots today. Bristol-Myers (BMY) is acquiring RayzeBio (RYZB) for $62.50 per share in cash, which is a 104% premium over Friday's closing price, and AstraZeneca (AZN) is acquiring Gracell Biotechnologies (GRCL) for an upfront cash portion of $10.00 per ADS, which is a 62% premium over Friday's closing price.
Separately, Manchester United (MANU) reached an agreement for Sir Jim Ratcliffe, Chairman of INEOS, to acquire up to a 25% shareholding in the company, and Reuters reports that Synopsys (SNPS) has submitted an offer to acquire ANSYS (ANSS) at well over $400 per share.
The rest of the corporate news flow has been limited, which is not surprising given that many markets around the world are still on holiday.
A few other items of note include Intel (INTC) receiving a $3.2 billion grant from Israel to build a $25 billion chip plant in southern Israel, according to Reuters, and the Biden Administration deciding against vetoing the import ban for the Apple (AAPL) Watch Series 9 and Ultra 2.
Otherwise, most of the attention has fallen on the geopolitical landscape, which is less than ideal. The fighting between Israel and Hamas, and between Russia and Ukraine, persists; and there was a Wall Street Journal report over the weekend that an oil tanker near India was struck with an Iranian drone.
On a better note, shipping giant Maersk is going to resume sending tankers through the Red Sea, according to FT, under a new U.S. coalition.
Like the equity futures market, there isn't a lot of flow in the Treasury market this morning. The 2-yr note yield is up two basis points to 4.35% and the 10-yr note is up one basis point to 3.91% in front of a $57 billion 2-year note auction. Results will be announced at 1:00 p.m. ET.
Prior to that, the October FHFA Housing Price Index (prior 0.6%) and the October S&P Case-Shiller Home Price Index (Briefing.com consensus 5.0%; prior 3.9%) will be released at 9:00 a.m. ET.
-- Patrick J. O'Hare, Briefing.com
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