| To: Sam who wrote (89084) | 10/3/2022 4:08:13 PM | | From: Sun Tzu | | | | You are a fund manager. You can make 4% to wait for the market to bottom, or you can try to catch falling knives. Which will you choose?
As for Xi and China - they have already started helping their housing market, which is why copper jumped so much today. But ultimately they need to get their economy back on track and that doesn't seem very likely.
The market is highly oversold and some bounces are in the cards. But the official earning estimates are too high. And everyone knows that. So what you want to watch is what will happen after the pre-announcements. Is there more selling to be done, or will they behave like MU.
In fact, MU may be a good indicator. |
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| To: Return to Sender who wrote (89077) | 10/3/2022 4:33:07 PM | | From: Return to Sender | | | |
Market Snapshot
briefing.com
| Dow | 29609.52 | +881.98 | (3.07%) | | Nasdaq | 10858.06 | +282.59 | (2.67%) | | SP 500 | 3695.31 | +109.62 | (3.06%) | | 10-yr Note | +36/32 | 3.65 |
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| | NYSE | Adv 2609 | Dec 530 | Vol 1.0 bln | | Nasdaq | Adv 2877 | Dec 1329 | Vol 4.3 bln |
Industry Watch
| Strong: Energy, Materials, Utilities, Industrials, Communication Services |
| | Weak: -- |
Moving the Market
-- Extreme bearish sentiment readings setting up market for rebound from recent weakness
-- Pullback in Treasury yields
-- UK government abandoned part of its fiscal plan, which provided relief for the currency and UK bond market
-- Speculation that weak economic data and concerns about financial instability will result in the Fed taking a softer approach
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Closing Summary
03-Oct-22 16:30 ET
Dow +765.38 at 29492.92, Nasdaq +239.82 at 10815.29, S&P +92.81 at 3678.50
[BRIEFING.COM] The equity market had a strong start to the week, month, and fourth quarter. The major averages all closed with sizable gains. The S&P 500 was flirting with the 3,700 level at today's highs, after closing below 3,600 on Friday. There were several catalysts in play fueling the upside momentum, but one of the biggest drivers was offsides positioning.
There has been a lot of hedging with put options for further downside, a pickup in short-selling activity, and certainly some extreme bearish sentiment readings. Today's market, though, went against the grain in all respects, which is why there were outsized gains hot on the heels of an outsized loss last month.
Another support factor was the big drop in Treasury yields. That move came in response to the UK abandoning its plan to cut taxes for higher earners and to weaker-than-expected ISM Manufacturing and Construction Spending data out of the U.S. The 2-yr note yield, which reached 4.22% overnight, fell nine basis points on the day to 4.11%. The 10-yr note yield, which reached 3.80% overnight, fell 14 basis points to 3.65%.
There was also growing speculation among market participants that today's weak economic data and concerns about financial instability will compel the Fed to take a softer angle with its rate-hike approach. That narrative, however, was not supported by the fed funds futures market. There was little change, versus Friday, in the expectation that the terminal fed funds rate will be 4.25-4.50%.
Nonetheless, the stock market can sometimes have a mind of its own and will trade off a predilection in an oversold market that will create the most bang for the buck. October, therefore, started with a bang as new money got put to work in a vast array of beaten-up stocks. Apple (AAPL 142.45, +4.25, +3.1%) was a case in point. It fell 8.1% last week on earnings concerns, but jumped 3.1% today on heavy volume and no good news of note.
Market breadth figures reflected the broad based buying today. Advancers led decliners by a 5-to-1 margin at the NYSE and a greater than 2-to-1 margin at the Nasdaq.
All 11 S&P 500 sectors closed in the green led by energy (+4.8%), today's top performer by a wide margin thanks to rising oil prices. WTI crude oil futures rose 5.0% to $83.50/bbl in response to reports that OPEC+ will be considering a production cut of more than one million barrels per day at Wednesday's meeting.
Meanwhile, the consumer discretionary sector (+0.2%) brought up the rear thanks to a huge loss for Tesla (TSLA 242.40, -22.85, -8.6%) after the company reported lower-than-expected deliveries for the third quarter.
Another piece of corporate news in play today was Credit Suisse (CS 4.01, +0.09, +2.3%) being confronted with concerns about its financial condition. Credit Suisse executive, however, rebutted such concerns, saying the bank has a strong capital base and liquidity position. That view seemed to placate investors for the time being, as the stock rebounded from a 5.6% loss to close the session up 2.3%.
Looking ahead to Tuesday, market participants will receive the August Factory Orders report (Briefing.com consensus +0.4%; prior -1.0%) and the August JOLTS Job Openings report (prior 11.239 million) at 10:00 a.m. ET.
Reviewing today's economic data:
- Final IHS Markit Manufacturing PMI September reading came in at 52.0 after the prior reading of 51.8
- ISM Manufacturing Index for September was 50.9% (Briefing.com consensus 52.0%) after the prior reading of 52.8%
- The key takeaway from the report is that it connotes a moderation in manufacturing activity that coincides with rapidly rising interest rates, and it will contribute to slowdown concerns that could, in turn, offer the market reason to think the Fed won't be as aggressive with its rate hikes as it is suggesting it could be.
- Construction spending fell 0.7% in August (Briefing.com consensus -0.2%) after a revised 0.6% decline in July (from 0.4%)
- The key takeaway from the report is the continued downturn in residential spending. That is an offshoot of rising interest rates that have weakened homebuilder sentiment, as higher mortgage rates have also worsened affordability for prospective buyers.
Dow Jones Industrial Average: -18.8% YTD
S&P Midcap 400: -20.2% YTD
S&P 500: -22.8% YTD
Russell 2000: -23.9% YTD
Nasdaq Composite: -30.9% YTD
Energy complex futures settle mixed
03-Oct-22 15:30 ET
Dow +876.58 at 29604.12, Nasdaq +291.89 at 10867.36, S&P +109.29 at 3694.98
[BRIEFING.COM] The major indices trade just off session highs. The S&P 500 is testing, and finding some resistance at, the 3,700 level.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 5.0% to $83.50/bbl while natural gas futures fell 5.0% to $6.48/mmbtu.
Earlier, New York Fed President Williams (FOMC voter) said he sees inflation moving close to the 2.0% goal in the next few years.
Looking ahead to Tuesday, market participants will receive the August Factory Orders report (Briefing.com consensus +0.4%; prior -1.0%) and the August JOLTS Job Openings report (prior 11.239 million) at 10:00 a.m. ET.
Market continues to climb higher
03-Oct-22 15:00 ET
Dow +881.98 at 29609.52, Nasdaq +282.59 at 10858.06, S&P +109.62 at 3695.31
[BRIEFING.COM] The major averages climbed to fresh session highs in the last half hour.
The S&P 500 consumer discretionary sector remains in last place despite most components showing gains. Homebuilder stocks are particularly strong today, exhibiting some of the biggest gains for the sector. The SPDR Homebuilder ETF (XHB) is up 4.7%.
Separately, the iShares Brazil ETF (EWZ) is up 10% on Bolsonaro's strong showing in the election.
Lam Research, chip names outperforming on Monday in S&P 500
03-Oct-22 14:30 ET
Dow +834.99 at 29562.53, Nasdaq +264.64 at 10840.11, S&P +99.99 at 3685.68
[BRIEFING.COM] The broader market is riding high on Monday afternoon, the benchmark S&P 500 (+2.79%) firmly in second place.
S&P 500 constituents Lam Research (LRCX 395.15, +29.15, +7.96%), Nucor (NUE 114.55, +7.56, +7.07%), and Caesars Entertainment (CZR 34.52, +2.26, +7.01%) pepper the top of the standings. LRCX, along with other chip peers, rebound nicely on Monday in a general fashion, NUE and metals peers move higher alongside a rally in most cyclical names.
Meanwhile, San Diego-based diagnostics firm Illumina (ILMN 186.46, -4.33, -2.27%) is one of today's worst performers, continuing recent weakness after Investor Day comments.
Gold opens week with gains as yields, dollar retreat
03-Oct-22 14:00 ET
Dow +707.01 at 29434.55, Nasdaq +211.42 at 10786.89, S&P +84.13 at 3669.82
[BRIEFING.COM] The major averages have moved mostly sideways in the last half hour, the tech-heavy Nasdaq Composite (+2.00%) still at the "bottom" of the standings, albeit on gains of more than 210 points.
Gold futures settled $30.00 higher (+1.8%) to $1,702.00/oz, pressured by a slip in the dollar and falling yields.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $111.89.
In pursuit of a needed rebound effort
Things are looking relatively good for U.S. assets to begin the week, month, and fourth quarter. The dollar is up, bond prices are up, and the stock market is slated to move higher when the opening bell rings.
Currently, the S&P 500 futures are up 35 points and are trading 1.1% above fair value, the Nasdaq 100 futures are up 73 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 319 points and are trading 1.2% above fair value.
These are not huge gains, but that does not make them any less welcome -- certainly not after the month that just concluded. The understandable question on everyone's mind is, will they last?
After all, there is some riptide below the surface that includes a 4.3% decline in Tesla (TSLA) after its Q3 deliveries failed to meet higher expectations, a 4.7% jump in WTI crude oil futures to $83.21/bbl on reports that OPEC+ will be considering a production cut of more than one million barrels per day at this week's meeting, and talk of a confidence crisis swirling around Credit Suisse (CS) that is manifesting itself in rising credit default swap prices.
Not surprisingly, Credit Suisse executives have been quick to downplay such talk, emphasizing that the bank has a strong capital base and liquidity position, according to CNBC, yet it hasn't been lost on market participants that similar defenses were also heard from most investment banks during the financial crisis.
This time could prove to be different (i.e. not systemic and maybe not even an issue), but it's never a good thing when such speculation arises, so it jumps out as another source of uncertainty that will contribute to the heightened volatility in the capital markets.
At the same time, this issue is fostering speculation that the Fed might soften its rate-hike tone a bit, lest it risk contributing further to the instability of the financial markets.
The Fed has yet to satisfy such speculation with its words or actions, so this will be a case of believing it when we see it. Nonetheless, the stock market wants to believe this, and that belief is helping to prop up the markets along with the news that the UK is going to abandon the part of its fiscal stimulus plan that calls for a tax cut for high earners.
The latter news has provided some needed relief for the British pound (GBP/USD +0.6% to 1.1227) and the UK government bond market that has carried over to the Treasury market.
The 2-yr note yield is down eight basis points to 4.12% and the 10-yr note yield is down nine basis points to 3.70%. The decline in Treasury yields is helping to drive the rebound fortunes of the stock market, which is in desperate need of a rebound effort.
-- Patrick J. O'Hare, Briefing.com
Tesla's Q3 delivery miss sparks demand concerns amid a tougher business climate (TSLA)
It appears that Tesla's (TSLA) last ditch effort to close out Q3 with a surge of deliveries came up short as the electric vehicle (EV) maker missed analysts' estimates by a fairly wide margin. Recall that last week, Electrek reported that Elon Musk asked his employees to gear up for a strong push of deliveries over the weekend, lifting expectations that TSLA would post an impressive record setting number that exceeded forecasts. While deliveries of 343,000 vehicles did set a new quarterly record for TSLA, and increased by 42% yr/yr, logistical and transportation challenges prevented the total from meeting the bullish projections.
In its Delivery and Production Report, TSLA stated that it's becoming more difficult to secure vehicle transportation at reasonable costs as its production volumes grow. Indeed, production has soared, jumping by 53% yr/yr in Q3 to 365,000 vehicles, driven by the recent launches of its Berlin and Austin, Texas factories in March and April, respectively. Additionally, the company revamped its Shanghai plant this past summer, boosting its capacity by 30% to 22,000 vehicles per week.
This divergence in production and deliveries, which amounts to about 22,000 vehicles, is creating some angst regarding demand and competition. Typically, the difference between TSLA's production and deliveries is immaterial since it ships everything it can make. In fact, TSLA has been working through a sizable backlog of orders for quite some time. During the Q2 earnings conference call, CFO Zach Kirkhorn stated that the company has "a very long runway with very long lead times" as it pertains to backlog. Therefore, this gap between production and deliveries is catching investors off guard.
TSLA tried to sooth these concerns, stating that there was an increase in cars in transit at quarter end, and that these cars have been ordered. Once these cars are delivered, the difference between production and deliveries should shrink. However, based on the stock action, it's evident that some uneasiness remains, perhaps due to the following reasons.
- Last week, Reuters reported that TSLA is planning to keep production at its Shanghai plant below full capacity for the remainder of the year. There was no explanation given for the decision to keep production constrained, opening speculation that demand concerns could be creeping in as interest rates skyrocket higher.
- It has also been reported that lead times for Teslas have dropped significantly recently, indicating that the company has worked through most of its backlog.
- Macroeconomic headwinds are intensifying, especially in Europe, where soaring energy costs and a battered currency are weighing heavily. In FY21, revenue from geographies other than the U.S. and China accounted for nearly 30% of total revenue. Europe likely makes up the bulk of that figure.
The main takeaway is that cracks may be forming in a demand picture that was viewed as nearly bullet proof just a couple weeks earlier. We don't want to overreact to the report because TSLA still experienced a robust increase in deliveries, and its explanation that transportation challenges are increasing as production ramps up has merit. Macroeconomic and competitive risks are rising, though, and TSLA's shortfall on deliveries is putting those risks front and center today.
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| To: Sun Tzu who wrote (89087) | 10/4/2022 5:51:26 PM | | From: robert b furman | | | | Hi Sun,
Will ask regarding inventories of cars.
Kudos for your long prediction of inventory excesses.
I was behind the 8 ball on that futuristic prediction.
You have nailed it on the retail side of things and some selective chips, believe it or not.
Your marketing experience has paid off!
Kudos.
Bob |
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| To: robert b furman who wrote (89091) | 10/4/2022 6:01:38 PM | | From: Sun Tzu | | | | Thanks Bob,
BTW, I've never done any marketing.
I have an EE degree in VLSI and chip design (minor in economics), a masters in computer science, and an MBA. I did study marketing as part of that, but I've never worked in marketing.
You may want to pay attention to a Michael Kantro's bearish call that I posted on my thread. Some people think that it is going to get worse, while others think that it will be an absolute disaster.
I am keeping my focus more short term these days b/c I all policies are in flux, but I think SPX@3200 or even 2900 is realistic. |
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| To: Return to Sender who wrote (89085) | 10/4/2022 6:28:47 PM | | From: Return to Sender | | | | BPNDX Rose 20 to 37 PnF Buy Signals - [ASML BKNG CDNS CHTR CRWD CTAS IDXX ISRG MCHP MRNA NTES NXPI OKTA PCAR PDD PYPL ROST SBUX ZM ZS added]
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| To: Return to Sender who wrote (89089) | 10/4/2022 7:02:44 PM | | From: Return to Sender | | | |
Market Snapshot
briefing.com
| Dow | 30269.81 | +776.89 | (2.63%) | | Nasdaq | 11159.88 | +344.59 | (3.19%) | | SP 500 | 3784.25 | +105.75 | (2.87%) | | 10-yr Note | +1/32 | 3.62 |
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| | NYSE | Adv 2662 | Dec 409 | Vol 1.0 bln | | Nasdaq | Adv 3208 | Dec 1108 | Vol 4.9 bln |
Industry Watch
| Strong: Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care |
| | Weak: -- |
Moving the Market
-- Reserve Bank of Australia raising rates by 25 bps instead of the expected 50 bps fueling speculation that the Fed will take a softer approach to its own rate hikes
-- Carryover upside momentum from yesterday's rally
-- Strength in mega cap stocks
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Closing Summary
04-Oct-22 16:25 ET
Dow +825.43 at 30318.35, Nasdaq +360.97 at 11176.26, S&P +112.50 at 3791.00
[BRIEFING.COM] For the second straight day, the stock market had a broad rally. The major averages shot higher at the open and never really lost their footing, closing with sizable gains and near their best levels of the day. In the last two sessions alone, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average, have risen 5.7%, 5.7%, and 5.5%, respectively.
The driving forces for today's continued upside momentum were offsides positioning and a hope that the Fed will soften its rate-hike approach.
The latter point stemmed from a Reserve Bank of Australia (RBA) decision to raise its cash rate by only 25 basis points (instead of the expected 50) to 2.60%, because officials recognize that "the cash rate has been increased substantially in a short period of time," and want to take some time now to assess the impact of prior rate hikes on the outlook for inflation and economic growth.
The US Dollar Index fell sharply today on the growing speculation that the Fed will take a cue from the RBA and soften its approach going forward. The US Dollar Index was down 1.4% to 110.17 with EUR/USD +1.7% to 0.9987.
There was a short squeeze taking place in the stock market and maybe even a "flat squeeze" as sidelined investors felt the urge to put sidelined cash back to work after an ugly month of September that left the S&P 500 down 24.8% for the year at Friday's close.
Every S&P 500 sector logged gains on the day. Consumer staples (+1.5%) had the "slimmest" gain while energy (+4.3%) enjoyed the largest gain. Energy was boosted by rising oil prices, which responded to reports that OPEC+ is considering a 1.5 million barrels per day cut to production at Wednesday's meeting versus prior reports of 1 million barrels per day, according to The Wall Street Journal. WTI crude oil futures rose 3.4% to $86.31/bbl.
Twitter (TWTR 52.00, +9.46, +22.2%) shares surged today after Elon Musk filed an amended 13D notifying Twitter that he intends to proceed with closing the buyout transaction. Press reports circulated that the company intends to close the deal with Elon Musk at $54.20/share.
Treasury yields were lower in the morning trade, offering support to the stock market, before settling well off session lows. The 2-yr note yield, which hit 4.00% earlier, settled down three basis points to 4.08% and the 10-yr note yield, which hit 3.56%, settled down three basis points to 3.62%.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 07:00 ET: MBA Mortgage Applications Index (Prior -3.7%)
- 08:15 ET: September ADP Employment Change (Briefing.com consensus 198K; Prior 132K)
- 08:30 ET: August Trade balance (Briefing.com consensus -$67.9B; Prior -$70.6B)
- 09:45 ET: September Final IHS Markit Services PMI (Prior 49.2)
- 10:00 ET: September ISM Non-Manufacturing Index (Briefing.com consensus 56.0%; Prior 56.9%)
Reviewing today's economic data:
- Factory orders for manufactured goods were unchanged m/m in August (Briefing.com consensus +0.4%) following an unrevised 1.0% decline in July. Shipments of manufactured goods jumped 0.5% after decreasing 0.9% in July.
- The key takeaway from the report is that it marked the second straight decline in new order activity; however, the 1.4% increase in nondefense capital goods orders, ex-aircraft, suggests business spending is still on the rise.
- August JOLTS Job Openings came in at 10.053 million following the prior reading of 11.239 million
Dow Jones Industrial Average: -16.6% YTD
S&P Midcap 400: -17.1% YTD
S&P 500: -20.5% YTD
Russell 2000: -20.9% YTD
Nasdaq Composite: -28.6% YTD
Energy complex futures settle higher
04-Oct-22 15:30 ET
Dow +694.58 at 30187.50, Nasdaq +317.06 at 11132.35, S&P +98.40 at 3776.90
[BRIEFING.COM] The stock market is moving sideways into the close.
Energy complex futures settled the session higher. WTI crude oil rose 3.4% to $86.31/bbl and natural gas futures rose 5.4% to $6.83/mmbtu.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 07:00 ET: MBA Mortgage Applications Index (Prior -3.7%)
- 08:15 ET: September ADP Employment Change (Briefing.com consensus 198K; Prior 132K)
- 08:30 ET: August Trade balance (Briefing.com consensus -$67.9B; Prior -$70.6B)
- 09:45 ET: September Final IHS Markit Services PMI (Prior 49.2)
- 10:00 ET: September ISM Non-Manufacturing Index (Briefing.com consensus 56.0%; Prior 56.9%)
Semiconductor stocks outpace market
04-Oct-22 15:00 ET
Dow +776.89 at 30269.81, Nasdaq +344.59 at 11159.88, S&P +105.75 at 3784.25
[BRIEFING.COM] The major averages climbed towards session highs in the last half hour.
Semiconductor stocks are especially strong today with the PHLX Semiconductor Index up 4.4%. Every component exhibits decent gains led Wolfspeed (WOLF 117.58, +9.50, +8.8%) with a gain of nearly 9.0%.
On a related note, the S&P 500 information technology sector (+3.2%) outpaces the broader market thanks in part to strength in semiconductor components.
Norwegian Cruise Line, other leisure names outperform on Tuesday
04-Oct-22 14:30 ET
Dow +700.94 at 30193.86, Nasdaq +322.21 at 11137.50, S&P +97.06 at 3775.56
[BRIEFING.COM] The benchmark S&P 500 (+2.64%) is situated in second place to this point on Tuesday.
S&P 500 constituents Norwegian Cruise Line (NCLH 13.26, +1.86, +16.32%), Caesars Entertainment (CZR 37.94, +3.79, +11.10%), and General Motors (GM 35.55, +2.68, +8.15%) dot the top of today's standings. Leisure name CZR as well as NCLH and beaten-down cruise peers gain on Tuesday in a buy-the-dip type of move, while GM benefits largely from broader market gains.
Meanwhile, Ohio-based healthcare facility REIT Welltower (WELL 64.08, -1.30, -1.99%) sits at the bottom of the index following cautious morning guidance.
Gold higher on declining dollar, yields
04-Oct-22 14:00 ET
Dow +702.34 at 30195.26, Nasdaq +320.01 at 11135.30, S&P +97.80 at 3776.30
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+2.96%) remains atop the major averages.
Gold futures settled $28.50 higher (+1.7%) to $1,730.50/oz, a nearly three-week high as the dollar dips and yields fall slightly.
Meanwhile, the U.S. Dollar Index is down about -1.2% to $110.41.
Page One
Last Updated: 04-Oct-22 09:02 ET | Archive
The RBA leads the way
It was a banner start to the month of October for the stock market -- and it was a start that was sorely needed. Entering yesterday, the S&P 500 had declined 12.9% from its intraday high on September 12 (i.e. the day before the August CPI report was released).
Coming into today, the S&P 500 is up 2.6% in October and is poised to add to that gain, as are the other major indices, when the opening bell rings.
Currently, the S&P 500 futures are up 59 points and are trading 1.6% above fair value, the Nasdaq 100 futures are up 227 points and are trading 2.0% above fair value, and the Dow Jones Industrial Average futures are up 389 points and are trading 1.4% above fair value.
The Reserve Bank of Australia (RBA) has been the trigger for this morning's bullish bias. The RBA surprised markets with a smaller-than-expected 25-basis point increase in its cash rate to 2.60%. The consensus view called for a 50-basis point rate increase.
Taking a softer approach at this meeting has stirred hope that the Fed may do the same.
It is important to note that the RBA's statement said further rate increases are likely to be required over the period ahead, yet the point that registered for market participants (as it relates to thinking about the Fed) was the acknowledgment that "the cash rate has been increased substantially in a short period of time," and knowing that, the Board decided on a more modest rate increase at this meeting so it can take time to assess the impact of prior rate hikes on the outlook for inflation and economic growth.
We can see the market's hope about the Fed dialing back its aggressiveness in the U.S. Dollar Index and in the fed funds futures market. The U.S. Dollar Index is down 0.8% to 110.88, as the euro (EUR/USD +0.9% to 0.9916) is showing some strength against the greenback.
Meanwhile, the fed funds futures market shows expectations solidifying for a terminal fed funds rate in the range of 4.25-4.50% and expectations for a terminal fed funds rate in the range of 4.50-4.75% weakening. According to the CME's FedWatch Tool, a week ago there was a 67.1% probability of a fed funds rate in the range of 4.50-4.75% in March 2023. Today, the probability is 47.3%.
The 2-yr note yield has dropped to 4.05% from 4.20% at the start of the month and the 10-yr note yield has dropped to 3.59% from 3.79% at the start of the month.
The drop in market rates has been an underpinning factor for bargain-hunting efforts in the stock market. The specter of the September employment report on Friday, however, is still hanging out there as a potential spoiler. By the same token, it could also provide more interest rate relief if it is on the weaker side of things.
For now, though, the stock market is acting as if it wants to believe that the Fed will soon take a softer angle with its rate-hike approach. Paired with an understanding that sentiment readings show an extremely bearish mindset, that is helping to drive some renewed buying interest -- and likely some added short-covering activity -- that will keep the stock market in a recovery mode at today's open.
-- Patrick J. O'Hare, Briefing.com
Blackbaud solidly in the green today after Clearlake Capital discloses large ownership stake (BLKB)
Blackbaud (BLKB), a provider of cloud-based products for educational institutions and non-profit organizations, is launching higher after Clearlake Capital Group disclosed an 18.4% ownership stake in the company in an SEC filing. According to the filing, Clearlake initially established a position in BLKB solely for investment purposes. However, the firm's motivation has recently changed, and it's now in communication with BLKB's executives and board members regarding the evaluation of strategic alternatives. It is this detail that has lit a fire under the stock, sparking hopes that BLKB will gauge the interest level from possible suitors who may consider acquiring the company.
A review of strategic alternatives could also mean that Clearlake pushes BLKB to initiate other plans, such as cutting costs, divesting assets, restructuring, or buying back more stock. Whatever path is chosen, the end goal is to generate stronger returns for shareholders, which is music to investors' ears after the stock has crated by nearly 45% this year.
- Looking at BLKB's recent financial results, it's evident that the company isn't firing on all cylinders. While the company generated mid-teens revenue growth during the past two quarters, it greatly benefited from favorable yr/yr comparisons.
- Specifically, revenue declined by 2.0% in 1Q21, and increased by a paltry 3.3% in 2Q21. BLKB's mediocre performance is best illustrated by its average quarterly growth rate of just 6% over the past five years.
- Furthermore, BLKB cut its FY22 EPS and adjusted free cash flow guidance last quarter, partly due to soft bookings for its ESG-focused EVERFI business, which it acquired this past January for $750 mln. Foreign exchange headwinds and higher interest payments due to rising rates were also to blame.
- Interestingly, Clearlake's disclosure comes just a couple weeks after BLKB extended CEO Mike Gianoni's employment contract for three more years. Gianoni, who has been with the company since January 2014, has set a goal for BLKB to reach the Rule of 40 within the next three years. The Rule of 40 is a principle that a SaaS company's combined revenue growth rate and its profit margin should exceed 40%. In Q2, the company achieved 32% on the Rule of 40 on a constant currency basis, pacing above the midpoint of its full year guidance of roughly 30%.
- If Clearlake and BLKB agree that the most efficient and effective way to boost shareholder value is through selling the company, then its progress on the Rule of 40 could become a selling point. Additionally, the resiliency of its business model is an attractive attribute, especially in light of current macroeconomic conditions. During BLKB's Q2 earnings conference call, Gianoni highlighted this quality, noting that revenue still grew through the financial crisis (2008-2010), even though its recurring revenue was a much smaller percentage of total revenue compared to now. Today, approximately 95% of BLKB's revenue is recurring.
- With a reasonable 1-year forward P/E of 16x, BLKB could look like a good bargain to a larger software company. The company lists Salesforce (CRM), Oracle (ORCL), and Microsoft (MSFT), as companies it competes with in certain areas of its business.
Clearlake Capital has amassed a very significant stake in BLKB, providing it with plenty of influence. How that influence ultimately plays out remains to be seen, but investors seem to be betting that a for sale sign is in the company's near future.
Acuity Brands' mostly upbeat FY23 outlook is in the spotlight today (AYI)
Acuity Brands (AYI +6%) continued its string of double-digit earnings beats and revenue growth in Q4 (Aug) by expanding adjusted EPS 21% yr/yr to $3.95 while also growing revs 12% to $1.11 bln. Unlike last quarter, which saw shares tick lower despite similar headline results, investors are sending shares of the light supplier for commercial, industrial, and residential applications considerably higher today.
We view AYI's FY23 outlook as the primary driver behind today's price action. Last quarter, the company did not offer a timeline as to when its supply problems would begin to normalize nor any glimpse into what it was seeing beyond Q4. Investors saw this as slightly concerning, keeping the stock in check. As such, by guiding FY23 earnings and sales mostly above consensus, investors are breathing a heavy sigh of relief that supply chain issues are normalizing and demand is still robust.
- AYI targeted adjusted EPS of $13.00-14.50 and revs of $4.1-4.3 bln for FY23. These numbers may translate to just single-digit growth yr/yr at each midpoint, well below the double-digit growth experienced in FY22. However, given that AYI expects to continue facing component shortages and higher cost inventory, which will weigh on sales growth and pressure margins, its FY23 forecast is a positive development.
- As an example of component shortages, AYI is still working through a higher-than-normal backlog within its primary ABL segment (which comprised 95% of FY22 revs).
- AYI also anticipates sales growth to return to normal levels starting in 2023. This means that investors will need to adjust their expectations moving forward. Before the pandemic, AYI grew around mid-single-digits each year.
- Still, AYI's capital allocation strategy for 2023 is unchanged, meaning that the company remains focused on investing in growth and acquisitions while also maintaining its dividend and share buybacks.
- Although it is worth pointing out that AYI will likely not purchase close to the same amount of shares in FY23 as it did in FY22. The company bought back over $500 mln, or just under 10% of its outstanding shares, in FY22, and estimates repurchases to total around $125-150 mln in FY23.
- AYI also did not provide M&A details, but we would not be surprised to see a few purchases during FY23.
Bottom line, AYI reported another impressive quarter. However, unlike the looming uncertainty weighing on price action following Q3 (May) results, AYI's mostly upbeat FY23 guidance is helping ease concerns of lingering supply chain issues significantly eating into its top and bottom lines. We remain fans of AYI's buybacks. Even though its plan for FY23 is considerably below that in FY22, it still displays confidence by management in delivering consistent cash flows and maintaining a healthy balance sheet.
Poshmark is looking quite posh today as it agrees to be acquired by Naver (POSH)
Poshmark (POSH +13%) is looking posh to shareholders as they enjoy a nice pop in the stock on news that POSH has agreed to be acquired by Naver Corp., Korea's largest internet company. The all-cash deal price of $17.90 per share worth $1.2 bln represents a 15% premium over yesterday's close. Poshmark operates an e-commerce platform for users to buy and sell secondhand fashion and other goods.
- We see how the deal makes sense for Naver. It currently operates a search-driven e-commerce business, but the addition of Poshmark will allow it to operate its own C2C marketplace. It also allows Naver to gain exposure to the increasing consumer shift in fashion to online re-commerce, which is an $80 bln market today in the US alone.
- Although POSH has struggled somewhat over the past few quarters as sales growth has decelerated, Poshmark still boasts a huge community of 80+ mln registered users and it generated approximately $2 bln in GMV last year with a take rate of 20% and gross margin of 85%. Naver must also like that POSH's primary demographic (millennials, Gen Z) is younger and they are the largest shopping demographic for secondhand goods.
- It also sounds like Naver is not just buying a revenue stream, it seems more like a value-add opportunity. In addition to Naver's advertising and payments expertise, the company believes it can also improve Poshmark's user experience by incorporating its deep technology stack and AI-based capabilities. For example, its image recognition technology will allow Poshmark users to identify products by scanning objects on their phones without needing to know the exact name of the product.
So, is this a good deal for POSH shareholders? Our first thought was that the 15% premium seems pretty paltry. However, the stock has been moving up in recent weeks even as the overall market has been lower. It's possible that M&A speculation may have played a role. The buyout price is a 60% premium to where POSH was trading in early September.
Also, Poshmark's sales growth has been slowing so it may not be bad a time to cash out. The fashion C2C space has gotten very crowded and competitive. A bunch of companies now do this. Most are not trading publicly, but the couple that do are The RealReal (REAL +19%) and ThreadUp (TDUP +18%). Both are seeing a nice bump on the POSH news, but we view both as quite speculative with their sub-$200 mln market caps.
Rivian Automotive accelerates higher as EV maker remains on track to meet production target (RIVN)
Rivian Automotive (RIVN) shares are charging higher after the upstart electric vehicle (EV) maker reported Q3 production and delivery results that are alleviating lingering supply chain concerns. For the quarter, RIVN produced 7,363 vehicles, representing a sizable increase of nearly 3,000 vehicles from the last quarter. However, similar to Tesla (TSLA), the company's deliveries lagged its production rate by a considerable margin. Specifically, RIVN delivered 6,584 vehicles in Q3, missing analysts' expectations by several hundred units.
In TSLA's Q3 production and delivery report, the company blamed logistical and transportation challenges for the divergence between production (365,000) and deliveries (343,000). As the company's production volume increases, it's becoming more difficult for it to secure vehicle transportation at reasonable costs. For RIVN, the issue is more related to its decision to switch from truck delivery to rail delivery. While this shift will lower transit costs, delivery times will be extended, causing a larger discrepancy between production and deliveries.
Since the delivery miss is presumably due to a portion of EVs remaining in transit, rather than from order cancellations, the shortfall isn't overly concerning. Therefore, the focal point is centering on another key item from the report.
- The most important takeaway is that RIVN reaffirmed its annual production outlook, stating that it remains on track to meet the 25,000 annual production guidance it provided in its Q2 and Q1 earnings reports.
- To reach that production target, the company will need to produce about 10,700 vehicles in Q4, or about 3,300 more than it produced in Q3. That seems like an attainable number given that RIVN cranked out about 3,000 more EVs in Q3 compared to Q2.
- RIVN is also in the process of adding a second shift at its Normal, IL manufacturing plant, which should provide a significant production boost. The main caveat, of course, is whether the supply chain situation has improved enough to support the additional shift. Recall that in March, RIVN cut its annual production guidance to 25,000 from 40,000 due to supply chain disruptions.
With the stock down by about 65% year-to-date, it's safe to say that expectations have fallen substantially for RIVN. Accordingly, the company's reaffirmed annual production outlook is viewed as a major positive, easing fears that supply chain troubles will force it to scale back on its guidance once again.
Tesla's Q3 delivery miss sparks demand concerns amid a tougher business climate (TSLA)
It appears that Tesla's (TSLA) last ditch effort to close out Q3 with a surge of deliveries came up short as the electric vehicle (EV) maker missed analysts' estimates by a fairly wide margin. Recall that last week, Electrek reported that Elon Musk asked his employees to gear up for a strong push of deliveries over the weekend, lifting expectations that TSLA would post an impressive record setting number that exceeded forecasts. While deliveries of 343,000 vehicles did set a new quarterly record for TSLA, and increased by 42% yr/yr, logistical and transportation challenges prevented the total from meeting the bullish projections.
In its Delivery and Production Report, TSLA stated that it's becoming more difficult to secure vehicle transportation at reasonable costs as its production volumes grow. Indeed, production has soared, jumping by 53% yr/yr in Q3 to 365,000 vehicles, driven by the recent launches of its Berlin and Austin, Texas factories in March and April, respectively. Additionally, the company revamped its Shanghai plant this past summer, boosting its capacity by 30% to 22,000 vehicles per week.
This divergence in production and deliveries, which amounts to about 22,000 vehicles, is creating some angst regarding demand and competition. Typically, the difference between TSLA's production and deliveries is immaterial since it ships everything it can make. In fact, TSLA has been working through a sizable backlog of orders for quite some time. During the Q2 earnings conference call, CFO Zach Kirkhorn stated that the company has "a very long runway with very long lead times" as it pertains to backlog. Therefore, this gap between production and deliveries is catching investors off guard.
TSLA tried to sooth these concerns, stating that there was an increase in cars in transit at quarter end, and that these cars have been ordered. Once these cars are delivered, the difference between production and deliveries should shrink. However, based on the stock action, it's evident that some uneasiness remains, perhaps due to the following reasons.
- Last week, Reuters reported that TSLA is planning to keep production at its Shanghai plant below full capacity for the remainder of the year. There was no explanation given for the decision to keep production constrained, opening speculation that demand concerns could be creeping in as interest rates skyrocket higher.
- It has also been reported that lead times for Teslas have dropped significantly recently, indicating that the company has worked through most of its backlog.
- Macroeconomic headwinds are intensifying, especially in Europe, where soaring energy costs and a battered currency are weighing heavily. In FY21, revenue from geographies other than the U.S. and China accounted for nearly 30% of total revenue. Europe likely makes up the bulk of that figure.
The main takeaway is that cracks may be forming in a demand picture that was viewed as nearly bullet proof just a couple weeks earlier. We don't want to overreact to the report because TSLA still experienced a robust increase in deliveries, and its explanation that transportation challenges are increasing as production ramps up has merit. Macroeconomic and competitive risks are rising, though, and TSLA's shortfall on deliveries is putting those risks front and center today.
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