Daily US Equity Opening News: GS earnings beat but breakdown mixed; Strong MS Wealth Management and IB businesses; SNPS to acquire ANSS; iPhone discounts in China

TODAY’S AGENDA:

• Our interactive calendar can be accessed here; a pdf version can be downloaded here.


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  BROKER MOVES: TGT and VSCO upgraded, with BA and PYPL downgraded. To see the full list of Broker Moves, please click here.


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  EUROPE DAY AHEAD: BoE Governor Bailey will deliver remarks at the Lords Economic Affairs Committee.


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  US DAY AHEAD: Fed's Waller will speak on the economic outlook at a Brooking Institutions event; Waller's comments in November portended the Fed's pivot in December, but trader's will today also be looking to any commentary on its balance sheet, particularly following an article from WSJ's Fedwatcher Nick Timiraos, which talked about how the central bank was tiptoeing towards dialing back the pace at which its balance sheet shrinks, as it aims to prevent a messy disruption to the financial system, and officials are to start deliberations on slowing (but not ending) QT as soon as this month's confab.

MACRO:

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  Iowa Primary - Former President Donald Trump decisively won the first 2024 Republican presidential contest in Iowa, reaffirming his influence within the party amid numerous criminal charges, Reuters reports. Florida Governor Ron DeSantis came second, narrowly surpassing former UN Ambassador Nikki Haley, in their bid to be the primary alternative to Trump for a potential rematch with Democratic President Joe Biden.


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  US Fiscal - Congress plans a two-tiered stopgap funding avoiding a government shutdown, Politico reports, with leaders agreeing to budget deadline dates from January 19th and February 2nd until March 1st and March 8th. Speaker Johnson supports the plan, addressing 12 spending bills. The approach requires Democratic backing, which is causing some conservative discontent. The Speaker remains committed to the FY24 framework with House Majority leader Schumer, aligning with budget totals set by the debt limit deal last summer.


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  US Economy - Economists have reduced the probability of a US recession within the next year from 48% to 39%, according to a WSJ survey. However, despite a strong economy with booming stock prices, low inflation, and a robust job market, consumer confidence remains historically low, creating a perception of an ongoing confidence recession.


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  Execs Poll - A PwC survey reveals global executives' rising concerns about the long-term viability of their businesses, driven by generative AI and climate disruption. About 45% of over 4,700 CEOs doubt their businesses' survival without significant changes in the next decade, Reuters reports. Generative AI, with 75% expecting significant impacts in three years, tops concerns. Executives also worry about cybersecurity, misinformation, and bias. Meanwhile, environmental concerns are pressuring margins, and optimism about revenue growth is decreasing.


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  US EQUITY STRATEGY: Morgan Stanley says that with macro forecasts remaining in a narrow range, interest rate volatility will be an important consideration for equity investors; elsewhere, it thinks the dispersion of equity fundamentals is likely to pick-up as earnings season progresses, putting the focus back onto stock picking. MS says bonds are still the driving factor for equity index performance, which MS sees continuing in the near term, and suggests that clients explore the differences between how the bond market and the equity market price the future path of the Fed Funds Rate. On earnings season, the bank notes that consensus Q4 EPS estimates have fallen by 7% over the last 3 months, lowering the bar and a higher probability of a solid, mid-single-digit EPS surprise for Q4 earnings. By sector, it thinks Healthcare, Tech, and Communication Services are to see the strongest EPS growth this year, driven by a margin expansion and top line growth. Materials, Healthcare and Industrials are likely to see the most significant inflection in 2H growth. Tech and Communications Services growth is likely to be strong through this year. "We are focused most acutely on price reactions post reporting, which have been muted over the past 3 quarters, and the path of guidance/earnings revisions breadth as we progress through earnings season," MS writes, "over the past 2 weeks, we've seen upward inflections in EPS revisions breadth for several economically sensitive areas including Transports, Diversified Financials, and Autos, which is a positive sign for cyclicals." MS says that the dispersion of earnings revisions breadth is rising, which is typical into earnings seasons. "This dynamic makes stock picking particularly important over the next several weeks," the bank writes, adding that "macro uncertainty has been a key topic of discussion over the past several earnings seasons so it will be important to see to what extent that uncertainty has subsided post the last FOMC meeting."


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  BOFA JANUARY FMS: BofA's January Fund Manager Survey notes cash levels were up, more investors expect short term rates to be lower in the next 12 months, and more expect a weaker Chinese economy than a stronger one. Cash levels up to 4.8% (prev. 4.5%) as bond market optimism is tempered. 79% of investors expect a "soft" or "no landing" in 2024, the highest in nine months; 17% expect a hard landing; 41% see no recession at all in 2024. 91% of investors expect short-term rates to be lower in the next 12 months from 87% in December. More investors expect a weaker Chinese economy in the next 12 months than a stronger one. 55% of investors expect lower long-term bond yields in next 12 months, down from record 62% in December.

FINANCIALS

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  Goldman Sachs (GS) Q4 2023 (USD): EPS 5.48 (exp. 3.51), Revenue 11.32bln (exp. 10.8bln). KEY METRICS: Net interest income 1.34bln (exp. 1.73bln); Provision for credit losses 577mln (exp. 622mln); AUM 2.81tln (exp. 2.77tln). REVENUE BREAKDOWN: FICC sales & trading 2.03bln (exp 2.58bln), -24% Y/Y; Global Banking & Markets 6.35bln (exp. 6.47bln), -2.5% Y/Y; Investment banking 1.65bln (exp. 1.68bln), -12% Y/Y; Equities sales & trading 2.61bln (exp. 2.25bln), +26% Y/Y; Advisory 1.01bln (exp. 902.3mln), -29% Y/Y; Equity underwriting 252mln (exp. 335.4mln), +38% Y/Y; Debt underwriting 395mln (exp. 439mln), +40% Y/Y. CHARGES: Selected items related to the execution of GS’ narrowed strategic focus, in addition to the FDIC special assessment fee, impacted FY and Q4 results. For 2023, reduced net earnings by USD 2.8bln, EPS by USD 8.04, and ROE by 2.6%. For Q4, reduced net earnings by USD 283mln, EPS by 0.83, and annualized ROE by 1.0%.


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  Morgan Stanley (MS) Q4 2023 (USD); EPS 0.85 (exp. 1.01), Revenue 12.9bln (exp. 12.75bln). REVENUE BREAKDOWN: Wealth management 6.65bln (exp. 6.4bln); Equities sales and trading 2.20bln (exp. 2.26bln); FICC sales & trading 1.43bln (exp. 1.47bln); Institutional Investment Banking 1.32bln (exp. 1.12bln). KEY METRICS: Non-interest expenses 10.80bln (exp. 10.17bln); Net interest income 1.90bln (exp. 1.94bln); Return on equity 6.2% (exp. 7.77%); Provision for credit losses 3mln (exp. 133.4mln); AUM 1.46tln (exp. 1.42tln). COMMENTARY: CFO said it is to reaffirm existing financial targets.


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  PNC Financial (PNC) - Q4 2023 (USD): Adj. EPS 3.16 (exp. 2.99), Revenue 5.36bln (exp. 5.29bln). BANKING METRICS: Loans 321.51bln (exp. 329.41bln); Deposits at end-period 421.42bln, exp. 423.3bln); Provision for credit losses 232mln (exp. 311.3mln); Net interest income 3.40bln (exp. 3.37bln); Net interest margin 2.66% (exp. 2.66%); Net charge-offs 200mln (exp. 217.6bln); Non-interest expenses 4.07bln (exp. 3.37bln); Quarterly average loans 324.6bln, increased 5.1bln Q/Q (+2% Q/Q). CHARGES: Incurred a 525mln post-tax expense related to FDIC special assessment and workforce reduction charges. FORECASTS: Q1 sales down view 3-4%; Q1 average loans seen stable Q/Q; Q1 NII seen down 2-3%; FY24 NII growth view seen down 4-5%.


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  Bank of New York Mellon Corporation (BK) - CEO Vince expects NII to soften in 2024.


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  Crypto - SEC Chair Gensler addressed the unauthorised access to SECGov's Twitter account on January 9th, where the intruder falsely announced SEC approval of spot bitcoin ETFs. Said that while assessing the incident, there was no evidence that the intruder had access to SEC systems.


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  Deutsche Bank (DB), Commerzbank (CRZBY), ABN AMRO Bank (AAVMY) - Deutsche Bank has reportedly stepped up internal talks on M&A, with peers Commerzbank and ABN AMRO reportedly seen as attractive. Deutsche has not formally mandated any investment bank to help with the deal, but is said to be constantly assessing potential scenarios.


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  Blackstone (BX) - Plans to double its private equity business headcount in Singapore over the next two years, aiming to capitalise on the increasing number of deals in Southeast Asia and bring the asset manager closer to its investor base, including sovereign wealth funds, family offices, and individual investors.


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  Intercontinental Exchange (ICE) - NYSE Vice Chair anticipates a rebound in IPO activity this year, due to lower borrowing costs and reduced equity market volatility. Sees a robust IPO pipeline across various sectors and geographies.


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  European Financials - The European Fund & Asset Management Association said there is a “compelling case” for the EU to move to a T+1 settlement, mimicking the US.


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  First American Financial (FAF) - Detected unauthorised IT activity and isolated systems on December 20th, engaging experts and law enforcement, and has now resumed operations. The incident caused delays, revenue loss, and one-time expenses in Q4 '23; anticipates a material impact on Q4 results but not on overall financial condition or ongoing operations.


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  JPMorgan (JPM) - Credit Card, December: Charge-off rate 1.69% (Nov. 1.75%), Delinquency rate 1% (Nov. 0.99%).


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  American Express (AXP) - USCS Card member loans 30 days past due (Dec.): 1.4% (prev. 1.4% M/M), Net write-off rate 2.5% (prev. 1.7% M/M). US Small Business Card Member Loans 30 days past due 1.4% (prev. 1.3%); net write-off rate 2.2% (prev. 2.0%).

COMMUNICATIONS

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  Disney (DIS) - Disney's ESPN and the NFL are in advanced talks for a potential agreement that may involve the league acquiring an equity stake in ESPN, NY Post reports, with talks reportedly at an advanced stage. As part of the deal, ESPN could take control of NFL Media, while the NFL would receive equity in ESPN, enhancing ESPN's long-term viability as it transitions to direct-to-consumer by 2025. Separately, the Disney-owned Pixar unit is planning layoffs later this year, potentially up to 20% of its 1,300-member team, TechCrunch reports.


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  Universal Music Group NV (UNVGY) - Plans to cut hundreds of jobs in Q1, with the recorded music division expected to bear the brunt, Bloomberg said. The move comes as the music industry faces slower growth, with Universal Music's Q3 2023 revenue increasing only 3% Y/Y.

TECH

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  Synopsys (SNPS), Ansys (ANSS) - Synopsys confirms it is to acquire Ansys for USD 35bln or USD 390.19/shr in a cash-and-stock deal. Note, the deal has previously been touted around this price point.


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  Broadcom (AVGO) - Private equity firms EQT, KKR, Thoma Bravo are considering acquiring Broadcom's end-user computing unit, valued around USD 5bln, as AVGO looks to divest non-core assets acquired from VMware in 2023. The unit provides software for remote desktop and application access. Another asset, the security software business Carbon Black, may be valued at about USD 1bln. Deliberations are ongoing, and no firm decisions have been made.


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  Apple (AAPL) - A US law enforcement agency has permitted Apple to bypass an import ban on its Series 9 and Ultra 2 watches, imposed by the US ITC amid a patent dispute with Masimo. Apple secured a temporary pause from the Court of Appeals, enabling continued sales as it challenges the import ruling. Apple will remove a sensor from its Watches to avoid the US ban. Separately, Apple is reportedly offering discounts in China of as much as USD 70 on its latest iPhones; the promotion is set to run between Jan 18-21st ahead of the Lunar New Year shopping season.


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  Microsoft (MSFT) - Expanding the reach of its AI 'Copilot' beyond large enterprises, offering a USD 20/month subscription called 'Copilot Pro' to consumers and small businesses. The service provides a text-drafting, number-crunching AI assistant for Microsoft applications like Word and Excel, along with access to new tools and AI models like GPT-4 Turbo, and follows the introduction of a free AI Copilot for Bing search engine last year.


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  Uber (UBER) - Shutting down alcohol delivery service 'Drizly', which it acquired for USD 1.1bln three years ago, Axios reports. Drizly has faced cybersecurity concerns.


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  SoftwareOne (SWON) - Said it will remain a standalone company, and has concluded its strategic review. The board unanimously rejected one non-binding proposal with a value indicative of CHF 18.80/shr from Bain Capital.


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  Baidu (BIDU) - Responded to media reports on about an academic paper mentioning large language models, clarifying that its ERNIE Bot is publicly accessible. The academic paper, authored by scholars at a Chinese university, discussed general interactions with language models. Baidu asserts no business collaboration or tailored services for the authors. Citi's analysts said Friday's share price fall after the publication of the SCMP article was likely an overreaction, and believes any commercial use of Ernie for detail usage would have required formal contract agreement with Baidu.


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  InterDigital (IDCC) - Updates Q4 guidance: Adj. EPS view USD 1.34 (exp. 0.71), Revenue 105mln (exp. 104.2mln).

ENERGY

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  Talos Energy (TALO) - Plans a USD 1.29bln cash and stock acquisition of QuarterNorth Energy -- US Gulf of Mexico E&P, which owns six major fields. The deal involves 24.8mln shares of Talos common stock, and USD 965mln in cash. Deal aims to enhance Talos's base decline rate by around 20%.


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  Shell (SHEL) - Amundi and 26 other investors are supporting a resolution by activist group 'Follow This' which calls for the Shell to align its medium-term green targets with the Paris agreement, FT reports.

MATERIALS

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  Sigma Lithium (SGML), BYD Company (BYDDY) - BYD is exploring a potential takeover of Sigma Lithium, valued at USD 2.9bln, FT reports. Discussions involve a supply agreement, joint venture, or acquisition, as BYD seeks to secure a lithium supply chain for EV batteries.


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  Rio Tinto (RIO) - Quarterly Pilbara iron ore output 87.5mln tons (prev. 89.5mln tons Y/Y), shipments 86.3mln tons (prev. 87.3mln Y/Y), mined copper output 160k tons (prev. 131k Y/Y), aluminium output 846k tons (prev. 783k Y/Y). Maintains 2024 production guidance. Notes there is good demand for materials. Noted commodity prices found support during the quarter. Continues to see strong performance from underground mine Oyu Tolgoi. Dampier Salt JV agreed to the sale of Lake Macleod operations for AUD 375mln. Said China stimulus measures are expected to drive a gradual recovery in 2024, weighted towards H2, with the Chinese real estate sector remaining weak.


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  ArcelorMittal (MT) - ArcelorMittal and the French state will be investing around EUR 1.8bln to cut carbon generated by the Dunkirk steel plan. The French state's contribution could be around EUR 850mln.

INDUSTRIALS

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  Boeing (BA) - US regulators impose additional requirements on Boeing's 737 Max 9 before it can resume flights. The FAA has demanded extra data to approve inspection and maintenance procedures. The move reflects a stricter stance following a recent incident, requiring a review of initial checks on 40 planes before determining their applicability to the entire grounded fleet, Bloomberg said. Separately, a WSJ profile piece was negative on Boeing's manufacturing processes. The WSJ writes that BA's outsourcing worried engineers, and sparked battles over quality before a door plug blew out on an Alaska Airlines plane mid-flight.


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  FedEx (FDX) - Positive mention in Barron's; the newspaper said it was time to buy FedEx stock after it was hit in recent weeks, arguing that the worst of its problems are likely over.


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  Lockheed Martin (LMT) - Awarded a USD 271.3mln Missile Defense Agency contract for support of the Aegis System Equipped Vessel programme.


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  Copart (CPRT) - Announced leadership changes, added three new members to its senior executive leadership team. David Kang added as Chief Marketing Officer, Neel Madhvani as Chief Product Officer, and Hessel Verhage as Chief Operating Officer. Meanwhile, Stephen Powers, the former COO, transitions to Chief Business Development Officer.


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  Volvo Group (VLVLY) - Signs an option agreement with John Cockerill Defense to potentially sell Arquus, impacting Q4 '23 operating income by approx. SEK 900mln. Arquus, with around 1,200 employees in France, contributes about 1% to Volvo Group revenues. The potential divestment is contingent on governmental approvals and other conditions.

CONSUMER STAPLES

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  Nestle SA (NSRGY) - Private equity firm PAI Partners mulls options for its ice cream JV 'Froneri' with Nestle, including a potential sale or IPO. The venture, housing brands like Haagen-Dazs, may be valued over USD 10bln.


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  Kroger (KR), Albertsons (ACI) - KR and ACI intend to finalise their USD 24.6bln merger in the first half of Kroger's fiscal 2024, delaying from the initially expected early 2024 timeframe. The merger faces scrutiny from lawmakers and the FTC over antitrust concerns, raising fears of potential consumer price increases, store closures, and job losses.

CONSUMER DISCRETIONARY

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  Carrols Restaurants (TAST) - Burger King (QSR) is to acquire Carrols Restaurants for USD 9.55/shr in cash, according to Bloomberg. Note, TAST closed Friday at USD 8.42/shr.


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  Nike (NKE) - Said that savings which occur from the restructuring announced in December will be reinvested in running, women and Jordan brands. The FT said Nike was struggling to maintain its position in the running shoe market, now contending with increased competition from nimble rivals like Hoka and On Running. Despite CEO's restructuring efforts, Wall Street has expressed concerns over tightening margins and slowing sales growth, prompting a USD 2bln cost-cutting plan, and analysts have been suggesting Nike focus on its core strengths.


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  Shein (pre-IPO) - A profile piece in the WSJ notes that fast-fashion giant Shein attributes its success to predicting customer demand and producing in small quantities for affordability. Shein, valued at ~USD 66bln, is poised for one of the largest IPOs if it can navigate US-China tensions, and those tensions are meaning its IPO could face delays. Despite being one of the world's least transparent e-commerce firms, Shein dominates the global fast-fashion market with its China-origin roots, now headquartered in Singapore.


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  Hugo Boss (BOSSY) - FY23 sales rise, helped by strong Q4 performance in Asia. Q4 23 (EUR): Adj. sales 1.177bln (exp. 1.17bln), EBIT 121mln (exp. 112mln). FY23: adj. sales 4.19bln (exp. 4.19bln), +18% to a record level; EBTIT 410mln (exp. 418mln). Noted robust growth across all regions with particular strength in the Americas. Has successfully attained its raised targets for FY23; FY24 guidance to be provided on March 7th.


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  Tesla (TSLA) - CEO Elon Musk wants 25% of voting control over Tesla (vs current ownership of around 13% of the company’s stock), CNBC reports. "I am uncomfortable growing Tesla to be a leader in AI and robotics without having around 25% voting control," Musk said.


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  General Motors (GM) - A profile piece in the WSJ highlights that GM faces growing pains in its EV venture, compounded by issues with the Chevrolet Blazer. Sales were paused due to software problems, adding to a series of challenges with GM's new electric vehicles. Early adopters encountered dashboard noises, cruise control failure, and screen malfunctions, highlighting the struggles in GM's effort to establish itself in the electric vehicle market.


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  BMW (BMWYY) - CFO said BMW has passed the tipping point for combustion engines sales growth and now sees most of its sales growth from EVs. Separately, Brilliance China’s main investor is said to be mulling fund-raising strategies, such as divesting its 25% share in the BMW JV amid Brilliance Auto Group's restructuring plans, Bloomberg reports.


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  Coca-Cola HBC AG (CCHGY) - CFO Ben Almanzar to step down, effective end-May.

HEALTHCARE

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  Cannabis Stocks - Federal scientists recommend removing marijuana from the most restrictive drug category, citing lower risks and potential medical benefits, NYT reports. The scientific review, disclosed through a lawsuit, reveals the perspective of health officials considering a significant federal-level reconsideration of marijuana, with no public comments from the involved agencies.


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  Fresenius (FSNUY) - FDA announced a Class I recall of Fresenius' Kabi Ivenix large-volume infusion pump, as some units have mechanical issues with the Fluid Valve Pins, located inside the pump's internal housing, causing the pins to not move properly.


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  Merck (MRK) - FDA approves Merck's KEYTRUDA with chemoradiotherapy for FIGO 2014 Stage III-IVA cervical cancer. Phase 3 trial shows 41% risk reduction in disease progression or death. KEYTRUDA now has 39 US indications.


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  Grifols (GRFS) - Said that Chinese home appliance maker Haier Group still plans to close the acquisition of a 20% stake in Shanghai RAAS (26.6% owned by Grifols). Elsewhere, the company asks regulators to bring forward its 2023 earnings, according to El Confidential.

16 Jan 2024 - 13:40- EquitiesResearch Sheet- Source: Newsquawk