Market Snapshot
Stock Market Update | Latest Stock Market News and Updates | Briefing.com
| Dow | 38769.66 | +46.97 | (0.12%) | | Nasdaq | 16019.27 | -65.84 | (-0.41%) | | SP 500 | 5117.94 | -5.75 | (-0.11%) | | 10-yr Note | -2/32 | 4.10 |
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| | NYSE | Adv 1376 | Dec 1397 | Vol 882 mln | | Nasdaq | Adv 1704 | Dec 2573 | Vol 4.9 bln |
Industry Watch
| Strong: Materials, Energy, Consumer Staples, Utilities, Communication Services, Financials |
| | Weak: Industrials, Real Estate, Consumer Discretionary, Information Technology |
Moving the Market
-- Ongoing consolidation activity in some mega cap names and semiconductor-related shares weighing on index performance
-- Hesitation among buyers in front of Tuesday's Consumer Price Index
-- Muted action in Treasuries
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Closing Summary
11-Mar-24 16:20 ET
Dow +46.97 at 38769.66, Nasdaq -65.84 at 16019.27, S&P -5.75 at 5117.94
[BRIEFING.COM] It was a lackluster start to the week for the stock market following Friday's consolidation-related declines. There was not a lot of conviction on either side of the tape in front of tomorrow's release of the February Consumer Price Index (CPI).
The Dow Jones Industrial Average eked out a 0.1% gain, as did the equal-weighted S&P 500, while the market-cap weighted S&P 500 declined 0.1% and the Nasdaq Composite fell 0.4%. Market breadth was negative at the Nasdaq, but modestly so, and decliners were in-line with advancers at the NYSE.
Ongoing selling in some mega cap and semiconductor-related names acted as a limiting factor for the stock market today. NVIDIA (NVDA 857.74, -17.54, -2.0%), Meta Platforms (META 483.59, -22.36, -4.4%), and Microsoft (MSFT 404.62, -1.60, -0.4%) were losing standouts in that respect due to profit-taking activity following big gains since the start of the year.
NVDA had been up as much as 1.4% earlier and traded down as much as 3.8% in a volatile session for the stock. NVDA shares are still up 73.2% for the year, META is still up 36.6% in 2024, and MSFT is sitting on a 7.6% gain since January began.
The PHLX Semiconductor Index (SOX) slid 1.4% today, leaving its gain for the year at 17.1%. Applied Materials (AMAT 201.37, -4.19, -2.0%) was a standout loser from the space, and also raised its quarterly dividend by 25% to $0.40 per share.
Losses in some of the aforementioned names weighed on the S&P 500 information technology sector, which declined 0.4%. A gain in Apple (AAPL 172.75, +2.02, +1.2%) provided a measure of offsetting support. Shares of AAPL are down 10.3% this year.
Alphabet (GOOG 138.94, +2.65, +1.9%) was another mega cap name that closed with a gain after lagging the broader market this year. GOOG shares are down 1.4% in 2024. This price action was not enough to propel the communication services sector to a gain, settling 0.2% lower for the day.
The industrial sector was another laggard today, dropping 0.5%, due in part to a loss in Boeing (BA 192.49, -6.00, -3.0%) after the Justice Department opened a criminal probe of the door plug issue, according to The Wall Street Journal.
On the flip side, the S&P 500 energy sector was among the top performing sectors, gaining 1.0%, despite a sizable decline in shares of EQT (EQT 34.61, -2.91, -7.8%) after confirming a definitive merger agreement with Equitrans Midstream Corporation (ETRN 11.32, +0.17, +1.5%) with an initial enterprise value over $35 billion. EQT was the worst performing stock in the S&P 500 today.
The materials (+1.1%) and consumer staples (+0.6%) sectors were also among the top gainers.
Treasuries settled with losses ahead of the February Consumer Price Index tomorrow. The 2-yr note yield rose four basis points to 4.53% and the 10-yr note yield rose two basis points to 4.10%. On a related note, today's $56 billion 3-yr note auction met solid demand.
There was no US economic data of note today.
- S&P 500: +7.4% YTD
- Nasdaq Composite: +7.2% YTD
- S&P Midcap 400: +6.1% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +2.7% YTD
In addition to the CPI report, Tuesday's economic calendar features:
- 6:00 ET: February NFIB Small Business Optimism (prior 89.9)
- 14:00 ET: February Treasury Budget (prior -$22.0 bln)
Treasuries settle with losses ahead of CPI tomorrow
11-Mar-24 15:35 ET
Dow +40.20 at 38762.89, Nasdaq -59.52 at 16025.59, S&P -6.88 at 5116.81
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Treasuries settled with losses ahead of the February Consumer Price Index tomorrow. The 2-yr note yield rose four basis points to 4.53% and the 10-yr note yield rose two basis points to 4.10%. On a related note, today's $56 billion 3-yr note auction met solid demand.
In addition to the CPI report, Tuesday's economic calendar features:
- 6:00 ET: February NFIB Small Business Optimism (prior 89.9)
- 14:00 ET: February Treasury Budget (prior -$22.0 bln)
Stocks chop around near session highs
11-Mar-24 15:00 ET
Dow +34.71 at 38757.40, Nasdaq -37.89 at 16047.22, S&P -4.08 at 5119.61
[BRIEFING.COM] The major indices are chopping around in narrow ranges near session highs. The Russell 2000 is lagging with a 0.6% decline.
Mega caps continue to act as a limiting factor while the broader market builds up strength. The Vanguard Mega Cap Growth ETF (MGK) is down 0.4%.
Meanwhile, the equal-weighted S&P 500 is up 0.1% versus a 0.1% decline in the market-cap weighted S&P 500.
AMD, Rockwell Auto underperform in S&P 500
11-Mar-24 14:25 ET
Dow +15.12 at 38737.81, Nasdaq -33.54 at 16051.57, S&P -6.47 at 5117.22
[BRIEFING.COM] The S&P 500 (-0.13%) is in second place on Monday afternoon.
Elsewhere, S&P 500 constituents Advanced Micro (AMD 199.01, -8.38, -4.04%), Howmet Aerospace (HWM 64.92, -2.82, -4.16%), and Rockwell Automation (ROK 284.51, -10.08, -3.42%) pepper the bottom of the average. Semi stocks, including AMD, give back more of last week's rally, while HWM and ROK slip despite a dearth of corporate news.
Meanwhile, Moderna (MRNA 112.76, +9.73, +9.44%) is atop the S&P as Wall Street analysts weigh in on the relative underappreciation of the company's human cytomegalovirus (CMV) vaccine.
Gold modestly higher, continues record run
11-Mar-24 14:00 ET
Dow +5.48 at 38728.17, Nasdaq -52.96 at 16032.15, S&P -9.58 at 5114.11
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.33%) is still the top laggard among the major averages.
Gold futures settled $3.10 higher (+0.1%) to $2,188.60/oz, holding modest gains even as the dollar and treasury yields host modest gains themselves.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $102.84.
Bilibili reaches new highs this year following an upgrade at JP Morgan today (BILI)
Shares of Bilibili (BILI +15%), a Chinese online video, social media, and gaming developer, are reaching their highest prices all year after an upgrade at JP Morgan, which has more than eclipsed a downgrade at Citigroup today. The stock is returning to highs, as seen the day BILI registered solid Q3 earnings in late November, which immediately faded. This was followed by constant selling pressure, resulting in an over 30% drop over the next two months.
However, Briefing.com notes that BILI's prospects are looking much greener after so much selling pressure, setting up the company for plenty of upside if it can stay on track to achieve its financial targets this year.
- BILI has been focused on becoming a profitable organization for several quarters, delivering a loss of RMB 1.34 per share in Q4, substantially improved from the RMB 3.34 loss posted in the year-ago period. Eyeing areas of its business where costs could be slashed have benefited BILI's bottom line enormously over the past couple of years. For FY23, these actions increased gross margins by 660 bps yr/yr. BILI projects further improvement in FY24.
- Advertising is a critical component of BILI's business model, comprising around a third of total revenue. During Q4, the company improved its ad revs by 28% yr/yr, underpinned by robust growth in performance-based ads, which skyrocketed by over 60%. BILI continues to enhance its ad infrastructure to keep this growth trending positively, enabling advertisers to improve their influence over user purchasing decisions. Embedding generative AI for ad material creation will be a focus point for BILI in FY24.
- Alongside video and social media, BILI commands a lucrative gaming portfolio. In Q4, gaming revs saw a 2% bump compared to Q3. Revenue may continue expanding sequentially as BILI has three titles in its pipeline that have been approved for release over the coming quarters.
Economic obstacles have disrupted BILI's ability to return to the exceptional +50-90% top-line growth it delivered throughout the pandemic. However, even though sales growth was still relatively stale in Q4 at just 3.4%, made worse by a sequential deterioration in daily active users (DAUs), which went from 102.8 mln to 100.1 mln, investors may have overlooked a few encouraging developments. Primarily, BILI is making solid strides toward achieving profitability despite a lackluster economic backdrop. While the spending environment in China could take an extended period before recovery, BILI is progressing nicely in terms of what it can control, targeting continuous improvement in profitability this year.
Boeing flying lower on report that DoJ opened criminal investigation into company (BA)
Now down by about 26% in 2024, Boeing (BA) is flying lower once again today as the embattled jet maker and defense company finds itself at the center of two more negative news stories. After Bloomberg reported on February 28 that the Department of Justice (DoJ) is investigating the door plug blowout on the January 5, 2023 Alaska Air (ALK) flight, over the weekend, the Wall Street Journal reported that the DoJ has opened a criminal investigation related to that incident.
- If that wasn't already enough to digest, yet another BA aircraft encountered serious troubles today on a Latam Airlines from Sydney, Australia to Auckland, New Zealand. According to the Wall Street Journal article, the plane experienced a "technical event" in which it dove abruptly, causing passengers to be thrown out of their seats, resulting in about 50 injuries. While this event occurred on a Boeing 787 -- not the 737 MAX model that's under intense scrutiny -- it just adds to the quality control concerns that continue to hang over BA.
- Those concerns were initially instigated by the fatal 2018 crash in Indonesia, followed by the 2019 crash that killed 157 passengers in Ethiopia, prompting the grounding of the 737 MAX and an eventual $2.5 bln settlement in 2021. Ultimately, investigators discovered that the source of the crashes were related to BA's Maneuvering Characteristics Augmentation System (MCAS), finding that too much confidence was placed on pilots to identify and take proper actions in the event that the system malfunctioned.
- That federal investigation is relevant to today's developments because now the DoJ is trying to determine whether BA has complied with that earlier settlement the resulted from those two crashes. If the DoJ finds that BA has violated the terms of its 2021 settlement, it could charge BA with defrauding the U.S. government.
- However, even if BA isn't criminally charged, the company may face other consequences, including additional and more thorough updates to its compliance initiatives. A main risk for BA and its shareholders is that 737 MAX production is curtailed even further, and more regulatory hurdles could have that effect.
- On that note, Reuters reported on March 1 that BA has already delayed plans to ramp up production of the 737 MAX. According to the report, BA is now expected to produce 47 jets per month in January 2025, compared to its previous timeline of August 2024.
BA is coming off a better-than-feared Q4 earnings report in which its net loss was much smaller than expected as its Commercial Airplanes segment saw a 13% increase in revenue. The company did (wisely) refrain from providing guidance due to the 737 MAX uncertainties, but the demand environment for new planes is robust. Most airlines are looking to ramp up capacity as travel demand remains strong, which will require fleet expansions. Attaining those aircraft, though, has been a struggle due to ongoing supply chain issues, as well as BA's troubles. If BA can finally get its quality control problems under control, while mending its tarnished reputation, then it stands to benefit from the favorable demand trends. On the other hand, BA's losses will continue to be Airbus's (EADSY) gains if it can't soon restore this loss of confidence.
EQT Corp and Equitrans Midstream reunify to create natural gas powerhouse (EQT)
The oil and gas industry has been gushing with M&A activity recently and the consolidation trend is continuing in a big way today as natural gas producer EQT Corp (EQT) and Equitrans Midstream (ETRN) announced a $35 bln merger agreement. From exploration and production companies to pipeline operators, energy companies are looking to bolster and diversify their assets in a volatile price environment for commodities in which demand is also expected to remain strong for oil and gas in the coming years.
- A combination of EQT and ETRN certainly fits into that mold of expanding and diversifying assets as the combination would create a streamlined, vertically integrated natural gas company. The merger, which is also a homecoming of sorts for ETRN after being spun-off by EQT in 2018, would give the new company control of both production and transportation of natural gas with over 3,000 miles of pipeline infrastructure.
- Importantly, ETRN's pipeline and midstream assets in the Appalachian Basin have extensive overlap and connectivity with EQT's 4,000+ drilling locations across the Marcellus shale basin.
- The reach of EQT and ETRN may soon extend well beyond the Appalachian Basin, though. It's likely not a coincidence that EQT is pursuing ETRN just as ETRN's Mountain Valley Project, which has faced numerous delays due to environment concerns and continuous legal battles, is finally nearing completion.
- In fact, ETRN stated during its Q4 earnings call that work is expected to be completed in 2Q24. Once completed, the combined company would have the ability to transport natural gas produced in the Marcellus shale basin to southeastern states.
- By integrating production with transportation, the companies believe that the merger should produce about $250 mln in annual synergies. Furthermore, based on current natural gas strip prices, EQT and ETRN estimate that the deal will generate free cash flow of approximately $16.0 bln from 2025-2029.
- However, since this is an all-stock transaction in which each share of ETRN will be exchanged for 0.3504 shares of EQT common stock, shares of EQT are trading sharply lower due to the dilutive nature of the transaction. ETRN, on the other hand, is trading higher, although the stock is currently trading at a discount to the $12.50/share implied price. This could reflect the market's uncertainly whether this deal will receive regulatory approval, or perhaps whether EQT's shareholders will ultimately vote in favor of the deal.
The main takeaway is that this merger is a good strategic fit in the long run, realigning EQT's production with ETRN's transportation and midstream assets. While the $5.5 bln price tag doesn't seem so egregious, the fact that the deal is being financed solely by EQT equity is putting pressure on that stock.
Fortrea heads lower on earnings miss; also announced sale to focus on being a pure-play CRO (FTRE)
Fortrea (FTRE -2.4%), which was spun off from LabCorp (LH) in July 2023, is heading lower after the contract research organization (CRO) reported a Q4 miss for both EPS and revenue. The company also announced it will divest its Enabling Services segment called Endpoint Clinical and its Fortrea Patient Access unit to private equity firm Arsenal Capital Partners, which specializes in building technology-rich healthcare companies. The deal is expected to close in Q2.
- Fortrea has reported two earnings reports as an independent company. This Q4 miss was a bit of a surprise following the company's solid upside in Q3. Despite the miss, Fortrea noted that it was pleased with its book-to-bill ratio for Q4 at 1.3x, bringing it to a book-to-bill of more than 1.27x for its first six months as an independent organization. Given the lag between bookings and revenue, the company expects a return to growth later this year.
- Looking specifically at the bookings in Q4, the company said that the awards spanned biotech, large pharma and across its therapeutic areas and was an attractive mix. Fortrea continues to be strong in oncology and has also seen wins in other growing areas such as the GLP-1 and Phase 1. Management said it's looking at a solid pipeline for Q1 as well, assuming it executes well.
- An issue following the separation from LabCorp has been Fortrea's desire to exiting transition service agreements (TSAs) with its former parent company. By the end of 2023, the company had exited about 40% of its TSAs. Fortrea has been transitioning to a new ERP system. Another post-split goal has been to build its brand awareness. Fortrea recently kicked off a new advertising campaign to highlight its 30 years in drug development. It's also raising its visibility at industry events.
- Fortrea provided in-line revenue guidance for 2024 at $3.140-3.205 bln, however, it will be a story of two halves. The company expects a decline in service fee revenue in 1H24 due to a decline in net new awards, along with a less favorable mix of business during the spin-out year that ran from July 2022 through June 2023. However, it expects revenue growth to improve throughout 2H24. The company is expecting margins will follow a similar path.
- While the company did not provide 2025 guidance, management did say it expects margin improvement from revenue growth and from its post-TSA exit. Fortrea also expects 2025 will benefit from a streamlined cost infrastructure, increased automation and optimized resource utilization. Fortrea would target 2025 adjusted EBITDA margins consistent with 2022 on a full year basis of approximately 13%, which is up nicely from roughly 9.5% guidance at the mid-points in 2024.
- Turning to the Endpoint Clinical sale, this was the result of a strategic review initiated last fall. The planned divestitures allow Fortrea to focus on Phase 1 to 4 Clinical Services. The company wants to focus on organically growing as a pure-play CRO, and this deal adds financial flexibility with the $345 mln sale price, which will be used to pay down debt. Fortrea says it's pleased to put an important issue in the rear-view mirror.
Overall, Fortrea strikes us as a company still in transition, following its spin-off from LabCorp. It sounds like its financials will take time to normalize and the company needs time to build its brand awareness. Investors should take that into account when evaluating Fortrea. It seems 2025 will be a better and more normal year. In terms of the divestiture, it seems to make sense to want to be more of a pure play CRO.
Choice Hotels jumps after abandoning its Wyndham (WH) takeover attempt; increases buyback plan (CHH)
Investors are pleased to see Choice Hotels (CHH +4%) no longer choosing to takeover Wyndham Hotels & Resorts (WH) today, ending its $8.0 bln hostile takeover of the hotel operator. The merger would have created one of the largest budget hotel chains in the country and sent shares of WH nicely higher when first rumored around May 2023.
However, CHH stated today that it is canceling its WH bid, announcing the expiration of its exchange offer, and withdrawing its independent director candidates. Instead, CHH is approving a 5.0 mln share increase to its existing repurchase program, bringing the total to around 6.8 mln or roughly 14% of its outstanding shares. Also, coinciding with the announcement was a double upgrade at Jefferies to "Buy" from "Underperform."
CHH has been pursuing WH for nearly a year, officially offering the company $90.00 per share in cash and stock in October, only for WH to reject the proposal. CHH did not give up so quickly, nominating directors for WH and beginning a tender offer for WH shares. CHH turned to the WH's shareholders, offering cash and stock valued at under $8.0 bln, which WH urged its shareholders to reject. With pushback stemming from WH and the FTC, CHH ultimately abandoned its pursuit of WH today.
With this cloud no longer hanging over CHH, the company can focus all its attention on improving business growth, reiterating its FY24 strategy, including adjusted EBITDA increasing by roughly 10%.
- CHH is coming off a decent quarter, underpinned by sustained success across its five strategic pillars, including generating higher than brand average royalties per unit, increasing hotel openings, expanding geographic reach, bolstering its platform capabilities, and integrating new businesses.
- Because most of CHH's rooms are franchised, it boasts a stable revenue stream. CHH has turned its attention toward hotels generating higher royalties per unit for the past several years, increasing its mix of upscale and midscale brands by 8 pts since FY17 to 82% as of Q4. CHH expects to increase this mix going forward.
- Meanwhile, Radisson Americas, which CHH acquired two years ago, outperformed the company's underwritten expectations. During FY23, CHH achieved $85 mln in annual recurring synergies, exceeding its prior target by over 6%. CHH is moving into the second phase of value creation by growing its Radisson Americas portfolio throughout the U.S., Canada, and Latin America.
CHH's endeavor to add WH's brands to its portfolio was constantly met with backlash, leading to the company finally abandoning its takeover attempt. While the addition of WH would have significantly bolstered CHH's domestic and global presence, CHH is still a quality hotel operator with plenty of room for expansion. Increasing its mix of upscale rooms should provide a solid revenue lift. Meanwhile, by staying on target toward 10% EBITDA growth, CHH continues demonstrating its ability to enhance profitability, already expanding EBITDA by 45% since 2019. |
