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To: Return to Sender who wrote (88940)9/1/2022 11:51:10 PM
From: Return to Sender
1 Recommendation   of 91855
 
MW Broadcom CEO defends optimistic 'true demand' outlook as PC, smartphone sales slide
8:12 PM ET 9/1/22 | MarketWatch

Demand 'solid' going into year-end quarter, CEO says

Broadcom Inc.'s chief executive on Thursday defended his positive outlook that end-market demand is "solid" for the rest of the year as Wall Street analysts questioned that optimism amid a cooling of growth in the chip industry.

Broadcom (AVGO) CEO Hock Tan told analysts on a post-earnings conference call that he sees "true demand" in the company's end markets, and that takes into account weakness in consumer markets. The San Jose, Calif.-based company had forecast revenue of about $8.9 billion for the fiscal fourth quarter, while analysts have estimated revenue of $8.77 billion. That forecast received a little pushback from analysts who have seen a rocky earnings season for chip makers, where optimism is in short supply.

"Let me start by saying, while consumer IT hardware spending has been reported to be weak, very weak from our vantage point, infrastructure spend is still very much holding," Tan said. He also addressed speculation that the appearance of strong demand could be "false," as many customers in times of shortage will hoard chips by double- or triple-buying, creating a bubble of demand that eventually collapses.

"We put in a lot of checks and balances, hugely, before we put products out on aircraft or trucks to our customers, and we have been doing this now for two years, so we're pretty good at doing it," Tan told analysts.

Shares gained 2% after hours, following a 1.4% decline in the regular session to close at $492.01.

Broadcom reported fiscal third-quarter net income of $3 billion, or $7.15 a share, compared with $1.8 billion, or $4.20 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation and other items, were $9.73 a share, compared with $6.96 a share in the year-ago quarter.

Revenue rose to $8.46 billion from $6.78 billion in the year-ago quarter, as chip sales surged 32% to $6.62 billion from the year-ago period, and infrastructure software sales ticked 5% higher to $1.84 billion.

Analysts surveyed by FactSet had expected earnings of $9.56 a share on revenue of $8.41 billion, based on Broadcom's forecast revenue of about $8.4 billion back in late May. The Street also forecast chip sales, on average, of $6.57 billion and infrastructure software sales of $1.83 billion.

In July, the company said its software head, Tom Krause, is leaving the company in the middle of the $61 billion VMware Inc. (VMW) acquisition he helped bring about, to go head the private company formed from a combined Citrix Systems Inc(CTXS) and Tibco Software. Broadcom's earnings were overshadowed last quarter by the announcement of the VMware bid. Tan was also optimistic about how that process is going along.

"We're making good progress with our various regulatory filings around the world," Tan told analysts. "We have an excellent team focus on these efforts, and we are moving forward very much as expected in this regard. We continue to expect the transaction to be completed in Broadcom's fiscal-year 2023."

Year to date, shares of Broadcom have fallen 26%. In comparison, the S&P 500 index has fallen 17%, the tech-heavy Nasdaq Composite index is down 25%, and the PHLX Semiconductor Index has dropped more than 33%.

-Wallace Witkowski

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To: Return to Sender who wrote (88937)9/2/2022 4:03:06 PM
From: Return to Sender
   of 91855
 
BPNDX Unchnaged at 38 PnF Buy Signals:

Mon Tues Wed Thur Fri
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To: Return to Sender who wrote (88938)9/2/2022 4:07:23 PM
From: Return to Sender
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BPSOX Unchanged at 1 PnF Buy Signals

Mon Tues Wed Thur Fri
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To: Return to Sender who wrote (88939)9/2/2022 4:17:37 PM
From: Return to Sender
1 Recommendation   of 91855
 
3 New 52 Week Lows on the NDX Today and No New 52 Week Lows:

Mon Tues Wed Thur Fri
CMCSA CMCSA INTC CTSH CHTR
FTNT FTNT WBA DOCU CTSH
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To: Return to Sender who wrote (88940)9/2/2022 4:36:18 PM
From: Return to Sender
2 Recommendations   of 91855
 


Market Snapshot

briefing.com

Dow 31395.49 -262.89 (-0.83%)
Nasdaq 11649.66 -135.43 (-1.15%)
SP 500 3934.08 -32.84 (-0.83%)
10-yr Note



NYSE Adv 1259 Dec 1725 Vol 797 mln
Nasdaq Adv 1624 Dec 2593 Vol 4.2 bln


Industry Watch
Strong: Energy

Weak: Communication Services, Real Estate, Consumer Staples, Health Care


Moving the Market
-- Softer August Jobs Report compared to July

-- Gazprom says Nord Stream 1 pipeline to remain shut for technical issue, according to Bloomberg TV

-- Falling Treasury yields







Closing Summary
02-Sep-22 16:30 ET

Dow -337.98 at 31320.40, Nasdaq -154.25 at 11630.84, S&P -42.59 at 3924.33
[BRIEFING.COM] The stock market had a good run in the morning trade that saw the S&P 500, Dow Jones Industrial Average, and Nasdaq each gain 1.0% at their highs. The market had a quick, and sharp, reversal in the afternoon, however, following a Bloomberg TV report that Gazprom is going to keep the Nord Stream 1 pipeline shutdown due to a "technical issue" that involves an oil leak. Additionally, there was no timetable provided for when the pipeline might reopen.

The morning gains were driven by a belief that less strong August employment data (versus July) could compel the Fed to take a less aggressive rate-hike path. The Gazprom news, which came on the heels of G7 members agreeing to impose a price cap on exports of Russian oil, quickly took over investor mentality.

Shortly after the open, market breadth showed advancers leading decliners by a 7-to-2 margin at the NYSE and a 3-to-2 margin at the Nasdaq. At the close, decliners led advancers by a roughly 3-to-2 margin at both the NYSE and the Nasdaq.

Mega cap stocks were an influential downside driver in the afternoon trade but they had plenty of company as a risk-off mentality took root following the Gazprom news and ahead of the extended holiday weekend.

Every S&P 500 sector reached positive territory this morning before the downside momentum left all the sectors in the red, with the exception of energy (+1.8%).

The energy sector benefited from the rising cost of oil in a notably volatile session for the energy complex futures. WTI crude oil futures settled 0.5% higher at $86.91/bbl. Natural gas futures fell 5.4% to $8.75/mmbtu.

The Treasury market also had a dynamic session with the 2-yr note yield ultimately falling 12 basis points to 3.40% while the 10-yr note yield fell seven basis points to 3.20%.

As a reminder, US equity markets are closed Monday.

Looking ahead to Tuesday, market participants will receive the final August IHS Markit Services PMI reading (prior 44.1) at 9:45 a.m. ET. The August ISM Non-Manufacturing Index (Briefing.com consensus 55.2%; prior 56.7%) will be out at 10:00 a.m. ET.

Reviewing today's economic data:

  • August nonfarm payrolls increased by 315,000, average hourly earnings rose a smaller-than-expected 0.3% month-over-month, and the unemployment rate ticked up to 3.7% from 3.5% as the labor force participation rate jumped to 62.4% from 62.1%.
    • The key takeaway is that the labor market remains in pretty solid shape. It didn't function with the same zest it showed in July, but, objectively, it is running at a pace that is wholly inconsistent with an economy on the cusp of a recession.
  • Factory orders for manufactured goods declined 1.0% m/m in July (Briefing.com consensus +0.2%) following a downwardly revised 1.8% increase (from 2.0%) in June. Shipments of manufactured goods declined 0.9% after increasing 0.8% in June.
    • The key takeaway from the report is that this was the first decline in order activity in ten months, meaning it could simply be a natural pullback after an extended period of new order increases as opposed to a meaningful turning point. Alas, future reports are needed to shed better light on the situation.
Dow Jones Industrial Average: -13.8% YTD
S&P 400: -15.8% YTD
S&P 500: -17.7% YTD
Russell 2000: -19.4% YTD
Nasdaq Composite: -25.7% YTD


Market moves lower into the close
02-Sep-22 15:30 ET

Dow -319.87 at 31338.51, Nasdaq -156.86 at 11628.23, S&P -39.42 at 3927.50
[BRIEFING.COM] The major indices are continuing to drift lower ahead of the close.

Small and mid cap stocks are faring somewhat better than their peers with the Russell 2000 (-0.4%) and S&P Mid Cap 400 (-0.4%) trading ahead of the broader market.

As a reminder, US equity markets are closed Monday.

Looking ahead to Tuesday, market participants will receive the final August IHS Markit Services PMI reading (prior 44.1) at 9:45 a.m. ET. The August ISM Non-Manufacturing Index (Briefing.com consensus 55.2%; prior 56.7%) will be out at 10:00 a.m. ET.


Market stuck in narrow range
02-Sep-22 15:00 ET

Dow -262.89 at 31395.49, Nasdaq -135.43 at 11649.66, S&P -32.84 at 3934.08
[BRIEFING.COM] The major indices are stuck in a narrow range near session lows.

Energy complex futures settled mixed with WTI crude oil futures up 0.5% to $86.91/bbl while natural gas futures fell 5.4% to $8.75/mmbtu. The S&P 500 energy sector (+1.8%) remains in first place.

Separately, Treasury yields are near their lows. The 2-yr note yield is down 13 basis points to 3.40% while the 10-yr note yield is down seven basis points to 3.20%.


Generac lower ahead of Labor Day weekend
02-Sep-22 14:30 ET

Dow -207.25 at 31451.13, Nasdaq -127.09 at 11658.00, S&P -29.64 at 3937.28
[BRIEFING.COM] The benchmark S&P 500 (-0.75%) is still in second place to this point on Friday.

S&P 500 constituents DISH Network (DISH 16.97, -0.84, -4.72%), Zebra Tech (ZBRA 297.79, -11.95, -3.86%), and Generac (GNRC 225.07, -7.94, -3.41%) pepper the bottom of the standings. GNRC falls despite ongoing power issues in California and likelihood of upcoming severe weather Labor Day weekend.

Meanwhile, Texas-based oil&gas E&P name Halliburton (HAL 29.99, +1.05, +3.63%) is today's top performer owing to gains in crude oil futures.


Gold rebounds into weekend
02-Sep-22 14:00 ET

Dow -283.06 at 31375.32, Nasdaq -166.19 at 11618.90, S&P -40.34 at 3926.58
[BRIEFING.COM] We've continued to trickle lower in the major averages in the last half hour; the tech-heavy Nasdaq Composite (-1.41%) is today's top laggard with about two hours to go.

Gold futures settled $13.30 higher (+0.8%) to $1,722.60/oz, recovering a bit after notching a six-week low yesterday on modest weakness in yields and the dollar.

Meanwhile, the U.S. Dollar Index is down about -0.1% to $109.59.







nCino is "nFavor" as strong Q2 report showcases resilient demand for cloud banking platform (NCNO)


nCino (NCNO), a provider of a cloud banking platform, is depositing some sizable gains after issuing a beat-and-raise Q2 earnings report that featured strong revenue growth of nearly 50%. The company's solid results and bullish outlook come amid a challenging environment in the mortgage industry as interest rates climb, reflecting the competitive strength of its recently acquired (1/10/22) SimpleNexus business. The cloud-based homeownership platform generated robust subscription revenue growth of 73% to about $15 mln, driven by market share gains and the signing of 26 new customers in Q2.

An important factor that's working in SimpleNexus's favor is that it uses a per-seat subscription-based model, rather than a transaction-based model. Therefore, the platform is not directly impacted by falling mortgage applications, making its revenue more predictable than some might assume.

SimpleNexus represents just one pillar of NCNO's growth strategy.

  • The company's nIQ offering, which is backed by artificial intelligence and machine learning capabilities, is another key component. As part of the overall nCino Bank Operating System, nIQ uses predictive analysis to help financial institutions increase efficiency and improve customer service by automating a variety of banking processes.
    • In a separate press release, NCNO announced that Rabobank selected nIQ's automated spreading solution for its branches in Australia and New Zealand. The win is NCNO's largest order spreading deal to date.
    • Overall, the number of banking customers using nIQ applications surged by 119% yr/yr, bolstered by strong demand for portfolio analytics, automated spreading, and commercial pricing.
  • International expansion is another piece of the puzzle as NCNO looks to expand in a $16 bln total addressable market. Coming on the heels of New Zealand-based ASB going live earlier in the quarter, NCNO's signing of Rabobank is reflective of the company's momentum in APAC.
    • The company also added a new client in Japan, marking its fourth customer win in the country, while signing new customers in the Netherlands and South Africa.
    • Earlier this year, the international expansion story revolved around Canada after NCNO added a top-five Canadian bank to the list.
  • NCNO's growth is impressive, but the company isn't implementing a "growth at all costs" approach. In this market environment, that's music to investors' ears since profit growth is prioritized. Specifically, NCNO is taking a more measured approach with its hiring, commenting that it sees plenty of opportunity to support growth with its existing employee base.
    • These cost containment efforts, combined with healthy demand for its platform, enabled NCNO to increase its FY23 EPS guidance to $(0.19)-$(0.17) from $(0.30)-$(0.28).
    • Even better, the company reiterated its commitment to achieving non-GAAP profitability next year, despite the macroeconomic uncertainty.
The most pronounced headwind facing NCNO is the weakness in Europe, which has become a recurring theme among cloud software companies recently. During the earnings conference call, CEO Pierre Naude disclosed that deals are taking longer to close in Europe. However, strength in the U.S., Canada, and Asia Pacific is more than offsetting that weakness, with Naude adding that the sales pipeline has never been stronger. Given its exposure to the mortgage industry, NCNO may seem like an unlikely winner in a rough market for cloud stocks. Momentum is clearly on its side, though, as its platform lands in the sweet spot of a digital transformation that's sweeping across the banking industry.




PagerDuty sets itself apart from other cloud names with solid beat-and-raise report (PD)


In a week that has seen several meltdowns from cloud software stocks following earnings, PagerDuty (PD) has emerged as a winner following its solid beat-and-raise 2Q23 report. In the aftermath of nasty post-earnings sell-offs in MongoDB (MDB), Veeva Systems (VEEV), Okta (OKTA), and C3.ai (AI), investors can be forgiven for taking a cautious approach ahead of PD's quarterly results. Yesterday, the digital operations platform provider closed lower by about 7.5%.

The overarching theme from the disappointing set of earnings reports is that IT budgets are tightening and that deals are taking longer to close, due to macroeconomic uncertainties. Consequently, these cloud software companies dialed back their revenue expectations for the back half of the year. That same scenario was seemingly expected to play out for PD, but the company pleasantly surprised by nudging is FY23 guidance higher for the second time this year. After raising its revenue outlook to $364-$369 mln from $360-$366 mln last quarter, PD is now forecasting revenue of $365-$370 mln.

Admittedly, the $1 mln guidance raise is quite modest, especially considering that PD exceeded Q2 revenue estimates by about $2 mln. However, it's the company's consistency and resiliency that stands out.

  • While many cloud software companies are experiencing a deceleration in top-line growth, PD's growth has remained steady, hovering in the 30-35% range over the past five quarters. In fact, PD's growth has accelerated a bit since FY21, when it was registering mid-to-high 20% growth.
  • PD's consistency is also illustrated by its dollar-based net retention rate, which came in at 124% in Q2. Impressively, this metric has exceeded 120% for seven consecutive quarters, and PD expects it to remain above that mark throughout FY23.
    • Driving this strong performance is a low ARR churn below 5%, combined with PD's successful land-and-expand strategy that's pushing customer spending higher. Relatedly, large customer accounts with ARR over $100K grew by 38% yr/yr to 689.
  • Compared to other cloud names that we mentioned, PD's earnings call had a less cautious tone. Although PD's CEO Jen Tejada acknowledged that sales cycles lengthened for some larger deals, particularly in the EMEA region, she stated that demand remained strong, despite the macro uncertainty. Moreover, she described the critical nature of PD's offerings, akin to cybersecurity products.
    • In particular, the platform's ability to identify and respond to incidents across digital channels is a highly valuable asset for companies. By reducing downtime for apps and sites, PD not only saves lost revenue, but it also improves the reliability and quality of a company's online presence.
  • Another key difference between PD and other cloud companies that recently reported earnings is that its bottom-line performance is significantly improving. In Q2, its operating loss narrowed to ($3.0) mln from ($10.0) mln in the year-earlier period. More importantly, though, PD expects to achieve non-GAAP profitability in 4Q23 and to be profitable on a full-year basis in FY24. Revenue continues to grow faster than expenses, which were up by 30% in Q2 to $109.8 mln.
The main takeaway is that PD set itself apart from other cloud software stocks as its solid results and outlook highlighted the mission-critical nature of its platform. Also working in the stock's favor is a more reasonable valuation with shares trading at about 6.4x expected FY23 revenue. This combination of consistent revenue growth, improving profitability, and a cheaper valuation make PD a compelling option in the cloud software space




Broadcom delivers a solid beat-and-raise JulQ report despite a challenging economic backdrop (AVGO)


Broadcom (AVGO +4%) bucked the trend of weakening consumer IT hardware and cooling enterprise networking demand with its beat-and-raise Q3 (Jul) report. The chipmaker set quarterly sales records in multiple divisions, posting total revenue growth of 24.9% yr/yr to $8.46 bln, a testament to its diversification and importance in many different organizations' supply lines.

  • What stood out most was the impressive sales growth in AVGO's networking and server storage connectivity divisions, which was somewhat expected after key customer Cisco (CSCO) saw notable supply chain improvements in JulQ. Networking revs jumped 30% yr/yr, ahead of the company's forecast of over 25% growth, from cloud and enterprise data centers refreshing their systems. Meanwhile, server storage connectivity revs soared 70%, above AVGO's prediction of 60% growth, benefiting from the continued deployment of servers and storage.
    • These trends are in direct contrast to what we heard from storage supplier Seagate (STX) earlier this week, which slashed its SepQ sales projection due to increased cautious buying behavior among enterprises and certain U.S. cloud customers.
    • AVGO was bullish that these trends would continue, estimating its networking and server revs would grow 30% and 45% in Q4 (Oct).
  • AVGO's three other divisions within its semiconductor business posted mostly upbeat numbers. Broadband revs grew 20% yr/yr, fueled by service providers deploying next-gen broadband fiber globally. Wireless sales climbed 14% on sustained demand in North America, a pleasant surprise after Qualcomm's (QCOM) light SepQ guidance due to softening handset demand. AVGO expects similar figures for Q4, projecting broadband and wireless revenue growth of 20% and 10%, respectively.
    • Although AVGO's double-digit wireless growth is a good sign that demand for Apple (AAPL) products has not waned considerably, the company noted that volume is not expected to improve yr/yr, as its gains stem from increased content.
  • One of the weak points in Q4 was industrial sales falling 4% yr/yr, well below AVGO's expectations of around low-double-digit growth, reflecting weakness in China, partially offset by strength in the U.S. and Europe. However, industrial sales made up just 3% of total revs, so its decline in Q3 was not very impactful. Additionally, AVGO expects sales to rebound in Q4, forecasting high single-digit growth.
  • Software revs expanding by 5% yr/yr was in-line with AVGO's prior estimates. Although software represented only 22% of total revs in Q3, its pending acquisition of VMware (VMW) will up this number closer to 49%, showing AVGO's desire to become a software powerhouse. The company did not provide too many additional details on its $61 bln deal other than it is making "good progress" with regulatory bodies, and continues to expect the transition to be completed in FY23 (Oct).
Overall, AVGO's Q3 numbers were excellent. In fact, given what many of AVGO's peers have reported and discussed lately, its results really pop. However, investors may be skeptical that AVGO's Q4 guidance of 20% growth yr/yr is flimsy, keeping shares from moving higher today. Still, when asked if the company sees any changes in demand from its enterprise and cloud businesses, given its peers' comments recently, CEO Hock Tan replied that in terms of consumption of its products, it is not seeing any particular changes.




lululemon athletica bucks retail trend with impressive beat-and-raise (LULU)


lululemon athletica (LULU +10%) is rolling along despite many apparel retailers struggling this summer. This yoga-inspired athletic apparel company reported a huge beat for Q2 (Jul) and, probably even more impressively, guided nicely above expectations for Q3 (Oct). LULU clearly is bucking the retail trend. It helps that LULU's customers tend to be more upper income. But it is not just that. LULU's products are technically very innovative and yoga/runner enthusiasts are willing to pay more for that.

  • Total comps rose a healthy +23%, which includes an in-store com of +16%. Comps are down slightly from +28% in Q1, but still much better than Street estimates and well ahead of many other retailers. Direct to consumer revenue increased 30% and now represents 42% of total revenue. It is worth noting that these are not just markdown-driven sales. LULU remains predominantly a full-price business and has no plans to change.
  • In terms of the consumer, LULU says it looks closely at guest data to identify any shifts in spending patterns. LULU is not seeing any meaningful variation. Also, it keeps attracting new customers. Transactions by first-time guests increased 20+%.
  • China was also a bright spot. After a slower start to the year due to COVID-related closures, LULU has seen a rebound in the region with revenue up 30% yr/yr. Europe also did well with sales up 20%. Of note, LULU recently announced it has entered Spain, its first new market in the region in three years. LULU expects Spain to be a strong market going forward.
  • As important as the healthy sales are, supply chain constraints have been an issue for LULU in recent quarters. It was plagued by out-of-stocks and had to use air freight to get inventory in stores, which is very expensive. The good news is that LULU now sees some promising signs of improvement. Its vendors in China, which had to close or slow production earlier in 2022 due to COVID-19, are beginning to catch up. Ocean delivery times are improving. LULU is well positioned for the fall season.
  • Usually when companies talk about innovation, it can be a lot of fluff, but LULU makes some truly great products. Some new releases in 2H include new running styles that offer heat retention and reflective detailing to enable outdoor runs in cooler and low-light conditions. With the exception of a few outerwear styles, LULU says it has never had a solve for cold weather run, so it is looking forward to these launches. LULU has also branched into footwear, which we think is a great extension for the brand.
Overall, this was a very impressive beat-and-raise for LULU. While other retailers are warning left and right, LULU just put up some solid numbers. What is great is that not only are sales brisk, but now it sounds like the supply chain constraints that have dogged the company in recent quarters are starting to ease. That will be great for margins and sets the table for some impressive numbers in 2H22.


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To: Return to Sender who wrote (88944)9/2/2022 7:00:21 PM
From: Kirk ©
1 Recommendation   of 91855
 
Not the list you want to be on every day of this week!

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To: Return to Sender who wrote (88942)9/6/2022 4:01:03 PM
From: Return to Sender
1 Recommendation   of 91855
 
BPNDX Fell 2 to 36 PnF Buy Signals - [JD ODFL removed]

Fri Mon
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To: Return to Sender who wrote (88943)9/6/2022 4:01:11 PM
From: Return to Sender
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BPSOX Unchanged at 1 PnF Buy Signal:

Fri Mon
WOLF WOLF



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To: Return to Sender who wrote (88944)9/6/2022 4:12:44 PM
From: Return to Sender
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6 New 52 Week Lows on the NDX Today and No New 52 Week Highs:

New Lows:

Fri
Mon
CHTR CHTR
CTSH CMCSA
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To: Return to Sender who wrote (88945)9/6/2022 4:32:33 PM
From: Return to Sender
2 Recommendations   of 91855
 


Market Snapshot

briefing.com

Dow 31161.43 -158.97 (-0.51%)
Nasdaq 11559.97 -70.87 (-0.61%)
SP 500 3910.64 -13.69 (-0.35%)
10-yr Note



NYSE Adv 975 Dec 2105 Vol 916 mln
Nasdaq Adv 1386 Dec 2835 Vol 4.5 bln


Industry Watch
Strong: Utilities, Health Care, Real Estate, Industrials

Weak: Communication Services, Energy, Information Technology, Consumer Staples


Moving the Market
-- Carryover negativity from recent sessions

-- S&P 500 testing, and finding support at, the 3,900 level

-- Rising Treasury yields tempering some buying interest







Closing Summary
06-Sep-22 16:25 ET

Dow -173.14 at 31147.26, Nasdaq -85.96 at 11544.88, S&P -16.07 at 3908.26
[BRIEFING.COM] This holiday-shortened week started on a volatile note for the stock market. Major indices opened somewhat higher before quickly heading lower, logging session lows early on. The S&P 500 tested 3,900, where it found upside momentum, bringing the market back to positive territory before giving way to selling pressure once again. The three main indices moved sideways, with modest losses, into the close. The S&P 500 closed just a hair above the key technical level of 3,900.

Selling pressure was fueled by rising Treasury yields while buying interest was fueled by positive sentiment from the S&P 500 finding support at 3,900.

Treasury yields hit their highs around midmorning and settled just off those levels. The 2-yr note yield breached 3.50%, rising 11 basis points to 3.51% while the 10-yr note yield rose 13 basis points to 3.33%. This comes ahead of the ECB meeting on Thursday, which participants are closely watching to see if the central bank raises its key policy rate by 50 basis points or 75 basis points.

The US dollar rose sharply today along with market rates. The yen fell to a 24-yr low against the dollar while the euro dropped to a 20-yr low.

Selling today was modest but broad based. The Vanguard Mega Cap Growth ETF (MGK), Invesco S&P 500 Equal Weight ETF (RSP), and S&P 500 closed down 0.5%, 0.3%, and 0.4%, respectively.

Market breadth also reflected the broad nature of today's selling. Decliners led advancers by a greater than 2-to-1 margin at both the NYSE and the Nasdaq.

Most S&P 500 sectors closed in the red with communication services (-1.3%) and energy (-1.1%) falling to the bottom of the pack while real estate (+1.0%) and utilities (+0.2%) sat atop the leaderboard.

Semiconductor stocks sold off more sharply than the broader market. The PHLX Semiconductor Index closed down 1.1%.

Energy complex futures settled this volatile session in mixed fashion. WTI crude oil futures rose 0.07% to $86.97/bbl while natural gas futures fell 6.4% to $8.19/mmbtu. This comes after Russia indicated the shutdown of the Nord Stream 1 pipeline is going to be long lasting, according to The Wall Street Journal, and OPEC+ announced a 100K bpd cut in production.

Looking ahead to Wednesday, market participants will receive the weekly MBA Mortgage Applications Index (prior -3.7%) at 7:00 a.m. ET, the July Trade Balance (Briefing.com -$70.2 billion; prior -$79.6 billion) at 8:30 a.m. ET, and the Fed's Beige Book at 2:00 p.m. ET.

Reviewing today's economic data:

  • The ISM Non-Manufacturing Index for August increased to 56.9% (Briefing.com consensus 55.2%) from 56.7% in July. The dividing line between expansion and contraction is 50.0%. The August reading marks the 27th straight month of growth for the services sector.
    • The key takeaway from the report is that business activity for the non-manufacturing sector accelerated slightly in August at the same time there was a deceleration in the pace of price increases. The acceleration in overall activity, however, fits the notion that the Federal Reserve will continue to raise its policy rate and will not be quick to pivot to a rate-cut cycle.
  • The August ISM Non-Manufacturing Index increased 56.9% (Briefing.com consensus 55.2%) after the prior increase of 56.7%.
Dow Jones Industrial Average: -14.3% YTD
S&P 400: -16.3% YTD
S&P 500: -18.0% YTD
Russell 2000: -20.2% YTD
Nasdaq Composite: -26.2% YTD


Major indices stuck in narrow range
06-Sep-22 15:30 ET

Dow -137.69 at 31182.71, Nasdaq -70.56 at 11560.28, S&P -12.83 at 3911.50
[BRIEFING.COM] The major indices stick to a narrow trading range heading into the close.

Energy complex futures settled this volatile session in mixed fashion. WTI rose 0.07% to $86.97/bbl while natural gas futures fell 6.4% to $8.19/mmbtu.

Coupa Software (COUP) will report earnings after today's close.

Looking ahead to Wednesday, market participants will receive the weekly MBA Mortgage Applications Index (prior -3.7%) at 7:00 a.m. ET, the July Trade Balance (Briefing.com -$70.2 billion; prior -$79.6 billion) at 8:30 a.m. ET, and the Fed's Beige Book at 2:00 p.m. ET.


Market continues lateral flow
06-Sep-22 14:55 ET

Dow -158.97 at 31161.43, Nasdaq -70.87 at 11559.97, S&P -13.69 at 3910.64
[BRIEFING.COM] The stock market is little changed in the last half hour, moving sideways off session lows.

One bright spot in the market today has been the Dow Jones Utility Average, up 0.1%. Its best performer, NextEra Energy (NEE 87.57, +2.46, +2.9%), received an upgraded today to Overweight from Equal-Weight at Morgan Stanley.

On a related note, the S&P 500 utilities sector (+0.4%) continues to outpace the market.

Separately, copper futures made sizable upside moves today, settling 1.3% higher at $3.46/lb.


Market climbs off recent lows
06-Sep-22 14:30 ET

Dow -125.30 at 31195.10, Nasdaq -59.60 at 11571.24, S&P -10.11 at 3914.22
[BRIEFING.COM] The stock market has been climbing off recent lows after the S&P 500 found support at the 3,900 level.

As the market lifted higher, industrials (+0.1%) and health care (+0.4%) joined real estate (+0.9%) and utilities (+0.6%) in positive territory.

Earlier, value stocks had a performance edge over growth stocks, but now trade roughly in-line. The Russell 3000 Value Index and Russell 3000 Growth Index both show modest losses, down 0.3% and 0.2%, respectively.

Separately, the CBOE Volatility Index is down from session highs, up 4.0% (or 1.02) to 26.49.


S&P 500 again finds support at 3,900 level
06-Sep-22 14:00 ET

Dow -159.69 at 31160.71, Nasdaq -96.40 at 11534.44, S&P -12.22 at 3912.11
[BRIEFING.COM] The major indices dipped towards session lows with the S&P 500 again testing the 3,900 level, where it found some support.

Treasury note yields move sideways near session highs with the 10-yr note yield up 14 basis points to 3.34%. The 2-yr note yield is up 11 basis points to 3.51%. This comes ahead of the ECB meeting on Thursday, which participants are closely watching to see whether the central bank raises its key policy rate by 50 basis points or 75 basis points.

Separately, the US Dollar Index is up 0.7% to 110.30.







ADT securing some sizable gains after State Farm and Google make big bet on company (ADT)


ADT (ADT), the provider of security and monitoring systems for homes and businesses, is surging higher after announcing that State Farm and Google (GOOG) have invested $1.50 bln in the company. The bulk of that new capital is coming from State Farm, which is purchasing 133.3 mln shares of ADT for $9/share, while also sinking $300 mln into a fund to support product development and marketing. For GOOG, its new $150 mln contribution that's earmarked for engineering and product design expands on its initial $150 mln investment. Unlike the partnership with State Farm, GOOG has an established track record with ADT through its Nest connected home products.

With this new arrangement, ADT will expand its partnership with GOOG. Rather than simply selling Nest hardware, ADT will harness the data from GOOG devices in order to predict and prevent major home incidents from happening. For instance, GOOG's home monitoring systems could identify water leaks and alert homeowners of the issue before the problem becomes severe.

That's a compelling value-add for potential ADT customers, but the most exciting aspect of today's developments revolves around State Farm.

  • In essence, ADT has just gained nearly 20,000 new sales representatives at State Farm. Given that wage inflation has significantly dented ADT's profitability, the prospect of having thousands of sales agents pitching its products on another company's payroll is quite a feat.
    • ADT is badly in need of a catalyst that can turn its financial performance around. Since going public in 2018, the company has consistently missed EPS expectations and has struggled to attain profitability. On that note, last quarter marked the first time that ADT generated positive adjusted net income.
    • In addition to wage inflation, supply chain disruptions and installation delays on the commercial side of the business have created headwinds recently.
    • Longer-standing challenges for ADT include customer attrition and the mountain of debt that's sitting on the balance sheet from Apollo Global Management's (APO) leveraged buyout in 2016.
    • There is some good news on both accounts, though, as gross customer attrition fell to a record low of 12.7% over the past twelve months. ADT's debt-to-adjusted EBITDA ratio also dipped to 4.2x at the end of Q2, compared to 4.4x at year-end FY21.
  • There's reason to believe that State Farm will be successful in bundling insurance policies with ADT's home monitoring systems. Not only will policyholders receive a discounted rate for adding an ADT system, but they'll also lower the risk of needing to file a claim for damages. The peace of mind that comes from possibly preventing a major loss, and/or a home intrusion, is a key selling point.
  • From State Farm's perspective, it views this partnership as an opportunity to transition from a "repair and replace" approach, to a "predict and prevent" model. Accordingly, the company expects that claims payments will decrease over time.
This new partnership with State Farm, combined with additional investments from GOOG, has the potential to be a game-changing development for ADT. On paper, everything looks great, and it appears that this arrangement could spark a turnaround for the beleaguered company. However, ADT remains a "show me" story due to its dismal earnings history. Therefore, we wouldn't advise jumping in with both feet until the results can be measured over the next quarter or two.




CVS Health signals intention to expand its reach with acquisition of Signify Health (CVS)


CVS Health's (CVS) vision of becoming a more diversified, full-service healthcare company is unfolding today after the company emerged as the winning bidder for Signify Health (SGFY). In a deal valued at approximately $8.0 bln, CVS will pay $30.50/share for the provider of at-home healthcare services. When the Wall Street Journal reported that CVS was preparing to make a bid for SGFY about one month ago, it was far from a done deal that the two companies would agree on a transaction. In fact, some considered CVS to be the underdog as it reportedly competed against Amazon (AMZN) and UnitedHealth (UNH) in the SGFY sweepstakes.

Although an acquisition of SGFY would barely make a dent in AMZN's balance sheet, perhaps the company wasn't comfortable being overly aggressive in the M&A market given the macroeconomic uncertainties. On that note, Bloomberg reported last Friday that AMZN has shuttered plans of opening 42 warehouses in the U.S. due to sagging sales growth. After already bolstering its healthcare services with a $4 bln acquisition of 1Life Healthcare (ONEM) this past July, maybe AMZN didn't feel as compelled to make another healthcare deal while its core business is softening.

Whatever the case may be, CVS was the more motivated suitor, as reflected in its generous offer for SGFY. The $30.50/share price tag represents a 78% increase over SGFY's stock price from August 1, the day before the Wall Street Journal reported that SGFY is working with investment bankers to explore strategic alternatives. Concerns that CVS may have overpaid for SGFY are tempering investors' enthusiasm for the acquisition. Based on FY23 EPS estimates, CVS is paying roughly 60x forward earnings expectations.

Looking beyond the valuation, we believe the addition of SGFY is a good fit.

  • SGFY, which uses a combination of analytics and at-home visits from physicians to provide healthcare, will expand CVS's capabilities and total addressable market. The acquisition will also complement the pharmacy business since physicians can direct patients to CVS's pharmacies to fulfill prescriptions.
  • With a network of over 10,000 clinicians across the U.S., SGFY already has considerable reach. However, its reach, scale, and revenue generating potential should expand considerably with CVS's resources behind it.
    • For some perspective, SGFY guided for FY22 revenue of $800-$810 mln for is Home & Community Services (HCS) segment, and revenue of $45-$48 mln from its Caravan Health acquisition.
    • The mid-point of the HCS revenue guidance equates to an estimated yr/yr increase of 23%.
  • CVS expects the acquisition to be meaningfully accretive to earnings, although, it didn't provide a specific timeframe for achieving that EPS accretion in the press release. The company added that the acquisition makes it increasingly confident it can achieve its long-term adjusted EPS goals it set forth at its Investor Day.
    • Specifically, CVS is aiming for low double-digit EPS growth starting in 2024 and moving forward.
SGFY is trading a bit below the $30.50/share price, indicating there's some risk that the deal will fall through. Importantly, New Mountain Capital, which owns about 60% of SGFY's stock, has agreed to vote in favor of the transaction. Therefore, the main roadblock revolves around regulatory concerns and antitrust issues. It would be surprising, though, if this deal ran into regulatory issues given that CVS and SGFY operate in different spaces within the healthcare sector. Overall, we're in favor of CVS's acquisition of SGFY as it expands its capabilities and aligns the company with a growing at-home healthcare market.




Post's private labels help cushion it against potentially worsening inflationary pressures (POST)


Given Post's (POST) $300 mln share repurchase authorization today, which translates to around 5% of its current shares outstanding, we wanted to dive deeper into the consumer packaged goods company. Currently, the stock is up nearly 20% on the year, outpacing many of its peers even when incorporating their dividends. However, there is still plenty of room for Post to run.

  • Post's primary business is its Consumer Brands (~31% of FY21 sales), comprised of its ready-to-eat and hot cereals. Post commanded roughly 19% of the U.S. ready-to-eat branded cereal market last year, making it the third largest seller.
  • Perhaps more significant is Post's private label exposure. In Q3 (Jun), 7 pts of Consumer Brands' 23% sales growth yr/yr and half of its volume gains were attributed to private label cereal sales. Post noted that although an increase in average net pricing in the quarter helped drive Consumer Brands' growth, it is also seeing expanding volume across its value portfolio with gains in private label. Furthermore, the company commented that the positive developments in Consumer Brands are stable and building momentum.
  • Many companies have discussed the exceptional growth in their private label offerings over the past few months as inflation squeezes consumer budgets.
    • For instance, Kroger (KR), which will report Q2 (Jul) earnings on September 9, stated last quarter that it saw "tremendous" growth in its "Our Brands" products, where comparable sales outstripped all national brands.
    • Likewise, Walmart (WMT) noted last month that within the food category, the private brand growth rate doubled sequentially in JulQ.
  • Beyond private label exposure, Post also boasts a well-diversified portfolio, consisting of egg and potato products for the foodservice industry, convenient nutrition items, refrigerated foods for the retail sector, and consumer packaged goods for the U.K.
    • Post's foodservice business is its second-largest (~26% of FY21 sales) and should continue to rebound from the pandemic. Post noted in Q3 that it expects to exceed its pre-pandemic profit level in Q4 (Sep).
    • Also, although Post's U.K.-based sales will likely struggle due to inflation in the region outpacing that in the U.S. along with a strengthening U.S. dollar, this business is Post's smallest at just ~8% of FY21 sales, so its impact should be relatively minor.
Overall, Post is positioned to continue performing nicely, especially as inflation erodes consumers' spending power, as its private label business expands its reach to many income levels. Also, its recovering foodservice business builds in additional upside. Meanwhile, its refrigerated foods unit capitalizes on a stable trend of eating at home, while its nutrition division takes advantage of consumers engaging in more active lifestyles since the pandemic.



CoStar Group sees its star rise with addition to the S&P 500 (CSGP)


CoStar Group (CSGP +7%) is seeing its star quality go up as this provider of online real estate marketplaces will be added to the S&P 500 on September 19. This news is providing a nice boost in the share price today. It follows an impressive beat-and-raise earnings report in late July, which was a bit of a surprise with rates rising. As such, we thought this would be a good time to take a quick look at CoStar.

  • We understand the hesitation of considering an online real estate name in this environment. Everyone is familiar with Zillow (ZG) and its struggles, but that is more on the residential side. Think of CoStar as the Zillow of commercial real estate, which includes multi-unit apartment buildings, office space, strip malls etc. CoStar and Loopnet are its primary sites. It also operates some platforms that helps renters find apartments, which folds in nicely with its multi-unit listings.
  • CoStar reported a healthy beat in Q2 with its top three products (CoStar, Apartments.com, LoopNet) all achieving high double-digit sales increases. However, at the time, we remember being concerned about the guidance with the housing market cooling with rates rising. CoStar surprised us by guiding Q3 above consensus and raised full year guidance.
  • So, why is CSGP doing so well in a cooling housing market? The main reason is that multi-family market conditions continue to be more favorable than housing generally. It makes sense. If rates are rising, that makes home ownership less affordable. But those people need to live somewhere, so that increases demand for rentals and for landlords buying apartment buildings.
  • The numbers tell the story. Net new bookings in Q2 increased over 130% yr/yr in Apartments.com and over 40% for LoopNet. It also helps that CSGP's recent decision to build a dedicated LoopNet sales team is paying off. Also, new apartment construction deliveries are expected to reach record levels this year, and that means more listings. Another good thing is that the vast majority of its revenue (80% in Q2) is subscription-based, which generates consistent recurring revenue.
Between February and July, the stock had been stuck trading mostly sideways but has started to trend higher in recent weeks thanks to the strong Q2 report and now the addition into the S&P 500. Being added to the index is not only a nice milestone, but it also means all the index funds will need to purchase CSGP to match the S&P index. Overall, we think CoStar is a name to keep on the radar as it continues to perform well even as rates rise.

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