Market Snapshot
| Dow | 44337.48 | -255.09 | (-0.57%) | | Nasdaq | 19731.85 | +6.09 | (0.03%) | | SP 500 | 6051.97 | -16.53 | (-0.27%) | | 10-yr Note | -30/32 | 4.64 |
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| | NYSE | Adv 804 | Dec 1921 | Vol 1.0 bln | | Nasdaq | Adv 1846 | Dec 2493 | Vol 8.0 bln |
Industry Watch
| Strong: Consumer Staples, Consumer Discretionary |
| | Weak: Real Estate, Materials, Industrials, Energy, Financials |
Moving the Market
-- Responding to the hotter-than-expected January Consumer Price Index, which doesn't bode well for future rate cuts by the Fed
-- Jump in Treasury yields keeping pressure on stocks
-- Gains in some mega caps providing support to major indices
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Closing Summary
12-Feb-25 16:25 ET
Dow -255.09 at 44337.48, Nasdaq +6.09 at 19731.85, S&P -16.53 at 6051.97
[BRIEFING.COM] The stock market closed mixed at the index level, but the vibe under the surface was negative through the entire session. The underlying downside bias followed a hotter-than-expected January Consumer Price Index (CPI) report, which sent Treasury yields sharply higher.
Total CPI was up 3.0% year-over-year, versus 2.9% in December, while core CPI was up 3.3% year-over-year, versus 3.2% in December. The 10-yr note yield, which is most sensitive to changes in inflation, was at 4.53% ahead of the 8:30 ET release before settling at 4.64%. The 2-yr yield settled eight basis points higher at 4.37%.
The S&P 500 closed 0.3% lower and the Dow Jones Industrial Average closed 0.5% lower after recovering off session lows. The Nasdaq Composite settled slightly higher than yesterday, boosted by gains in the mega cap space in a buy-the-dip bid following initial declines.
Apple (AAPL 236.87, +4.25, +1.8%) and Meta Platforms (META 725.38, +5.58, +0.8%) were integral in the turnaround action after being down as much as 0.8% and 1.0%, respectively.
Other stocks that went against the downside grain included DoorDash (DASH 200.89, +7.80, +4.0%), Gilead Sciences (GILD 103.31, +7.17, +7.5%), and Confluent (CFLT 37.65, +7.55, +25.1%), which hit 52-week highs after reporting earnings.
Many other stocks registered declines, leading nine of the 11 S&P 500 sectors lower. The energy (-2.7%) and rate-sensitive real estate (-0.9%) sectors closed at the bottom of the pack.
- Dow Jones Industrial Average: +4.3% YTD
- S&P Midcap 400: +1.6% YTD
- Russell 2000: +1.2% YTD
- S&P 500: +2.9% YTD
- Nasdaq Composite: +1.8% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 2.3%; Prior 2.2%
- January CPI 0.5% (Briefing.com consensus 0.3%); Prior 0.4%
- January Core CPI 0.4% (Briefing.com consensus 0.3%); Prior 0.2%
Thursday's economic lineup includes:
- 8:30 ET: January PPI (Briefing.com consensus 0.2%; prior 0.2%), January Core PPI (Briefing.com consensus 0.3%; prior 0.0%), weekly Initial Claims (Briefing.com consensus 217,000; prior 219,000), and Continuing Claims (prior 1.886 mln)
- 10:30 ET: Weekly natural gas inventories (prior -174 bcf)
Treasuries settle with losses
12-Feb-25 15:30 ET
Dow -252.44 at 44340.13, Nasdaq +25.16 at 19750.92, S&P -16.58 at 6051.92
[BRIEFING.COM] There wasn't much up or down action at the index level in recent trading.
The 10-yr yield settled ten basis points higher at 4.64% and the 2-yr yield settled eight basis points higher at 4.37%.
Thursday's economic lineup includes:
- 8:30 ET: January PPI (Briefing.com consensus 0.2%; prior 0.2%), January Core PPI (Briefing.com consensus 0.3%; prior 0.0%), weekly Initial Claims (Briefing.com consensus 217,000; prior 219,000), and Continuing Claims (prior 1.886 mln)
- 10:30 ET: Weekly natural gas inventories (prior -174 bcf)
Stocks slide sideways
12-Feb-25 15:05 ET
Dow -206.26 at 44386.31, Nasdaq +30.05 at 19755.81, S&P -11.99 at 6056.51
[BRIEFING.COM] The Nasdaq Composite is back in positive territory after moving up over the last half hour. Mega caps continue to provide integral support to index gains.
Market breadth still skews negative despite the improvement. Decliners have a 5-to-2 lead advancers at the NYSE and a 4-to-3 lead at the Nasdaq.
Looking ahead, Cisco (CSCO), MGM Resorts (MGM), Albermarle (ALB), Robinhood Markets (HOOD), AppLovin (APP), GXO Logistics (GXO), Dutch Bros (BROS), and others report earnings after the close.
Treasury budget key takeaway
12-Feb-25 14:30 ET
Dow -225.46 at 44367.11, Nasdaq -2.99 at 19722.77, S&P -20.39 at 6048.11
[BRIEFING.COM] The market moved mostly sideways at the index level in recent trading.
The Treasury Budget for January showed a deficit of $128.6 billion compared to a deficit of $21.9 billion in the same period a year ago. The January deficit resulted from outlays ($641.9 billion) exceeding receipts ($513.3 billion). The Treasury Budget data are not seasonally adjusted so the January deficit cannot be compared to the December deficit of $86.7 billion.
The key takeaway from the report is that the deficit in early fiscal 2025 is 57.9% greater than the deficit for the same period in fiscal 2024.
Small caps and mid caps lagging
12-Feb-25 13:55 ET
Dow -206.00 at 44386.57, Nasdaq +7.81 at 19733.57, S&P -17.60 at 6050.90
[BRIEFING.COM] The stock market has seen better days, but today isn't necessarily a "bad" day relative to the bad news that came in the January CPI report. That report, and continued talk of tariffs, has done more damage to the small-cap and mid-cap stocks today, which are relative laggards.
The Russell 2000 is down 0.8% and the S&P Midcap 400 Index is down 0.7%.
The Dow Jones industrial Average for its part is down 0.5% with a small majority of components trading lower. The biggest laggards on a percentage basis are Home Depot (HD 406.65, -9.71, -2.3%), Caterpillar (CAT 354.61, -7.63, -2.1%), Sherwin-Williams (SHW 355.59, -5.78, -1.6%), and Chevron (CVX 155.15, -2.29, -1.5%), the latter of which announced a cost-cutting plan that will include cutting 15-20% of its workforce by the end of 2026.
Today's best-performing Dow component is Boeing (BA 183.41, +2.97, +1.7%).
Zillow heads sharply lower following Q4 results; Q1 guidance was the main issue (ZG)
Zillow (ZG -10%) is heading a good bit lower after reporting Q4 results last night. Zillow reported a modest EPS beat. However, what really stood out was its 16.9% yr/yr revenue growth to $554 mln, nicely above prior guidance of $$525-540 mln. Adjusted EBITDA grew 62% yr/yr to $112 mln, well above the $90-105 mln prior guidance. Unfortunately, Zillow guided Q1 revs below consensus, which is weighing on shares today.
- Besides earnings, Zillow also announced a partnership with Redfin (RDFN), making Zillow the exclusive provider of multifamily rental listings (properties with 25+ units) on Redfin and its sites. We like this deal for Zillow as it expands the Zillow Rentals Network to include Redfin, Rent.com, and ApartmentGuide.com, alongside existing Zillow brands HotPads and Trulia. Recall that Zillow added Realtor.com as a partner in 2024. The rental market is hot right now and it's an area that Zillow wants to grow. We see this deal as a positive for both companies. Zillow is becoming very large in this space.
- Zillow changed it reporting segments. It is now presenting revenue in two major categories: For Sale and Rentals. The For Sale category includes revenue from residential and mortgages while the Rentals category focuses just on rentals.
- For Sale segment revenue was up 15% yr/yr to $428 mln. Within this, Residential revenue was up 11% to $387 mln, benefiting primarily from continued conversion improvements and Zillow Showcase expansion. Mortgages revenue jumped 86% yr/yr to $41 mln thanks to 90% increase in purchase loan origination volume to $923 mln. Rentals segment revenue rose 25% yr/yr to $116 mln, primarily driven by multifamily revenue growing 41%.
- So, why the weak guidance? Zillow expects a more challenged housing market in Q1, which it sees as being relatively flat. Pending existing home sales trends in December and January were muted, which Zillow expects will result in lower yr/yr growth in closed transactions for the industry in Q1 compared to Q4 2024. Zillow expects For Sale segment revs to grow in the mid-single digits, driven by residential growth of low to mid-single digits and mortgages growth of approximately 30%.
- There was more bad news when Zillow said it pulled forward a number of closed loans in late December that impacted January, resulting in Q4 outperformance relative to internal expectations. So, that takes some of the shine off Q4's upside.
After some impressive recent quarters from Zillow, this Q4 report, and especially the Q1 guidance, were a letdown for investors. The flat housing market outlook was also not a great signal to investors ahead of the key spring selling season. The company is best known for home sales, but this is a good example of why branching into Rentals has been a smart move. Rentals growth remains brisk. Doing sales and rentals makes sense, because when rates are high, more people rent and when rates decline, more people buy. So the two segments complement each other.
Restaurant Brands Int'l cooks up a solid quarter, aided by McDonald's E. coli issues (QSR)
It may not have been a "whopper" of a quarter for Restaurant Brands Int'l (QSR), but the Burger King, Tim Hortons, and Popeye's parent company edged past Q4 EPS expectations and saw consolidated comparable sales growth accelerate to 2.5% from just 0.3% last quarter. The company also reaffirmed its long-term outlook, guiding for comparable sales growth of 3%+, net restaurant growth of 5%+, and system-wide sales growth of 8%+ for the 2024-2028 timeframe.
The upside results come on the heels of rival McDonald's (MCD) delivering a better-than-feared Q4 report on Monday morning, which included a return to positive global comps to +0.4%, despite the E. coli outbreak that occurred in September and October. Although the impact to MCD was less severe than anticipated, it does appear that QSR -- and Burger King in particular -- benefitted from MCD's issues.
- After reporting comps of (0.7)% in Q3, Burger King swung back into positive territory in Q4 with comps of +1.1%. In the U.S., comps were a bit stronger at +1.5%, compared to -1.4% for MCD, indicating that Burger King picked up some share during the quarter. In addition to the E. Coli outbreak at MCD, Burger King's new promotions, such as its "Million Dollar Whopper" deal, also connected with customers. Under that promotion, Burger King sold one million Whoppers for $1.
- Popeye's Louisiana Kitchen (PLK) also had a bounce back quarter with U.S. comps edging higher by 0.1% following last quarter's -4.0% performance across all restaurants. The improved results were boosted by new value offerings such as the $6 big box value and the protein-only 3-for-$5 offering, enabling PLK to modestly expand its market share within the chicken QSR category. In addition to new menu innovations, QSR is simplifying operations, enhancing technology, and introducing new kitchen equipment at PLK. By the end of 2026, the company's goal is for all PLK locations in the U.S. to have cloud-based point-of-sale systems, digital drop charts, kiosks, order-ready boards, and back-of-house equipment.
- Turning to Tim Hortons, the company's Canada-based coffeehouse and breakfast chain, comp growth remained steady at +2.2%, mainly driven by traffic, and just a tick lower than last quarter's +2.3% mark. The chain, which is QSR's largest at about 40% of total revenue, is seeing healthy demand for its breakfast offerings, including sandwiches, wraps, and new innovations like its recently launched Canadian scrambled eggs.
All in all, this was a solid earnings report for QSR and the reaffirm of the company's longer-term outlook offers some encouragement that its ongoing turnaround at Burger King will reach a higher gear in the years to come.
Kraft Heinz remains unappealing following Q4 revenue miss, soft FY25 guidance (KHC)
Kraft Heinz (KHC -3%) sunk to 52-week lows before rebounding moderately today after falling short of Q4 revenue expectations and guiding FY25 earnings below consensus. The consumer packaged foods giant also projected soft FY25 organic net sale growth, reflecting stubborn economic headwinds placing outsized stress on the end consumer.
- Volumes maintained their downward momentum in Q4, dropping by 4.1 pts, engulfing a minor 1 pt contribution from price to result in a 3.1% decline in organic net sales yr/yr. Adjusted EPS did exceed estimates, expanding by 7.8% yr/yr to $0.84.
- A constrained end consumer remains a nagging headwind for KHC. Going into 2024, KHC was optimistic that consumer demand would hold. However, macroeconomic challenges proved more intense than initially thought. A core problem for KHC is that its brands compete in a relatively elastic price environment, given the number of substitutes. For instance, several brands compete in condiments, ice cream, juice, and frozen meals.
- KHC is also noticing consumers increase the number of locations where they buy their food, showcasing clear bargain hunting trends. KHC is also observing smaller basket sizes per trip. However, consumers are stepping up their trip frequency. As such, KHC is focused on ensuring it has the right price and the right distribution across different channels.
- Consumers may also be growing more accustomed to buying on deals, making promotions more hurtful to margins. KHC commented on this, noting that not all promotions work like they used to. There are areas where KHC is beginning to contemplate a base price change instead of a promotion since it tends to see higher buying frequency with promotions rather than steep discounts generating volume spikes.
Current consumer trends are going to remain a headwind for KHC in FY25, evidenced by its downbeat FY25 earnings guidance of $2.63-2.74 and organic net sales growth outlook of flat to down 2.5%. The company expects only minor margin expansion, somewhere around flat to up 20 bps, well below the 100 bp jump it registered in FY24. To counter the current landscape, KHC is shifting focus toward marketing in 2025, showcasing its brand advantage over its competitors. While this is a good way for name brands to extract gains, without a material change in the demand environment, KHC may struggle again this year. Inflation is starting to creep higher, which may only magnify current unfavorable consumer trends.
CVS Health leaps on solid Q4 results and FY25 game plan; margin improvement is the core focus (CVS)
CVS Health (CVS +13%) maintains its glow, gapping higher on better-than-expected earnings and revenue in Q4. The pharmaceutical and health insurance giant also returned to issuing guidance following last quarter's brief pause, projecting FY25 adjusted EPS in-line with consensus. Given CVS's past cost-related headwinds, with medical costs constantly trending higher, earnings guidance consistent with analysts' forecasts is a relief. Incorporating today's jump, CVS has rebounded by over +35% from December lows, reflecting mounting enthusiasm over the company's several encouraging trends since CEO David Joyner replaced Karen Lynch in late October.
- CVS registered adjusted EPS of $1.19 in Q4, a 9% sequential bump, on a 2% sequential and 4% yr/yr increase in revenue to $97.71 bln. The company's Health Care Benefits segment, which includes its insurance division Aetna, led top-line growth in the quarter, rising by 23% yr/yr. Tugging on this growth was Health Services, composed of CVS's health care banners, such as Oak Street and Signify, which inched 4% lower. CVS's Pharmacy & Consumer Wellness segment -- its retail division -- enjoyed an 8% lift in total revenue, aided by increased prescription volumes.
- Following his first 100 days as CEO, David Joyner outlined four strategic areas CVS will focus on this year. The first is to turn Aetna around, restoring the business to 3-5% target margins. Aetna weighed heavily on profitability during 2024 due to elevated utilization and higher acuity from Medicaid redeterminations. CVS is confident it can stabilize this business. Part of this involves shrinking its Medicare Advantage (MA) membership by a high single-digit percentage yr/yr. Unlike peer Humana (HUM), this was consistent with CVS's commentary since last summer.
- The second and third pillars involve making healthcare more affordable and investing in emerging technologies to drive efficiency. AI is playing a role in both of these initiatives as CVS leverages the technology to speed up turnaround times and reduce member frustration. The fourth initiative is to stay disciplined with its capital, emphasizing a stronger balance sheet. CVS noted that it is committed to prudent financial policies, including maintaining its current annual dividend yield of 4.2%.
- Looking ahead, CVS expects FY25 adjusted EPS of $5.75-6.00, representing an 8% uptick at the midpoint. However, compared to FY23, when CVS posted adjusted EPS of $8.74, the company has a long road ahead to make up lost ground last year.
Cutting costs will be central to CVS reaching its FY25 earnings target this year. The most influential driver of margin improvement will be reducing its medical benefit ratio (MBR), which measures the percentage of premiums used to cover medical expenses -- a lower number is better. In Q4, CVS's MBR swelled by 630 bps yr/yr to 94.8%, driven primarily by MA. Thus, improving its MA business will be pivotal this year.
The company has endured many setbacks over the past year, causing it to shutter hundreds of stores and shift attention to stabilizing its insurance division. However, investors are encouraged by CEO David Joyner's game plan, which could be the key to producing a long-awaited comeback.
DoorDash dashes higher as Q4 metrics were quite impressive despite headwinds (DASH)
DoorDash (DASH +4%) is dashing higher following its Q4 report last night. The food delivery service giant reported solid top line growth at +24.8% yr/yr to $2.87 bln, which was slightly better than expected. Total orders rose 19% yr/yr to 685 mln while Q4 Marketplace GOV rose 21% yr/yr to $21.3 bln, which was above the $20.6-21.0 bln prior guidance.
- Since DASH does not provide adjusted EPS, we think it is important for investors to focus more on adjusted EBITDA as the better metric for profitability because it's a clean adjusted number and DASH provides guidance for it. And on the score, DASH did well with adjusted EBITDA growing 56% yr/yr to $566 mln, toward the higher end of its $525-575 mln prior guidance. Also, Adjusted EBITDA as a % of Marketplace GOV rose to 2.7% from 2.1% a year ago and 2.7% in Q3.
- What stood out to us was order growth, which had been declining on a yr/yr basis in recent quarters, broke that trend. Orders grew +19% yr/yr vs +18% yr/yr in Q3, +19% in Q2, +21% in Q1 and +23% in Q4 last year. So that was good to see and we think that surprised investors a bit. Part of that is because DASH continues to sign new restaurant partners, that effort is growing double-digits. More importantly, what DASH saw in 2024 was stable and consistent growth throughout the quarters. New verticals (grocery, retail) and international are also growing much faster than the restaurant business.
- Another key factor driving performance is that monthly active users (MAUs) reached an all-time high of over 42 mln in Dec 2024, up from over 37 mln in Dec 2023. DashPass and Wolt+ members are also growing nicely. Also, there is cross-selling as over 25% of MAUs in December ordered from at least one of DASH's new verticals categories, up from over 20% in Dec 2023. All of this is driving order growth. Order frequency continues to be at an all-time high DashPass had a strong year.
- It was not all good news as analysts seemed a bit disappointed in the Q1 guide. DASH countered that Q1 last year had an extra day and there are some FX headwinds built into the guidance.
- Also, with 2024 wrapping up, DASH provided some good perspective. Compared to 2019, its business in 2024 was more than 9x bigger in GOV, 12x bigger in revenue, and is generating almost $2.4 bln more in Free Cash Flow. And it has sustained that growth even after the pandemic boom. Lots of companies that benefitted from the pandemic (DOCU, ZM to name a couple) saw sales drop off as the economy opened up, but DASH has maintained that trajectory.
Overall, investors are clearly pleased with how DoorDash wrapped up 2024, especially given the macro headwinds (a tight consumer, FX, LA wildfires etc.). The stock initially dropped last night, we think because EBITDA was just at the high end of guidance vs strong upside in Q2-Q3. However, as investors started to digest the metrics, that became the focus. Order growth acceleration after several quarters of declines really stood out. Also, MAUs and order frequency were both at record highs.
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