Market Snapshot
| Dow | 38904.04 | +307.06 | (0.80%) | | Nasdaq | 16248.52 | +199.44 | (1.24%) | | SP 500 | 5204.34 | +57.13 | (1.11%) | | 10-yr Note | -5/32 | 4.38 |
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| | NYSE | Adv 1596 | Dec 1120 | Vol 828 mln | | Nasdaq | Adv 2238 | Dec 1959 | Vol 4.5 bln |
Industry Watch
| Strong: Consumer Discretionary, Communication Services, Information Technology, Industrials, Health Care, Financials |
| | Weak: -- |
Moving the Market
-- Buy-the-dip following yesterday's afternoon retreat
-- Gains in mega cap stocks and semiconductor names
-- Digesting the March employment report, reflecting ongoing strength in the labor market
| Closing Summary
05-Apr-24 16:30 ET
Dow +307.06 at 38904.04, Nasdaq +199.44 at 16248.52, S&P +57.13 at 5204.34
[BRIEFING.COM] The stock market closed the week on a positive note. The S&P 500 (+1.1%) and Nasdaq Composite (+1.2%) finished more than 1.0% higher than yesterday and closed near their best levels of the day. The upside moves were supported by a buy-the-dip mentality after a volatile start to the second quarter. The major indices are still lower on the week despite today's performance.
The positive bias was also in response to this morning's release of the March employment report, which reflected ongoing strength in the labor market. The takeaway is that a strong labor market seemingly bodes well for corporate earnings and outlook. On a related note, the earnings reporting period begins next week with big banks like JPMorgan Chase (JPM 197.45, +1.80, +0.8%), Citigroup (C 61.60, +0.69, +1.1%), and Wells Fargo (WFC 57.40, +0.72, +1.3%) reporting results on Friday.
Gains were broad based, but moves in the mega caps and semiconductor stocks had an outsized impact on index performance. The Vanguard Mega Cap Growth ETF (MGK) jumped 1.5% and the PHLX Semiconductor Index (SOX) gained 1.3%. Names like Meta Platforms (META 527.34, +16.42, +3.2%), NVIDIA (NVDA 880.08, +21.03, +2.5%), and Broadcom (AVGO 1339.43, +21.93, +1.7%) logged sizable gains.
All 11 S&P 500 sectors registered gains ranging from 0.2% to 1.6%.
Treasury yields settled higher in response to this morning's data, but that did not deter buying activity in the stock market. The 10-yr note yield jumped another seven basis points today to 4.38% and the 2-yr note yield settled nine basis points higher at 4.73%.
- S&P 500:+9.1% YTD
- Nasdaq Composite: +8.2% YTD
- S&P Midcap 400: +7.5% YTD
- Dow Jones Industrial Average: +3.2% YTD
- Russell 2000: +1.8% YTD
Reviewing today's economic data:
- The headlines from the March employment report were all good economically speaking. Nonfarm payrolls increased by 303,000, the unemployment rate dipped to 3.8%, average hourly earnings were up 0.3%, and the average workweek increased to 34.4 hours.
- The key takeaway from the report is that it continued to support a solid earnings growth outlook even if it didn't necessarily support the outlook for the Fed to cut rates soon.
Looking ahead, there is no US economic data of note on Monday.
Treasury yields move higher after consumer credit report
05-Apr-24 15:30 ET
Dow +322.26 at 38919.24, Nasdaq +189.56 at 16238.64, S&P +53.75 at 5200.96
[BRIEFING.COM] There hasn't been much up or down movement at the index level recently.
Consumer credit increased by $14.1 bln in February (Briefing.com consensus $10.0 bln) following a downwardly revised $17.7 bln (from $19.5 bln) in January.
The key takeaway from the report is that the bulk of the credit expansion in February was driven by revolving credit.
Treasury yields moved higher in response. The 10-yr note yield is up eight basis points to 4.39%.
Broad gains continue in front of close
05-Apr-24 15:10 ET
Dow +297.11 at 38894.09, Nasdaq +179.05 at 16228.13, S&P +50.26 at 5197.47
[BRIEFING.COM] The major indices traded in narrow ranges over the last half hour.
The Invesco S&P 500 Equal Weight ETF (RSP) is up 0.5% versus a 1.0% gain in the S&P 500, reflecting the outsized impact of gains in mega cap stocks.
Gains are still broad based, though, leading all 11 S&P 500 sectors to trade higher. The communication services sector leads the pack, up 1.5%, while the utilities sector sports the slimmest gain (+0.1%).
Enphase Energy drops in S&P 500 after Citi downgrades
05-Apr-24 14:30 ET
Dow +317.43 at 38914.41, Nasdaq +187.70 at 16236.78, S&P +52.96 at 5200.17
[BRIEFING.COM] The S&P 500 (+1.03%) is in second place on Friday, modestly higher off levels from 30 minutes ago.
Elsewhere, S&P 500 constituents Constellation Energy (CEG 193.79, +10.68, +5.83%), Advanced Micro (AMD 170.86, +5.03, +3.03%), and Netflix (NFLX 634.06, +16.92, +2.74%) are among today's top gain getters. This morning Wells Fargo upped their target on CEG, while AMD caught a bullish Piper Sandler note, and Pivotal Research re-upped their Street high target on NFLX.
Meanwhile, Enphase Energy (ENPH 114.43, -6.35, -5.26%) is underperforming after Citigroup downgraded its recommendation on the stock to Neutral this morning.
Gold notches third week of gains as demand pops on lower rate cut prospects
05-Apr-24 14:00 ET
Dow +306.37 at 38903.35, Nasdaq +203.28 at 16252.36, S&P +53.24 at 5200.45
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.27%) still holds the lead among the majors, modestly off HoDs.
Gold futures settled $36.90 higher (+1.6%) to $2,345.40/oz, up an even more impressive +4.8% this week as recent economic data has caused investors to rethink rate cut prospects.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.28.
Tesla falls on report that it's scrapping plans for mass market EV, but losses trimmed (TSLA)
Elon Musk founded a tunnel construction company called "The Boring Company", but boring days are few and far between for his electric vehicle company Tesla (TSLA). In a dramatic twist, Reuters is reporting that TSLA has scrapped its highly anticipated plans to build an affordable mass-market car dubbed "Model 2" due to fierce competition in China. For his part, Elon Musk pushed back on the story, posting on X that "Reuters is lying (again)", which has helped to reverse some of the stock's earlier losses.
- If indeed accurate, the scrapping of a mass-market vehicle would constitute another major blow for a company whose growth rates are already losing much of their charge. Those growth concerns were just put under the spotlight on Tuesday when TSLA reported an 8.5% decline in deliveries for Q1.
- What is undisputed is the fact that rising competition in China, from the likes of BYD Company (BYDDY), NIO (NIO), and Li Auto (LI), is taking a toll on TSLA, cutting into its market share.
- While Elon Musk has acknowledged the tough competition in China, he also hasn't provided any hints that TSLA is planning to ditch its aspirations to make a more affordable care. During the Q4 earnings call in late January, Musk commented that the current schedule to begin production on the next-generation vehicle platform is set for the end of 2025 -- although, he admitted that he's often too optimistic when it comes to timelines.
- Furthermore, CFO Vaibhav Teneja discussed how TSLA is between two major growth curves with the first one being the expansion of Model 3 and Model Y, and the next one to be initiated with the next-generation platform. That next-gen platform is expected to produce a crossover or hatchback that's priced in the $25,000 range.
- On the other hand, Musk has tried to hammer home the point that TSLA's future is tied to AI and its full self-driving (FSD) technology. When TSLA reported 2Q23 results, Musk quipped that "autonomy will make all these numbers look silly." Developing robo-taxis is a major factor in this vision, although that timeline remains highly uncertain.
- Regardless, substantial revenue generation from software or robo-taxis remains in the distant future and TSLA needs a successful new EV launch to help bridge the gap between now and then. It's evident that Cybertruck isn't going to be the answer, but investors and analysts were still banking on the mass-market vehicle to provide that next significant growth catalyst. Deliveries, revenue, and earnings estimates have already been in a downward trend, but longer-term estimates will be ratcheted significantly lower if TSLA does forgo a mass market vehicle.
- That said, the economics of manufacturing a lower priced EV will be very challenging, especially as TSLA tries to compete against the Chinese manufacturers, which are now taking aim at the U.S. market. BYD, for instance, already offers an EV in the $10-$15K range. TSLA's margins, which have already taken a beating from continual price cuts, would be pressured even further, particularly when production numbers are low during the first year.
The main takeaway, though, is that the possibility of TSLA scrapping its mass market vehicle represents another damaging hit to its growth prospects, at a time in which the company's growth is stagnating.
Johnson & Johnson bolsters MedTech segment again with another sizable acquisition (JNJ)
Johnson & Johnson (JNJ) is making another splash in the M&A space, announcing that it's acquiring ShockWave Medical (SWAV) in a deal valued at approximately $13 bln. The purchase price of $335/share in cash represents just a 4.7% premium over yesterday's closing price, but that's because shares of SWAV were already pricing in an acquisition. Recall that on March 26, the Wall Street Journal reported that JNJ was considering an acquisition of SWAV for $11 bln. Using SWAV's stock price from March 25, the $335/share offer equates to a premium of about 17%.
- After spinning off its consumer business, Kenvue (KVUE), in August 2023, JNJ is left with two main operating segments: Innovative Medicine (pharmaceuticals) and MedTech. Of the two, MedTech has been the stronger performer recently, generating sales growth of 13% in Q4 with acquisitions playing a key role in that growth. Specifically, its $16.6 bln acquisition of heart pump maker Abiomed in December 2022, and, to a lesser extent, its $400 mln buyout of Laminar in November 2023, has bolstered MedTech's growth.
- With the acquisition of SWAV, JNJ is using that same playbook to further accelerate MedTech's growth. The addition looks like a good fit as SWAV will expand MedTech's cardiovascular portfolio, particularly in underpenetrated categories within cardiovascular intervention.
- SWAV is a first-to-market provider of innovative intravascular lithotripsy (IVL) technology for the treatment of calcified coronary artery disease (CAD) and peripheral artery disease (PAD), successfully treating approximately 400,000 patients globally.
- IVL uses sonic pressure waves to break up calcium lesions in arteries, which can lead to heart attacks, helping to improve blood flow. While currently indicated for patients with CAD or PAD, SWAV is exploring the potential use of IVL in other indications, such as carotid artery disease and structural heart disease.
- SWAV's growth has been strong. In FY23, revenue jumped by 49% yr/yr to $730.2 mln, driven by higher purchase volume of its IVL products in the U.S. and increasing adoption of its products internationally. For FY24, the company guided for revenue of $910-$930, representing yr/yr growth of 26% at the mid-point. Equally impressive as the top-line growth is SWAV's gross margin, which came in at 88% in Q4, roughly flat on a yr/yr basis.
- Thanks to SWAV's strong growth and healthy margins, the economics of the deal look appealing overall, although JNJ expects financing costs to dilute adjusted EPS by $0.10 in 2024 and by approximately $0.17 in 2025. JNJ is financing the acquisition with cash on hand and debt. From an operational standpoint, though, the transaction is expected to be accretive to JNJ's and MedTech's operating margin, while also accelerating revenue growth.
The main takeaway is that JNJ has a successful track record of making sound acquisitions to bolster its growth and the acquisition of SWAV looks no different. After a rather lackluster Q4 earnings report, JNJ's growth could use a shot in the arm, and the addition of SWAV will help provide that antidote.
Kura Sushi higher despite EPS miss as investors focus on robust traffic and DoorDash deal (KRUS)
Kura Sushi USA (KRUS +7%) is trading sharply higher today following its Q2 (Feb) earnings report last night. This Japanese restaurant concept reported a larger loss than expected but revenue rose a robust 30.4% yr/yr to $57.3 mln, which was modest upside to analyst expectations. KRUS also raised FY24 revenue guidance to $243-246 mln from $239-244 mln. KRUS also announced a favorable DoorDash partnership.
- Comparable restaurant sales increased +3.0%, which was a bit below Q1's (Nov) +3.8% comps, but still pretty good considering some inclement weather in January. KRUS noted particular strength in its West Coast comps, which were up +8.7%, but flat Southwest comps. KRUS noted that is has a lot of locations in California. When it rains in California, that can have a big impact on its West Coast comps but that was not a big issue in Q2. But weather did impact other areas.
- KRUS said it was particularly pleased with its 5.9% traffic increase, which was above the casual dining industry. In terms of the consumer, KRUS believes they are hanging in there as shown by the strong traffic number. KRUS was pleased that any food mix factor seems to have been offset with incremental traffic growth. KRUS did not guide for Q3 (May) comps, but did say it is happy with how April is shaping up.
- KRUS also announced that it signed what it described as a "very favorable" deal with DoorDash (DASH), prompting a rapid rollout of the program. As part of the deal, KRUS was able to keep its menu prices the same as in-store dining and KRUS expects other sales will be beneficial to margins. KRUS expects the deal to be margin neutral to margin accretive. KRUS is also part of the DashPass subscription service, which allows for free delivery.
- KRUS explained that, to be able to offer the same prices as in restaurants and give guests free delivery and be margin accretive, it was really a no brainer. That is why KRUS believes it was able to secure a good deal with DoorDash. If KRUS had not been able to arrive at these favorable terms, it would not have entertained the deal. Finally, KRUS opened five new restaurants in Q2, bringing its total to 60. The company expects 13-14 new restaurants in FY24, this is a big part of its growth story.
Overall, investors clearly like what they see. They do not seem worried about the EPS miss, but instead are focusing on top line upside, good comps and the DoorDash deal sounds quite favorable. This DoorDash deal sounds like it will bring in incremental customers and being on the DashPass list will help as well. It reminds us of a bit of the excitement generated by Domino's (DPZ) and its recent UberEats partnership. KRUS shares have been doing well recently as it is seen as a high growth, early stage restaurant concept. This Q2 report is helping to drive the stock higher.
Exxon Mobil's Q1 earnings take a hit from lower oil and gas prices, but shares holding steady (XOM)
If Exxon Mobil's (XOM) Q1 update from last night is any indication, the upcoming earnings season may be a more muted one for the oil and gas industry. In an SEC filing, the company disclosed that weaker crude oil and natural gas prices, along with negative impacts related to unsettled derivatives, will sharply cut into its Q1 profits. More specifically, XOM is forecasting that Q1 GAAP operating earnings will fall to approximately $6.7 bln from $7.6 bln last quarter.
- Taking a look at the upstream segment specifically, softer crude oil and natural gas prices could shave as much as $1.0 bln off XOM's earnings from last quarter. Natural gas prices in particular have plunged, sinking by over 50% from the end of October through the end of March.
- The steep declines are a dramatic reversal from 2022 when natural gas prices soared to multi-year highs in the wake of Russia's invasion of Ukraine. Crude oil prices also launched higher in 2021-2022, nearly reaching $120/barrel in May 2022, as the pandemic's grip eased, and as global economies reopened.
- This surge in commodity prices generated record earnings for XOM in 2022 and 1Q23, pushing the stock to all-time highs by September 2023, providing XOM with the fire power to make its blockbuster $60 bln acquisition of Pioneer Natural Resources (PXD) last October.
- However, rising interest rates and growth concerns have undercut oil and gas prices over the past year. This hasn't prevented XOM and others in the industry from scaling back on production, though. In fact, in FY23, XOM's production increased 111,000 oil-equivalent barrels per day, excluding impacts from divestments, entitlements, and government-mandated curtailments. Permian and Guyana combined production grew 18% versus 2022.
- Higher volumes and improved mix driven by Permian and Guyana growth enabled Q4 adjusted earnings to increase by $127 mln to $6.3 bln, even as XOM experienced lower crude realizations.
- Strong production likely helped XOM mitigate the impact of lower commodity prices again in Q1. Also working in XOM's favor is healthier refining margins, which provided a $500-$700 mln boost to earnings in Q1, according to XOM's forecast.
These factors, and a recent push higher in crude oil prices, which are currently sitting at year-to-date highs, help explain why XOM shares are holding steady today despite forecasting lower earnings for Q1 relative to Q4.
Conagra cooking up some nice gains as improving volume trends highlight upside Q3 report (CAG)
Following a boom period during the pandemic that was fueled by the work and eat-at-home trends,packaged food company Conagra (CAG) has contended with much more challenging conditions recently amid high inflation and a related shift in consumer spending behaviors. However, the owner of the Slim Jim, Reddi-wip, and Duncan Hines brands believes that the tide is turning back in its favor and its solid Q3 earnings report lends credence to that assertion.
- For the eighth consecutive quarter, CAG edged past EPS expectations as the company capitalized on its cost savings initiatives, but the more encouraging news comes on the demand side. CEO Sean Connolly commented that volume trends in the domestic retail business continued to improve, which is evident in CAG's Q3 results and it's reaffirm of FY24 guidance.
- After falling by 3.4% last quarter, organic net sales were down by only 2.0% in Q3 as volume decreased by a modest 1.8%. In Q2, volume declined by 2.9%, primarily due to continued lower consumption trends as consumers focused more on multi-serve meals and scratch cooking.
- The improvement was mainly driven by the Grocery & Snacks segment which saw volume dip by only 0.8% compared to Q2's 3.7% drop. CAG credits share gains in several product categories, such as chili, pudding, seeds, and microwave popcorn, for the stronger results. Encouragingly, volumes improved even as price/mix increased by 4.2%, indicating that CAG didn't need to rely on promotions to drive demand.
- The same can't be said for the Refrigerated & Frozen (R&F) segment, which continues to struggle due to lower consumption trends. Despite ramping up its promotional activity -- price/mix decreased by 4.8% -- volumes still decreased by 3.3%, matching last quarter's drop.
- Participants are looking past the sluggish performance in R&F, though, because CAG reaffirmed its FY24 EPS guidance of $2.60-$2.65 and its organic revenue outlook of a -2% to -1% decline. Recall that last quarter, the company cut its guidance for both of those metrics. Additionally, CAG nudged its operating margin forecast higher to 15.8% from 15.6% as the company benefits from higher productivity.
Overall, CAG's Q3 results and outlook mirror General Mills' (GIS) solid earnings report from March 20, reflecting a gradual strengthening in volume trends as inflationary pressures ease somewhat.
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