Market Snapshot
| Dow | 38239.98 | +253.58 | (0.67%) | | Nasdaq | 15451.31 | +169.30 | (1.11%) | | SP 500 | 5010.60 | +43.37 | (0.87%) | | 10-yr Note | 0/32 | 4.62 |
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| | NYSE | Adv 2036 | Dec 721 | Vol 939 mln | | Nasdaq | Adv 2660 | Dec 1536 | Vol 4.6 bln |
Industry Watch
| Strong: Information Technology, Financials, Energy, Consumer Staples, Industrials |
| | Weak: -- |
Moving the Market
-- Buy-the-dip action following recent losses
-- Resilience to early efforts acting as upside catalyst
-- Outperformance of mega cap and semiconductor stocks
-- Wait-and-see in front of busy week of earnings that includes reports from Tesla (TSLA), Alphabet (GOOG), Microsoft (MSFT), and Meta Platforms (META) |
Closing Summary
22-Apr-24 16:20 ET
Dow +253.58 at 38239.98, Nasdaq +169.30 at 15451.31, S&P +43.37 at 5010.60
[BRIEFING.COM] The stock market exhibited rebound action today following last week's solid declines. The market remained resilient when early buying activity dissipated, which became its own upside catalyst in the afternoon trade. Ultimately, the major indices settled off session highs, leaving the S&P 500 back above the 5,000 level.
Afternoon buying in the stock market was supported by some short-covering activity, along with turnaround action in some heavily-weighted names. Microsoft (MSFT 400.96, +1.84, +0.5%), which had been down as much as 0.8%, and Meta Platforms (META 481.73, +0.66, +0.1%), which had been down as much as 1.6% at its low, were standouts in that respect.
Microsoft and Meta Platforms are among the large-cap tech companies reporting earnings this week, along with Tesla (TSLA 142.05, -5.00, -3.4%), Alphabet (GOOG 157.95, +2.23, +1.4%), and others. By the end of the week, nearly 40% of the S&P 500 will report earnings. TSLA reports after the close on Tuesday, META reports after the close on Wednesday, MSFT and GOOG report after the close on Thursday.
Tesla was left out of the everything-rally today following another round of EV price cuts. Many other stocks finished higher, though. The Invesco S&P 500 Equal Weight ETF (RSP) gained 0.8% and all 11 S&P 500 sectors closed higher. Three sectors rose more than 1.0%, including the two weightiest sectors in the S&P 500 -- information technology (+1.3%) and financials (+1.2%).
Bank stocks outperformed the broader market, and boosted the financial sector, amid ongoing earnings news from the industry. The SPDR S&P Regional Banking ETF (KRE) closed 1.8% higher and the SPDR S&P Bank ETF (KBE) jumped 1.7%.
This week's calendar also features some key economic releases that feature the Advance Q1 GDP report on Thursday and the core-PCE Price Index on Friday, which is the Fed's preferred inflation gauge.
Separately, the 10-yr note yield settled one basis point higher at 4.62% and the 2-yr note yield settled unchanged from Friday at 4.97%.
There was no notable U.S. economic data on today's calendar.
- S&P 500:+5.1% YTD
- Nasdaq Composite: +2.9% YTD
- S&P Midcap 400: +2.9% YTD
- Dow Jones Industrial Average: +1.5% YTD
- Russell 2000: -2.9% YTD
Tuesday's economic calendar features:
- 9:45 ET: Flash April S&P Global U.S. Manufacturing PMI (prior 51.9) and flash April S&P Global U.S. Services PMI (prior 51.7)
- 10:00 ET: March New Home Sales (Briefing.com consensus 670,000; prior 662,000)
Treasuries settle little changed
22-Apr-24 15:30 ET
Dow +315.44 at 38301.84, Nasdaq +204.22 at 15486.23, S&P +52.69 at 5019.92
[BRIEFING.COM] The major indices are moving mostly sideways near session highs.
The 10-yr note yield settled one basis point higher at 4.62% and the 2-yr note yield settled unchanged from Friday at 4.97%.
Tuesday's economic calendar features:
- 9:45 ET: Flash April S&P Global U.S. Manufacturing PMI (prior 51.9) and flash April S&P Global U.S. Services PMI (prior 51.7)
- 10:00 ET: March New Home Sales (Briefing.com consensus 670,000; prior 662,000)
Many stocks still sharply lower in April
22-Apr-24 15:05 ET
Dow +359.56 at 38345.96, Nasdaq +218.56 at 15500.57, S&P +58.80 at 5026.03
[BRIEFING.COM] The major indices trade just off session lows now.
Many stocks are higher in today's broad rebound effort. Seven of the 11 S&P 500 sectors are trading up, led by the information technology (+1.6%), financials (+1.4%), and industrials (+1.2%) sectors.
Even with today's move higher, the three major indices show losses ranging from 3.7% to 5.4% for the month.
Ford, EQT outperforming in S&P 500 ahead of earnings this week
22-Apr-24 14:30 ET
Dow +450.28 at 38436.68, Nasdaq +239.60 at 15521.61, S&P +69.40 at 5036.63
[BRIEFING.COM] The S&P 500 (+1.40%) is in second place as we approach the latter stages of trading on Monday.
Elsewhere, S&P 500 constituents Ford Motor (F 12.87, +0.73, +6.01%), United Airlines (UAL 53.89, +2.51, +4.89%), and EQT Corp. (EQT 37.93, +1.28, +3.49%) dot the top of the standings. Ford rebounds from last week's losses ahead of earnings this week, and EQT is also slated to report this week.
Meanwhile, Cardinal Health (CAH 103.96, -4.23, -3.91%) is today's worst performer; the stock is weaker after this morning the company reaffirmed FY24 guidance and long-term targets amidst non-renewal of UnitedHealth's (UNH 496.79, -4.34, -0.87%) OptumRx customer contracts.
Gold hurt by no further escalation in Middle East tensions
22-Apr-24 14:00 ET
Dow +421.42 at 38407.82, Nasdaq +212.63 at 15494.64, S&P +62.38 at 5029.61
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+1.4%) is today's best-performing major average, probing the 15,500 level.
Gold futures settled $67.40 lower (-2.8%) to $2,346.40/oz, the yellow metal dented after the weekend that went by without another escalation in the Israel-Iran conflict.
Meanwhile, the U.S. Dollar Index is down less than -0.1% at $106.12.
Cardinal Health's OptumRx (UNH) contract to expire this June; triggers selling pressure today (CAH)
Cardinal Health (CAH -5%) shares become frail, flirting with 2024 lows after the pharmaceutical drug wholesaler announced its distribution contracts with OptumRx (UNH) would not be renewed. Instead, they will expire at the end of June. The Optum contract was a lingering uncertainty ahead of today's news. Management had no updates on the development in February, only remarking that Optum was a long-standing customer.
Optum is not just a long-standing customer but a significantly lucrative one for CAH, worth over $30 bln for the company in 2023, making the loss quite meaningful. CAH still reaffirmed its adjusted FY24 EPS outlook of $7.20 to $7.35 as well as its long-term (FY24-FY26) profitability targets, such as its +12-14% consolidated adjusted EPS CAGR and +4-6% segment profit CAGR within its Pharmaceutical and Specialty Solutions segment.
However, CAH did not discuss its previous revenue growth projection of +10-12%. As a result, analysts are likely adjusting their models today to compensate for the potential loss of revenue due to the expiring Optum contracts.
- At over $30 bln, sales to OptumRx comprised 16% of CAH's FY23 (Jun) revs, 90% of which serviced CAH's Pharmaceutical Distribution division. Without the OptumRx contracts, this division will take a severe hit and reduce the diversity of its customer base, placing more reliance on the company's other large distribution customers, such as CVS Health (CVS) and Kroger (KR).
- While encouraging, CAH's reiterated profitability targets are not as meaningful as they appear, as total sales to OptumRx generate a significantly lower operating margin than CAH's overall Pharmaceutical and Specialty Solutions segment.
- CAH noted that it should continue producing adjusted free cash flow of around $2.0 bln on average from FY24-FY26. However, because of the unwinding of negative net working capital surrounding the OptumRx contract, CAH anticipates lower-than-average adjusted free cash flow in FY25, placing additional pressure on FY24 and FY26 to compensate for the shortcomings. With an impact on free cash flow, CAH could halt increases or additional accelerated share repurchases under its current $3.5 bln buyback program.
The main takeaway is that without the OptumRx distribution contracts, investors are concerned about the adverse effects on CAH's future revenue growth. With other revenue headwinds, such as direct-to-consumer mail services and government regulations, the loss of OptumRx coincides with a potentially challenging time for CAH. Still, given it is one of just three pharmaceutical distributors in the country, CAH remains well-positioned to bounce back from any near-term volatility.
Albertsons trades roughly flat following earnings; will be cycling significant food inflation (ACI)
Albertsons (ACI -1%) is trading roughly flat after closing out the fiscal year. This grocery store giant reported modest EPS upside with its Q4 (Feb) report this morning. Revenue ticked slightly higher, up 0.4% yr/yr to $18.34 bln, which was in-line.
- As previously announced, ACI is merging with Kroger (KR). We suspect that is why they are not holding a conference call today. Also, ACI used to provide full year EPS guidance, but has not provided any guidance since the merger was signed in Oct 2022. So between not having a call and no guidance, we do not have a great sense of what to expect in the new fiscal year. However, ACI did provide some color in the press release, which we will cover a bit later.
- Back to the Q4 results, identical sales were up +1%, which was down a bit from +2.9% in Q3 (Nov). Full year identical sales were +3%. In Q4, strong growth in pharmacy sales drove the identical sales increase. ACI also continued to grow its digital business with a 24% yr/yr sales increase Q4, a slight improvement from Q3's 21% yr/yr increase.
- Gross margin ticked higher to 28.0% from 27.8% in the year ago period. However, excluding the impact of fuel and LIFO, gross margin decreased 58 bps yr/yr. ACI said that the strong growth in pharmacy operations, which carries an overall lower gross margin rate, impacted margins. There were also increases in shrink and costs related to growth in its digital sales.
- Looking ahead to the new fiscal year, ACI plans to continue to invest in digital capabilities to improve and grow its omnichannel experience. However, ACI concedes that it expects to face ongoing headwinds posed by higher associate wages and benefits.
- It also will be cycling significant prior year food inflation which will be a comp headwind. Another factor is that its customers are getting lower government assistance. Also, margins are expected to be hurt by an increasing mix of pharmacy sales and digital businesses, which carry lower margins. Importantly, ACI expects these headwinds will be much stronger in 1H.
Overall, this was quarter was perhaps a bit of a letdown from ACI. This was its smallest EPS upside of any quarter in the past five years. Plus its identical sales number of +1%, was down from Q3 and below the annual number. We also think its comments about facing headwinds in the first half of the next fiscal year may be weighing on the stock as well. Looking ahead, ACI will be lapping a tough +4.9% identical sales comp in Q1 (May) which will likely be a headwind. The stock has been heading lower since mid-January and this report does not seem to be having an impact getting the stock turned around.
Salesforce and Informatica reportedly pull the plug on a deal that few investors favored (CRM)
Salesforce (CRM), which is no stranger to making big deals, had another major acquisition teed up as it pursued data management company Informatica (INFA), but both companies are ready to pull the plug on a transaction due to disagreements over price, according to the Wall Street Journal.
One week ago, the Wall Street Journal first reported that CRM was exploring a purchase of INFA and that news did not go over well with either shareholder base. In fact, not including today's moves, CRM and INFA are lower by 8% and 9%, respectively, since that initial story broke on April 15
- For CRM investors, the decision to walk away from the deal comes as a relief. While the company was reportedly looking to acquire INFA for a price in the mid-$30 range -- slightly below where the stock was already trading earlier in April -- the prospect of tackling another multi-billion-dollar deal amid a challenging business climate seemed like a questionable strategy.
- Investors weren't enamored with CRM's $28 bln acquisition of Slack Technologies back in 2021 with many believing that it significantly overpaid for the company.
- This time around, the risks of overpaying for an acquisition seem even higher given the macroeconomic uncertainty and geopolitical volatility.
- For INFA shareholders, the deal didn't look appealing from the get-go since CRM was looking for a discounted price. However, that proposed mid-$30/share offering did put a floor on the stock, enabling it to avoid a sharp selloff last week as tech stocks took a dive. With the rug now pulled out from under it, INFA is now pricing in that pullback from last week.
- This morning, INFA issued a press release, stating that it is currently not engaged in any discussions to be acquired. Perhaps in an effort to soften the blow from this development, the company also provided updated Q1 guidance.
- Specifically, INFA stated that it expects total revenue, subscription ARR, cloud subscription ARR, and non-GAAP operating income all to fall within the upper half of its previous guidance ranges offered in its Q4 earnings report from February 14.
- The problem, though, is that expectations have risen considerably for INFA as it emerges as an AI play, which is what made it attractive to CRM. Since that Q4 earnings report, shares of INFA had soared higher by 35% and reached record highs on April 12 -- the last trading day before the initial Wall Street Journal report hit.
- With a pricey 1-year forward P/E north of 32x, that guidance simply may not be good enough. At the high end of its Q1 revenue guidance range of $375-$395 mln, INFA's top-line growth would only equate to about 8% yr/yr.
On that note, while CRM is looking to jump-start its own growth -- its Q4 revenue growth of 11% was its slowest in many years -- shelling out around $10 bln to acquire INFA in a potentially earnings dilutive deal didn't look like the right answer. Overall, we believe that investors want to see CRM focus on improving its own profitability and earnings growth during this difficult business climate in which customer spending is more measured.
Verizon slips as investors wary about a soft demand backdrop in Q1, competitive pressures (VZ)
Verizon (VZ -3%) went from full bars to lackluster reception today despite topping earnings estimates on in-line revenue growth in Q1. While inflationary pressures forced the telecom giant to take additional pricing actions during the quarter, it did not result in a severe drop in retail postpaid phone subscribers, shedding just 68,000, below street estimates and firmly better than the 127,000 it dropped in the year-ago period. By kicking off FY24 on a positive note, VZ was confident in reaching its previous guidance, including FY24 adjusted EPS of $4.50-4.70, total wireless service revenue growth of +2.0-3.5%, and CapEx of $17.0-17.5 bln.
- VZ's better-than-anticipated phone net adds in the quarter was supported by churn mitigation efforts from price hikes, leading to a postpaid phone churn of 0.89%. VZ's leadership position in the wireless telecom space compared to rivals AT&T (T) and T-Mobile US (TMUS), built by a focus on network quality, assisted its ability to fend off potentially more significant customer losses from higher prices.
- However, that does not paint the entire picture. VZ has been stepping up its incentives recently, making customers less willing to forgo their wireless service. VZ has been offering bundles, such as its Netflix (NFLX) Max (WBD) bundle in December and Disney+, Hulu, and ESPN (DIS) bundle, for an additional fee that is below the cost of subscribing to these streaming services separately.
- As a result, VZ's Consumer segment performed well in Q1, registering a 0.8% revenue increase yr/yr to $25.1 bln, offsetting a lagging Business segment, and putting total revenue growth in positive territory at 0.3% to $33.0 bln.
So why did shares of VZ turn lower at the open today? Investors remain cautious due to a few notable cracks in Q1. For instance, broadband net adds slowed to 389,000 from 413,000 in Q4, underpinning a persistently challenging economic backdrop and incremental competitive pressures. VZ's fixed wireless service, which provides 5G and LTE coverage at homes and businesses, could be cannibalizing broadband revenue. It also does not help the other two major network providers offer the same service at similar price points. Additionally, revenue in VZ's Business segment inched 1.6% lower yr/yr to $7.4 bln as wireline and wireless equipment demand dragged down relatively healthy wireless service demand.
Overall, several bright spots in Q1 initially triggered investor approval. However, the central highlight from the quarter, a lighter-than-expected decline in postpaid phone subs, is not proving substantive enough to break VZ free from its extended period of consolidation. Shares have mostly hit a roadblock after surging by around +30% since November. With only two other well-established competitors, VZ may find it difficult to differentiate itself from the homogenous pack, leading to tepid revenue growth. At the same time, VZ is currently focused on paying down debt, which can halt adding to repurchase plans and increasing quarterly dividends. Therefore, the stock may continue to trend sideways over the near term.
Intuitive Surgical posts solid Q1 results, but system placement concerns weigh on shares (ISRG)
Intuitive Surgical (ISRG), the leading manufacturer of robotic surgical equipment, delivered a solid beat-and-raise Q1 earnings report as worldwide da Vinci procedures increased by a better-than-expected 16% yr/yr, but concerns surrounding system placements this year are clouding over the results and outlook.
- The main issue is related to the recent FDA approval and subsequent measured launch of ISRG's da Vinci 5 system. While interest for da Vinci 5 has been strong, as evidenced by the eight placements registered at the end of Q1, supply is constrained, preventing ISRG from meeting demand. Initially, ISRG is only offering da Vinci 5 to select U.S customers who worked with the company during the development phase and have established robotic surgical programs.
- Consequently, other prospective customers who are interested in purchasing da Vinci 5 are holding off on making a system purchase until there's broad availability of da Vinci 5. This scenario is reflected in Q1 da Vinci system placements, which increased by just one on a yr/yr basis to 313. Furthermore, during the earnings call, ISRG acknowledged that system placements may be choppy this year due to the slow start for da Vinci 5.
- The explosive growth of weight-loss drugs such as Eli Lilly's (LLY) Zepbound and Novo Nordisk's (NVO) Wegovy is creating another headwind for ISRG. The company stated that bariatric procedures were flat in Q1 and continue to decelerate from 2H23 levels.
- The good news is that once the supply constraints for da Vinci 5 ease, ISRG should see a meaningful upswing in system placement growth due to da Vinci 5's technology improvements, such as Force Feedback technology that enables surgeons to feel subtle forces exerted on tissue during surgery. That upswing, though, may not fully materialize until FY25, which is creating some disappointment among investors today.
- Another positive is that ISRG's lung biopsy robot, Ion, is generating strong growth with procedures jumping by 90% in Q1. Along with solid growth for general procedures in both the U.S. and China, the strength in Ion allowed ISRG to lift its FY24 procedure growth guidance to +14-17% from +13-16%.
- Although the company is lapping more challenging yr/yr comparisons due to last year's unwinding of patient treatment backlogs that developed during COVID-19, ISRG isn't contending with any COVID-related disruptions in China, either.
Overall, ISRG posted solid Q1 results as da Vinci procedure growth modestly strengthened, but the measured launch of its new da Vinci 5 system may put a lid on system growth this year. Looking further out on the horizon, though, we believe da Vinci 5 has the potential to be a significant growth catalyst as healthcare provides upgrade to the new-and-improved model.
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