Latest stocks in the news

Restaurant Brands International (QSR), the owner and operator of Burger King, is intensifying its Burger King remodel initiative through the acquisition of Carrols Restaurant Group (TAST), the largest Burger King franchisee in the U.S. The deal, valued at $9.55/share or approximately $1.0 billion, represents a 13% premium over the previous Friday's closing price. This move aims to bring over 1,000 Burger King locations under QSR's control, expediting the effort to modernize and enhance the efficiency and performance of the fast-food hamburger chain. Under the "Reclaim the Flame" initiative launched in September 2022, Burger King has experienced fluctuating financial results, acknowledging ongoing challenges. Despite a robust 2Q23 with a +8.3% growth in U.S. comps, the growth slowed to +6.6% in Q3, attributed to flat traffic. Similar trends were observed at McDonald's, with U.S. comps dipping to +8.1%, emphasizing the impact of price increases on Burger King's Q3 comps. The "Reclaim the Flame" strategy focuses on remodels, relocations, marketing, and digital channel investments, with an initial commitment of $400 million through 2024, allocating approximately $200 million for remodels. With the TAST acquisition, QSR plans to invest an additional $500 million to remodel around 600 acquired restaurants, funded by TAST's operating cash flow. QSR's Q3 earnings call reported early success from remodeled restaurants exceeding initial expectations, but the full impact of renovations is expected over the next five years. Despite the significant capital and commitment to remodeling, QSR anticipates the transaction to be roughly neutral to adjusted EPS. This outcome may be perceived as disappointing, considering the substantial resources devoted to the remodeling initiative. However, QSR sees the acquisition as aligning with its strategy to enhance Burger King's performance, particularly evident in the digital channel's impressive growth (+40% in Q3). While the success of the digital channel is evident, the broader impact of the Reclaim the Flame initiative remains a work in progress, and the acquisition of TAST will play a pivotal role in testing its effectiveness.

Apple (AAPL) is experiencing a modest decline in its stock today, influenced by various reports released over the weekend. One noteworthy update from Bloomberg reveals the closure of Apple's artificial intelligence (AI) team in San Diego, impacting 121 employees. Despite initial concerns, Apple is not abandoning AI technology, as employees have been informed of the option to relocate to Austin, Texas, where the AI team will join an existing campus. Additionally, The Wall Street Journal reports that Apple is eliminating blood oxygen sensors in its latest watches due to an ongoing patent dispute with Masimo (MASI). Although this may disappoint users who utilized this feature, it is not expected to be a significant hindrance for potential customers. Another development, reported by The New York Times, highlights Apple's unusual move to offer up to a $70 discount on iPhones sold in China. This departure from Apple's usual pricing strategy raises concerns, especially following CEO Tim Cook's positive remarks in early November about strong iPhone performance in China. The combined impact of these news items has led to a bearish sentiment, primarily due to worries about softening demand in China. Despite these concerns, Apple's stock is currently above its 200-day moving average, suggesting potential resilience. While caution is advised, given China's substantial contribution to Apple's annual revenue, the news may be more of a temporary setback than the beginning of a prolonged negative trend.

Goldman Sachs (GS) is experiencing a modest increase in trading following a robust earnings per share (EPS) beat, signaling a positive end to 2023. After a Q2 EPS miss, Goldman has rebounded with consecutive quarters of EPS upside, with Q4 surpassing Q3's modest increase. Notably, year-over-year revenue growth returned, marking a 6.9% increase to $11.32 billion, surpassing analyst expectations and breaking a seven-quarter decline trend. In line with its strategic focus, Goldman Sachs plans to sell its GreenSky platform and associated loan assets to institutional investors in Q1, signaling a shift back to its core franchises: Global Banking & Markets (GBM) and Asset & Wealth Management (AWM). The Q4 report indicates a 3% year-over-year and 21% sequential decline in GBM segment revenue to $6.35 billion, with a 12% year-over-year drop in investment banking fees, offset by higher revenue in Debt and Equity underwriting. FICC revenue fell 24%, while Equities revenue increased by 26%. Contrastingly, the AWM segment exhibited healthy growth, with a 23% year-over-year and 36% sequential revenue increase to $4.39 billion. This growth was driven by higher revenue in Equity and Debt investments and increased fees. AWM benefited from net gains in public equities, a positive shift from losses in the prior year period. Looking ahead to 2024, Goldman Sachs acknowledges the resilience of the U.S. economy despite various challenges in 2023. The potential for rate cuts in the first half of 2024 has fueled optimism for a soft landing, with signs of renewed strategic activity reflected in the backlog. The company is engaged in robust dialogues with corporate clients, witnessing solid capital market activity in the U.S. and Europe. While market reactions have been moderate, Goldman's optimistic outlook, coupled with a rebound in strategic activity, has contributed to the positive sentiment. The stock's rally since late October, following the Fed's softened stance on rates, suggests that the market had already priced in a favorable quarter and outlook.

Synopsys (SNPS) experiences a notable uptick as the anticipated merger with Ansys (ANSS) is officially confirmed, unveiling transaction terms that surpass initial expectations. Synopsys will acquire Ansys for $197.00 in cash and 0.345 shares of common stock, translating to a total enterprise value of approximately $35 billion, representing a roughly 6% premium over Friday's closing prices. The deal, set to close in the first half of 2025, sparked an initial surge in Ansys shares by around +18%, as reports hinted at offers reaching $400/share. Conversely, Synopsys shares declined, signaling investor disappointment over the perceived price tag. The current scenario unfolds differently; Ansys faces a decline, while Synopsys reverses its course. The deal aligns with strategic sense, considering the shared focus on engineering software simulation development and the potential to widen an already narrow economic moat. Despite investor hesitation due to the initially floated price, the revealed transaction details prove more acceptable for Synopsys than anticipated. However, Ansys, now valued at around $368 per share, receives terms less favorable than the speculated $400 price reported by Reuters. Synopsys is set to pay approximately 38 times Ansys' FY24 earnings and 14 times revenue at the current share price. The company expects the merger to be accretive to adjusted earnings within the second full year after closing and substantially accretive thereafter. The cash portion, mostly funded through debt, combines $3 billion in cash and $16 billion in debt. Despite Ansys' recent slowdown in top-line growth, particularly in Q3 due to economic challenges in international markets, Synopsys remains optimistic. Ansys, which generates over half its revenue from international markets, exhibited resilience with double-digit growth in average contract value in Q3. Synopsys anticipates maintaining double-digit revenue growth, leveraging Ansys' market position. While both companies specialize in engineering simulation software, with Synopsys focusing on electronic design automation for semiconductors and Ansys providing testing software across various sectors, the merger promises a more expansive portfolio for Synopsys in the engineering simulation software market. Confirmation of the merger triggers profit-taking in Ansys, as the terms prove less lucrative than expected, while Synopsys witnesses increased buying activity due to the lower-than-anticipated price tag. Although regulatory hurdles may arise, potential approval could yield attractive long-term returns for Synopsys with the addition of Ansys.

Morgan Stanley (MS) slightly surpasses subdued Q4 earnings per share (EPS) and revenue estimates, but lackluster growth across most segments, along with $535 million in one-time charges, casts a shadow on the positive earnings report. The results underscore the departing CEO James Gorman's efforts to create a more diversified company with predictable revenue streams from the Wealth Management segment. However, as Ted Pick takes over from Gorman, who announced his departure last May, uncertainties in geopolitics and macroeconomics present challenges for the investment banking and trading units. Institutional Securities, encompassing MS's investment banking and trading operations, records a modest 2% year-over-year growth in net revenue to $4.494 billion. The global downturn in M&A activity affects advisory revenue, slipping by approximately 1% to $702 million, a less severe drop than the 30% decline in Goldman Sachs' advisory business. The IPO market's sluggishness persists in Q4, with equity underwriting revenue remaining essentially flat at $225 million, reflecting the impact of macroeconomic headwinds on new issues. The trading business faces challenges in Q4, with increased funding and liquidity costs on the equity side, and soft demand for credit-related products on the fixed income side. Both equity and fixed income trading revenue remain nearly unchanged year-over-year at $2.2 billion and $1.4 billion, respectively. Wealth Management exhibits limited growth, with revenue remaining stable year-over-year at $6.6 billion. A noteworthy metric impacting stock performance is the decline in net new assets, dropping to $47.5 billion from $51.6 billion in the previous year, following a decrease to $36 billion from $65 billion in Q3. One-time charges, including a $286 million FDIC special assessment fee and a $249 million legal charge related to a settlement on allegations of improper information sharing, contribute to the complexity of MS's financial results. Concurrently, typical expenses witness an increase, with compensation expenses rising by 7% and non-compensation expenses up by 12%, leading to a higher expense efficiency ratio of 84% compared to 77% in the year-ago quarter. While Morgan Stanley's business maintains relative stability in a challenging environment, the lack of standout performance in any segment in Q4 leaves the company with limited positive highlights.

Previous update:

Citigroup (C), currently undergoing an extensive business overhaul involving the elimination of 20,000 jobs, presented a Q4 earnings report marked by complexity and one-time charges, revealing mixed outcomes in its core operations. The financial results included notable charges, such as $780 million for restructuring costs, an $880 million devaluation charge linked to the Argentine peso, and a $1.7 billion FDIC special assessment. These factors contributed to a $(1.8) billion GAAP loss for Citigroup. Despite this, CEO Jane Fraser expressed optimism, believing the company is at a turning point in its multi-year transformation plan, focused on reducing management layers and streamlining to five core businesses. The plan has yet to yield significant results, evident in the Q4 non-GAAP EPS drop of 24% year-over-year and a 3.1% decline in revenue. Excluding divestitures and the Argentina devaluation, revenue increased by 2%. Services, particularly Treasury and Trade Solutions, stood out with a 16% revenue increase. The Investment Banking sector faced challenges, but Citigroup's Advisory group showed solid 11% growth in a subdued M&A environment. Debt Capital Markets excelled, with underwriting revenues surging by 43%, compensating for a 17% dip in equity underwriting fees. The Markets business experienced mixed results, with equity trading fees up 9%, while fixed income suffered a 25% drop due to lower volatility and currency weaknesses. Higher interest rates positively impacted the U.S. Personal Banking segment, leading to a 12% revenue increase. Citigroup's Q4 results underscore a business in flux, characterized by strengths and weaknesses, a common scenario in the current financial sector. As Citigroup continues its streamlining efforts, financial performance is anticipated to remain uneven in the coming quarters, with the expectation of stronger profits post-turnaround.

UnitedHealth (UNH) faced challenges in Q4 as rising costs overshadowed an otherwise healthy financial performance. Despite robust revenue growth of 14.1% year-over-year, reaching $94.43 billion and surpassing analyst estimates, the health insurance giant experienced its first earnings per share (EPS) miss in over five years. The medical care ratio (MCR), representing the percentage of premiums used for claims, increased by 220 basis points year-over-year to 85.0%, influenced by familiar care patterns, including heightened outpatient activity for seniors, particularly in orthopedic and cardiac procedures. UNH attributed this rise to seasonal factors, such as patients delaying surgeries during colder months. The Medicare Advantage (MA) business, a vital but low-margin segment, faced challenges due to intense competition and aggressive pricing during the 2024 session. UNH remains confident in its position for 2025 and 2026, anticipating a modest addition of 450,000-550,000 lives this year. However, higher-than-expected costs led to a weak adjusted EPS growth of 9.2% year-over-year, totaling $5.83, below analyst predictions. Despite this, year-over-year revenue growth remained in double digits for the 11th consecutive quarter, primarily driven by a 24% surge in Optum Health. UNH plans to address rising costs by investing in digital capabilities and leveraging technology to reduce administrative expenses and enhance productivity. While UNH is the largest health insurer in the U.S., the company acknowledges the need for cost containment to navigate the challenges of an aging population. Failure to make progress on this front could result in increased selling pressure.

Delta Air Lines (DAL) reported strong Q4 results, surpassing both revenue and profit expectations due to robust holiday season travel demand. Despite this positive performance, DAL's stock faces turbulence as the provided guidance disappoints investors. The forecast indicates a modest 4% growth in earnings per share (EPS) for FY24, following a substantial 95% increase in FY23, leading to concerns among shareholders. Additionally, the Q1 unit revenue (TRASM) outlook, ranging from flat to a 3% decrease, raises worries about capacity growth impacting ticket pricing and profitability. Despite these challenges, several positive aspects contribute to DAL's overall health. International travel remains a bright spot, with a 25% increase in passenger revenue, contributing significantly to DAL's total revenue. International travel, constituting around 20% of DAL's revenue, proves more profitable than domestic travel, with unit revenues experiencing a 9% year-over-year increase. Corporate travel is rebounding, reaching 90% of pre-pandemic levels, accompanied by healthy growth in high-margin premium and loyalty revenue, up by 15% and 11%, respectively. On the cost side, Non-fuel CASM met expectations, rising by 1.1%, but cautionary notes emerge regarding higher maintenance costs and escalating oil prices due to Middle East conflicts. While the strong holiday season fueled DAL's impressive Q4 results, attention shifts to 2024, with apprehensions about the challenges ahead, especially if fuel prices continue to rise.

JPMorgan Chase (JPM) saw its shares reach all-time highs despite falling short of Q4 revenue expectations, marking the first such miss in six quarters. The bank reported a 11.7% year-over-year revenue increase to $38.57 billion. Earnings were lower than anticipated, primarily due to a $2.9 billion payment to the FDIC for replenishing funds to uninsured depositors of failed regional banks last year. Excluding this payment, earnings per share (EPS) would have surpassed analyst forecasts. Net interest income across the firm benefited from higher interest rates, rising 19% year-over-year or 12% when excluding the impact of the First Republic acquisition. The provision for credit losses totaled $2.8 billion, with net charge-offs increasing by $1.3 billion from the previous quarter. In Consumer & Community Banking (CCB), net revenues grew by 15% year-over-year to $18.1 billion, with notable increases in Banking & Wealth Management, Home Lending, and Card Services & Auto. JPM's Corporate & Investment Bank (CIB) segment reported a 3% year-over-year increase in net revenues to $10.96 billion. Commercial Banking (CB) and Asset & Wealth Management (AWM) saw top-line expansions of 18% and 11%, respectively. JPM offered relatively optimistic FY24 guidance, anticipating around $88.0 billion in net interest income excluding Markets, with loan growth offsetting interest rate cuts. CEO Jamie Dimon expressed confidence in the U.S. economy, highlighting consumer spending resilience and a market pricing in a soft landing. However, he acknowledged economic uncertainties, including inflationary pressures due to increased spending in the green economy, global supply chain restructuring, military expenditure, and rising healthcare costs. JPM remains cautious, prepared for various economic scenarios despite its strong market position. The Q4 results and commentary underscore economic challenges and potential inflationary impacts, prompting a careful approach, especially considering current stock prices. Despite these concerns, JPM stands out as a top choice among its peers.

Smith Douglas Homes (SDHC) finds itself in a favorable position as a newly public company, with its initial public offering (IPO) drawing robust demand amid the strong performance of homebuilding stocks like D.R. Horton (DHI), Lennar (LEN), and KB Home (KBH). The IPO, the first major one in 2024, priced its 7.7 million shares at $21 per share, the upper end of the projected $18-$21 price range. The stock opened for trading at $23.50, resulting in a 12% opening gain. Operating primarily in the southeast and southern U.S., with a presence in GA, NC, TN, AL, and TX, SDHC identifies these markets as favorable due to attributes such as strong employment and wage growth, appealing lifestyle and weather, and consistent population growth. SDHC stands out among homebuilders due to distinctive factors. Employing a "land-light" business model, the company typically acquires finished lots through lot-option contracts, reducing upfront capital needs and minimizing financial and operating risks compared to other homebuilders with a higher percentage of land ownership. With over 93% of SDHC's closings derived from fewer than 30 floor plans, the company benefits from a streamlined construction approach, enhancing economies of scale. Despite lower average selling prices (ASPs) at $333,000 for the nine months ending September 30, 2023, SDHC maintains a healthy home closing gross margin of 29% during the same period. In contrast, KB Home, reporting positive Q4 results, witnessed a 310 basis points year-over-year decline in housing gross profit margin to 20.8%. Similar to KB Home, SDHC experienced increased demand as mortgage rates cooled in December. Notably, SDHC estimated a 57% spike in net new home orders from November, with a 24% year-over-year increase in net new home orders to 525 homes for the three months ending December 31, 2023. Benefiting from industry conditions, including a persistent undersupply of existing homes and its land-light model, SDHC maintains profitability, generating nearly $95 million in net income for the nine months ending September 30, 2023. The key takeaway is that SDHC's IPO garnered strong demand in the context of heightened enthusiasm for homebuilder stocks. Its robust pricing is a positive development for the IPO market, still recovering from a prolonged slump. SDHC is anticipated to perform well, offering investors a new opportunity within the thriving homebuilding sector, marked by its distinct attributes such as affordability and exposure to strong housing markets in the southeast and southern U.S.

Previous update:

PriceSmart (PSMT) shares are seeing significant purchases in large quantities today, fueled by positive Q1 results. The report indicates that the trend of buying food and essential items in bulk for better value is not limited to the U.S., as evidenced by PriceSmart's strong performance in Central America, Colombia, and the Caribbean. The membership warehouse club operator witnessed an 8.0% growth in comparable net merchandise sales, contributing to an 11% rise in adjusted EPS to $1.24. Similar to its U.S. counterpart Costco (COST), PriceSmart is experiencing consistent growth in memberships and robust renewal rates, with a notable 11% increase in membership income to $17.7 million. In contrast to Costco, PriceSmart recently implemented a membership fee increase, announcing a $5 raise in most markets last quarter, set to take effect gradually throughout FY24. This strategic move aims to support ongoing growth in membership income. While the food category remains a steady performer, Q1 saw exceptional growth in health services for PriceSmart, including optical, audiology, and pharmacy, which achieved an impressive 91% increase. Specific growth rates for these categories are expected to be discussed during the upcoming earnings call at noon E.T. Store expansion is a fundamental element of PriceSmart's growth strategy, with the company ending the quarter with 53 clubs, up from 50 in November 2022. Plans are underway to open a new club in El Salvador in February. In comparison, Costco operates over 870 warehouses globally, highlighting PriceSmart's potential for further expansion. The key takeaway is that PriceSmart, much like Costco, is capitalizing on the demand from budget-conscious consumers, resulting in strong comp growth and membership expansion. With a considerable untapped market and plans for continued club expansion, PriceSmart is poised for sustained growth in the future.

WD-40 (WDFC) experiences a significant surge in its stock following surpassing expectations on both top and bottom lines in Q1, with sustained positive trends propelling the household and multi-use product maker to its highest share levels since April 2021. The robust quarterly results were driven by continuous improvements in trends observed in the previous quarter. Sales growth related to volume was evident across all of WDFC's geographical segments, with approximately 65% of the constant currency revenue increase attributed to volume gains, reflecting strong demand rather than solely inflation-driven growth. Total revenue rose by 12.4% year-over-year to $140.4 million, with the EIMEA segment (Europe, India, Middle East, Africa) leading the way with a 20% increase. The Americas and Asia-Pacific recorded sales growth of +10% and +6%, respectively. Noteworthy in WDFC's markets were the sustained robust demand for core maintenance products in the Americas, a slip in volumes in Europe due to customer adjustments to price hikes, a positive sales turnaround in Australia after a double-digit decline in Q4, and buoyant demand in China. The positive momentum in WDFC's top-line results extends to its bottom line, marked by a 25.4% expansion in the company's EPS to $1.28, fueled by a 240 basis point improvement in gross margins year-over-year. Management provided a brief update on the homecare and cleaning business, representing only 6% of total sales in Q1, indicating a strategic review for its future. Considering the more favorable margins of its maintenance products, it wouldn't be surprising to see WDFC divest this division in the near term. Looking forward, WDFC reaffirms its FY24 outlook, projecting EPS of $4.78-5.15 and a 6-12% net sales growth year-over-year. Management emphasizes its longer-term strategic framework, highlighting a commitment to building brand awareness, entering additional markets, and accelerating premiumization. WDFC showcases excellent progress in these areas, with notable growth percentages in various regions. Despite setbacks over the past two years, the company is now propelled forward by a new wind, easing previous challenges and leveraging resilient demand dynamics, setting the stage for further strategic advancements in 2024.

SMART Global's (SGH) stock rally continues as the company outperforms expectations in Q1, displaying robust adjusted earnings growth, notable margin expansion, and introducing a new $75 million share repurchase authorization. Although revenue falls within consensus, Q2 revenue guidance remains consistent with expectations. SMART Global operates three distinct business segments: Intelligent Platform Solutions (IPS), Memory Solutions, and LED Solutions. IPS, the largest segment, encompasses high-performance computing (HPC), AI, and IoT platform technologies, contributing over 43% to Q1 sales. Memory Solutions, accounting for 31% of Q1 revenue, focuses on SGH's DRAM and Flash-based memory products, while LED Solutions comprises application-optimized LEDs and the remaining revenue. Despite a modest 5.6% year-over-year growth in LED Solutions, SGH faces declining revenue in its other segments, with an 18.3% decrease in IPS and an 18.6% drop in Memory Solutions. Overall revenue experiences a 30.0% decline to $274.25 million, representing a deterioration from previous quarters. Supply chain constraints affect SGH's IPS business, extending lead times for specific components and impacting project ramp-ups. Elevated inventory levels at key customers hinder demand for Memory Solutions. On a positive note, Management observes rising interest in AI technology, expecting 2024 to witness increased market adoption of AI across various sectors. SGH believes the cyclical downturn in memory is subsiding, having reached the bottom of the cycle. Margins prove to be a highlight, with non-GAAP gross margins increasing by 200 basis points year-over-year to 33.3%, surpassing the 32.5% forecast. Consequently, SGH surpasses adjusted earnings estimates, delivering $0.24 per share. Looking ahead to Q2, while overall trends are improving, SGH acknowledges a challenging macroeconomic environment. Seasonal trends in LED Solutions are expected to suppress top-line growth in the next quarter. Therefore, SGH anticipates a year-over-year decline in Q2 revenue, projecting $260-310 million. Despite this, buoyant margins are expected to support a bottom line of $0.15-0.35 in Q2, exceeding consensus. While not exceptionally impressive, SMART Global's Q1 report marks a significant improvement from its lackluster Q4 report in mid-October. The contrast prompts investors to drive SGH's shares higher, now up over 50% since reaching one-year lows after the previous quarterly report.

Intuitive Surgical (ISRG), a leading robotic surgery company, has experienced a notable uptick, driven by a positive trajectory in procedure growth, prompting an upward revision of its Q4 revenue guidance. The surge is attributed to better-than-anticipated da Vinci system procedure growth, particularly in China, where procedure volumes rebounded as the impact of COVID-19 diminished, coupled with robust growth in the U.S. market. Q4 da Vinci procedures witnessed a significant 21% increase, contributing to a full-year 22% procedure volume growth, aligning with the high end of ISRG's 21-22% guidance range. The improved Q4 outlook allays concerns about the potential impact of new weight-loss drugs on procedure volume growth. While acknowledging a slight slowdown in bariatrics procedures in the U.S. due to the launch of these treatments during the Q3 earnings call, ISRG highlighted that such procedures constitute only about 4-5% of its total global procedures. Post-pandemic, individuals who postponed procedures are now returning to hospitals, a trend noted by major health insurance companies like Humana and UnitedHealth Group, leading to an increase in medical benefit ratios. Another concern in 2023 was the potential impact of high-interest rates on demand for ISRG's expensive surgical systems. However, the company addressed this by expanding its equipment leasing program, making the systems more affordable. In Q4, ISRG placed 415 da Vinci surgical systems, marking a 12% year-over-year increase, with about half placed under operating leases. The scope of procedures performed by ISRG's da Vinci system is expanding, encompassing general surgery, colon resection, hernia repair, gynecology, and notably, lung biopsies with the recent launch of the Ion endoluminal system. While business growth for ISRG may not be booming, it remains healthy, setting the stage for a solid 2024. The company's expansion into newer procedure types and the unwinding of pent-up demand for elective procedures contribute to this positive outlook. Although ISRG forecasts a slowdown in procedure volume growth to 13-16% for 2024, it may be adopting a conservative approach in its outlook.

Previous update:

Jefferies, the investment banking and asset management firm, kicked off the financial sector's earnings season with Q4 results that exceeded expectations. The report highlighted mixed conditions persisting across business lines, especially in advisory, which continues to face challenges due to low M&A volume in a high-interest rate environment. Despite this, Investment Banking & Capital Markets revenue saw a modest 1% increase to $1.06 billion. Notably, debt underwriting surged by 110% to $129.4 million, and equity underwriting increased by 21% to $132.2 million. These growth rates, although impressive, need to be contextualized, considering the substantial declines in the previous year. As interest rates stabilized, equity markets strengthened, leading to a more active IPO market in Q4. This positive trend is expected to benefit other financial companies reporting in the coming weeks, such as Goldman Sachs and Morgan Stanley. Jefferies managed to offset weakness in its Advisory business with a rebound in debt and equity underwriting. While Advisory revenue slid by 18% to $312.3 million, the company anticipates a turnaround in M&A activity, expressing confidence that the industry has reached the bottom of the current cycle. Jefferies, unlike its competitors, has strategically invested in talent acquisition for its investment banking sector, adding 182 Investment Banking Managing Directors over the past three years. In Q4, the trading business remained relatively stable, with Capital Markets revenue dipping by only 2% to $481.3 million. The upswing in the stock market contributed to a 9% increase in equity trading fees to $271.5 million, partially offsetting a 13% decline in fixed income. Despite challenging conditions, Jefferies delivered a solid performance, suggesting that Q4 earnings results for the financial sector may not be spectacular but could surpass expectations.

Acuity Brands (AYI) has illuminated the market with an impressive Q1 (Nov) earnings performance, propelling its shares to one-year highs. Despite a modest revenue delivery, the lighting product manufacturer exceeded earnings estimates, showcasing its robust success in enhancing product vitality, improving service levels, and leveraging technology for productivity gains. AYI's ability to maintain stable prices amid easing input cost headwinds contributed to an expanded adjusted operating margin, rising by 250 basis points year-over-year and 40 basis points sequentially. The company's earnings per share (EPS) surged by 13.1% year-over-year to $3.72, surpassing analyst expectations by a wider margin than the previous quarter's double-digit beat. Despite a 6.3% decline in revenues year-over-year to $934.7 million, in line with consensus, AYI's bolstered margin profile was deemed significant. Management attributed the strong margin performance to cost reduction in production and successful price hikes, implemented without a substantial drop in demand. While acknowledging current extraordinary margin levels, management expressed confidence in maintaining buoyant margins. Unlike the previous quarter, AYI refrained from providing formal guidance during its conference call but highlighted positive observations for the year, including growing order rates year-over-year and sequentially. Operations have returned to typical lead times, and absent last year's excess backlog, AYI foresees positive sales growth. The company outlined its strategy for the year, prioritizing margin and cash flow growth in the Acuity Brands Lighting (ABL) segment, which constitutes approximately 94% of revenues, while aiming for geographical expansion in the remaining 6% Intelligent Spaces Group (ISG). As AYI embarks on FY24 (Aug), its robust Q1 performance, particularly in margins, positions it well to reverse three consecutive quarters of negative sales growth, with order rates showing positive growth and lead times normalizing.

Microchip (MCHP) has revised its Q3 revenue outlook downward, echoing concerns of an inventory buildup within its customer base, a situation similar to the one faced by Mobileye Global (MBLY) just days earlier. Initially anticipating a 15-20% sequential revenue decline, MCHP now foresees a steeper Q3 revenue plunge of 22%, attributed to increased requests to defer or cancel backlog. Like MBLY, MCHP, a semiconductor company with a focus on ADAS and self-driving technology, is grappling with macroeconomic challenges prompting customers to reduce orders and manage excess inventory. While the automotive end market is notably weak, MCHP's challenges are widespread. CEO Ganesh Moorthy, during the Q2 earnings call, emphasized that the downturn is volume-driven and pervasive across geographies and end markets, with aerospace and defense being the exceptions. Despite a gloomy Q3 outlook provided after reporting Q2 results, including a warning of a likely sequential decline in Q4 revenue, MCHP aims to boost free cash flow return to shareholders by 500 basis points each quarter until it reaches 100% of adjusted free cash flow returned within five more quarters. On a positive note, MCHP increased its quarterly dividend by 7% to $0.439/share on November 2. The overarching concern is the deepening inventory correction, which, although contributing to MCHP's minor losses in trading, is viewed optimistically by market participants anticipating improved business conditions in 2024 as the inventory correction unfolds.

Hewlett Packard Enterprise (HPE) is facing a decline in its stock value following reports of advanced talks to acquire Juniper Networks (JNPR) for a potential sum of over $13.0 billion, representing a more than 30% premium over JNPR's current market cap. Similar to recent M&A trends in the technology sector, this potential deal has led to a surge in JNPR's shares but a decrease in HPE's stock value. Both companies operate in parallel business lines, providing networking equipment to enterprises and delivering AI-enabled services. While JNPR boasts respectable adjusted gross margins, hovering just below 60%, potential synergies with HPE could unlock further cost savings and improvements. The reported acquisition, valued at just over 2x JNPR's estimated FY24 revenue, seems reasonable, but HPE investors are expressing disappointment due to the lack of detailed financing information for the deal. With approximately $4.3 billion in cash on hand, HPE may need to resort to debt and/or equity to complete the acquisition, potentially eroding the progress made in reducing its debt profile over the years. JNPR's recent revenue growth has seen a rapid decline, with Q3 results showing negative year-over-year growth, although the rate of order decline improved during the same period. While JNPR's AI-Driven Enterprise business experienced a significant boost in revenue, HPE's timing for the acquisition is questioned, given the challenging enterprise software market conditions and HPE's own issued weak FY24 guidance. Despite these challenges, the potential acquisition is seen as an ambitious move by HPE to enhance its product offerings and strengthen its competitive position, particularly in the AI space where JNPR has demonstrated substantial growth.

Previous update:

lululemon athletica's (LULU) recent decline persists despite an optimistic outlook for Q4 that fails to generate enthusiasm. Following an impressive 60% surge in shares during 2023, the athletic apparel retailer is off to a slow start in 2024. Although the company enjoyed a robust holiday shopping season with sales growing by 14-15% year-over-year, the marginal adjustments to its Q4 revenue and earnings per share (EPS) guidance are not eliciting much excitement. Specifically, LULU now anticipates Q4 revenue to be in the range of $3.17-$3.19 billion, a slight increase from the previous estimate of $3.135-$3.170 billion, and EPS of $4.96-$5.00, compared to the prior range of $4.85-$4.93. Notably, LULU's initial revenue and EPS projections fell short of expectations. The revised revenue guidance now aligns closely with analysts' original forecasts, while EPS slightly surpasses the initial predictions. LULU reported that sales trends remained balanced across various channels, categories, and geographies in Q4, with the women's business standing out as a notable performer. In the previous quarter, the women's business witnessed a 19% growth, driven by new product launches, strength in bottoms, and consistent performance in key franchises. Concerns about the uncertain macro environment affecting men's apparel purchases were expressed by LULU in the previous quarter, potentially contributing to a more cautious approach in raising sales guidance. Meanwhile, rival NIKE (NKE) is grappling with the impact of slowing apparel sales, reporting a 4% decline in North American revenue and revising its FY24 revenue growth outlook downward to approximately 1%. Despite challenges in the retail climate, LULU appears to be in a relatively better position than NKE. LULU's brand maintains strong pricing power in a promotional retail environment, leading the company to raise its Q4 non-GAAP gross margin guidance to 58.6-58.7% from 58.3-58.6%. Nevertheless, LULU's conservative guidance increase is posing challenges to justifying its premium valuation, especially with a price-to-earnings (P/E) ratio exceeding 60x.

Crocs (CROX) experiences a significant surge in its stock price following the release of better-than-expected preliminary Q4 results and optimistic revenue guidance for FY24. The footwear company, which also owns the HEYDUDE brand, had faced a nearly 20% decline in its stock value since mid-December but saw a swift rebound on the positive outlook. The footwear industry, influenced by lackluster Q2 results from NIKE (NKE) in November, had a bearish tone, impacting Crocs as well. Despite a challenging November quarter with factors like inflation, higher interest rates, and resumed U.S. student loan payments, Crocs projected Q4 revenues of $903-$938 million, slightly below consensus. Encouragingly, Q3 showed positive trends such as continued market share growth in North America for the Crocs brand, healthy demand, and expanded adjusted gross margins. The Q4 performance surpassed expectations, with Crocs brand revenue growing by approximately 10%, offsetting HEYDUDE's 19% sales decline. Despite a difficult operating environment during the holiday season, effective planning allowed Crocs to surpass its financial targets. Looking ahead to FY24, Crocs anticipates a slower sales growth rate of 3-5%, compared to an 11% increase in FY23, while adjusted operating margins are expected to dip around 2 percentage points to 25%, attributed to investments in brand-related initiatives. Despite ongoing challenges such as elevated promotions, persistent inflation, and consumer preferences for value products, the mid-single-digit revenue growth is commendable, considering the reasonably solid growth expected in 2023. The positive Q4 guidance and the reassuring FY24 revenue forecast bring relief to Crocs, instilling confidence in its ability to navigate obstacles and potentially initiate a broader turnaround.

Abercrombie & Fitch (ANF) stands out in the challenging apparel retail sector, defying industry struggles with strong performance throughout 2023, extending into a successful holiday shopping season. ANF raised its Q4 net sales growth guidance to high-teens, surpassing its earlier projection of low-double-digit growth. The Q4 operating margin outlook was also increased to 15%, up from the previous range of 12-14%, attributed to increased sales leverage and restrained discounted pricing. ANF's notable resurgence in 2023, marked by a 285% surge in its stock price, is mainly attributed to the success of its Abercrombie brand, which achieved a remarkable 26% comp growth in Q3. Although specific Q4 sales figures for Abercrombie and Hollister were not provided, the company highlighted the continued leadership of Abercrombie brands in driving strong Q4 sales growth. The women's business, in particular, experienced record Q4 sales, driven by on-trend product assortments, successful expansion beyond denim in the bottoms business, and strength in the dresses category. ANF's strategic management of a more limited inventory, with a 20% year-over-year decrease at the end of Q3, positioned the company to benefit from higher pricing during the holiday shopping season, avoiding the highly promotional retail environment. Overall, ANF emerged as a clear winner in the apparel retail sector during this holiday season, capitalizing on a clean inventory profile and the growing strength of the Abercrombie brand.

Following an incident over the weekend, Boeing (BA) faces a 7% drop in its stock value as the FAA temporarily grounds specific Boeing 737 MAX 9 jets operated by U.S. airlines. During an Alaska Air (ALK) flight from Portland, OR to Ontario, CA, part of the aircraft, a "plug" where an emergency exit is typically placed on MAX 9 jets with a certain seat limit, detached, leading to the plane's immediate return to Portland International Airport with a safe landing and no injuries. Federal regulations mandate additional emergency doors on planes with at least 180 seats; however, the affected aircraft had fewer than 180 seats, allowing for the use of "plugs" instead of doors. Spirit Aerosystems (SPR), the part supplier responsible for manufacturing the "plug," faces an 8% stock drop as it undergoes scrutiny over the incident. SPR's significant customers include Boeing (53% of consolidated FY22 sales), Airbus (22%), and the U.S. Government (13%). Investors express impatience due to a series of quality control issues at SPR, including a fuselage section problem in certain 737 models in April and improperly drilled holes on the aft pressure bulkhead in August. While Boeing will encounter near-term cost challenges with the reported grounding of 171 MAX 9 jets, representing a small fraction of its total fleet, SPR bears the brunt of the selling pressure, given its track record of quality control issues. U.S. airlines Alaska Air (ALK) and United Airlines (UAL), configuring the MAX 9 without extra emergency exits, are affected to varying degrees, with ALK experiencing the incident, grounding its fleet and canceling over 150 flights. The incident, which adds to SPR's list of setbacks, prompts an investigation, and until further clarity is provided, Boeing is expected to recover quicker than SPR from this setback.

Previous update:

CVS (CVS) Health's positive trajectory persists as it confirms its earnings per share (EPS) guidance for fiscal years 2023 and 2024. Tom Cowhey, previously interim CFO since October, now assumes the permanent role, succeeding Shawn Guertin on leave due to family health reasons. Despite hurdles in the past year, including heightened medical benefit costs impacting the Health Care Benefits segment and sluggish growth in the Pharmacy & Consumer Wellness segment due to diminishing COVID-19 product sales, CVS closed 2023 with a robust 16% rally in December. Reiterating fiscal year 2023 EPS and revenue guidance, CVS now foresees its EPS falling within the upper bracket of the $8.50-$8.70 range. Looking forward to fiscal year 2024, CVS upholds expectations of at least $8.50 EPS and cash flow from operations of a minimum of $12.5 billion. The optimistic forecast stems from a substantial surge in Medicare Advantage (MA) membership, with an anticipated growth of no less than 800,000 members in 2024, surpassing the earlier projection of 600,000. The pivotal factor driving this favorable outlook is the enhancement of CVS's star rating for its Medicare Advantage program. In May of the previous year, CVS had anticipated a potential decline in operating income for 2024 due to diminished plan star ratings. However, recent disclosures reveal that 87% of Aetna Medicare Advantage members will be enrolled in contracts rated at four stars or higher. This has led to CVS attracting new members from competitors such as United Health and Humana, with the company noting an "increased proportion of new sales originating from competitor MA plans." While challenges such as an escalating medical benefit ratio may persist, particularly with the rise in outpatient procedures, the improved star rating and expanding Medicare Advantage membership are anticipated to counter these challenges and contribute to CVS's sustained upward momentum.

Netflix (NFLX) is considering ways to generate additional revenue from its mobile gaming venture, signaling a strategic move beyond its initial foray into the gaming space in November 2021. Despite its relatively short experience compared to industry giants like Electronic Arts (EA) and Take-Two (TTWO), Netflix has been actively expanding its gaming capabilities, acquiring several game development studios and increasing its game offerings from five to over 80 titles. While many games are provided to streaming subscribers through licensing agreements, Netflix is now contemplating introducing in-app purchases or hosting ads in games to extract additional revenue. Currently, all games are accessible to Netflix subscribers at no extra cost. The company's recent success in its streaming business, highlighted by a remarkable addition of +8.76 million global streaming paid net subscribers, has demonstrated its ability to address challenges, such as password sharing crackdowns, and maintain a competitive edge through appealing intellectual property (IP) and content. Netflix's move into monetizing its gaming division aligns with its recognition of the substantial market opportunity in mobile gaming, estimated at approximately $140 billion outside China and Russia, as mentioned by management in late October. Unlike traditional gaming companies like EA and TTWO, Netflix's strength lies in its video content-first approach, leveraging its established fanbase from popular shows like Stranger Things to create mobile games as an extension of its existing content. If the monetization efforts in the gaming sector prove successful, Netflix stands to gain significantly over the long term.

Costco (COST) showcased robust sales performance during the holiday shopping season, positioning itself as a clear winner. In December, the membership warehouse retailer reported a notable surge in comparable sales, excluding fluctuations in gasoline prices and foreign exchange impact, with an impressive 8.1% increase. This outpaced the gains observed in November at 4.4% and October at 3.4%. The retailer's popularity during the festive season was evident as customer traffic recorded a significant 7.5% jump, indicating its ongoing ability to capture market share from competitors, including grocery store chains. Notably, the food and sundries category stood out with a high-single-digit growth, reflecting consumers' inclination towards value-oriented bulk purchases. Costco's positive trend in Q1 results, reported on December 14, hinted at a successful holiday shopping season surpassing expectations. Beyond traditional holiday items, customers displayed increased interest in big-ticket items, resulting in a mid-20% surge in appliance sales. Notable rebounds were also observed in the sales of TVs, jewelry, and electronics, contributing to a 6.3% rise in Q1 eCommerce same store sales. It's worth noting that significant categories like appliances, TVs, jewelry, and electronics collectively constitute a substantial portion, ranging from 50-60%, of Costco's total eCommerce sales. This positive momentum extended into December, where non-food categories experienced a noteworthy high-single-digit increase. Strong performances were particularly evident in jewelry, gift cards, and tires, offsetting softness observed in toys, sporting goods, and seasonal products. Bolstered by this improvement in non-food sales, eCommerce same store sales achieved an impressive 17.4% growth, even though Costco faced a favorable year-over-year comparison of -5.4%. The overall takeaway is that Costco emerged victorious in the holiday shopping season, evident in the stock's 15% gain since mid-November. The strong December sales results align with the positive trajectory highlighted in the Q1 earnings report. Looking ahead, a potential catalyst for the company could be an anticipated membership increase, as indicated by Costco CFO Richard Galanti, marking it as a matter of when, not if.

Constellation Brands (STZ), a producer of beer, wine, and spirits, experienced mixed results in Q3. Although the company fell short of Q3 revenue estimates and adjusted its FY24 Wine and Spirits organic sales outlook downward, the resilience of its Beer segment provided a silver lining. Despite weak performance in Wine and Spirits, the Beer segment, constituting 80% of total revenue, not only offset the decline but also led to a double-digit adjusted earnings beat in Q3, maintaining the company's FY24 adjusted EPS outlook. Total sales saw a modest 1.4% increase year-over-year to $2.47 billion, primarily driven by a 4.0% rise in the net sales of Constellation Brands' Mexican beer brands, including Modelo, Corona, and Pacifico. Beer shipments and depletions recorded a 3.4% and 8.2% year-over-year increase, respectively, continuing an upward trend from previous quarters. The Beer segment outpaced the total beer category and the high-end segment in both dollar sales and volume growth. The strength in Constellation Brands' Beer business positively impacted operating margins, leading to a 100 basis points improvement year-over-year to 38.5%. Wine and Spirits also experienced a modest increase in operating margins, growing by 60 basis points to 25.4%, primarily due to deflation in the supply chain. Despite challenges, Constellation Brands exceeded bottom-line estimates for the fourth consecutive quarter. In contrast, Wine and Spirits faced ongoing demand challenges in Q3, reflecting the strategic shift made nearly three years ago to focus on a premium portfolio. This strategy resulted in a 7.0% organic net sales decline, with shipments and depletions dropping by 11.6% and 10.0%, respectively. Notably, The Prisoner, STZ's largest fine wine brand, achieved a 6.0% depletion growth, outperforming its segment in the broader wine category. In craft spirits, Mi CAMPO tequila, STZ's second-largest brand, experienced over 80% depletion growth. Constellation Brands adjusted its FY24 Wine and Spirits organic net sales forecast considerably, anticipating a 7.0-9.0% decline year-over-year. In contrast, the Beer business is expected to maintain its previous 8-9% net sales growth target in FY24. Despite challenges in Wine and Spirits, the Beer segment supported the company's reiteration of FY24 adjusted earnings guidance of $12.00-$12.20. While the Beer segment remains a stronghold for Constellation Brands, the ongoing struggles in Wine and Spirits present a hurdle for potential stock growth. Until a turnaround occurs in this segment, the company may face limitations in achieving more significant returns each quarter.

Previous update:

In the second quarter (Q2) of the fiscal year, RPM Inc (RPM) faced challenges, experiencing a downturn of 4%. This decline was attributed to weaknesses in the do-it-yourself (DIY) and specialty original equipment manufacturer (OEM) markets, resulting in the company missing both earnings and revenue estimates for the first time in at least a year. Additionally, RPM lowered its sales growth forecast for the fiscal year 2024 (FY24) in May. Despite the setbacks, there were positive aspects stemming from the MAP 2025 savings initiatives implemented by the specialty coatings manufacturer. However, these were overshadowed by persistent softness in the DIY and specialty OEM markets. The headline figures painted a disappointing picture, with RPM falling short of earnings expectations for the first time in six quarters. Year-over-year sales remained flat at $1.79 billion, performing worse than the modest positive growth anticipated by analysts. Notably, RPM's Consumer Group and Specialty Products Group experienced negative sales growth during the quarter, declining by 5.2% to $578.69 million and 16.6% to $176.98 million, respectively. Consumer Group was affected by weak retail performance, as customers redirected their discretionary spending towards travel and entertainment rather than home improvement projects, echoing trends seen at Lowe's and Home Depot. Retailers' cautious inventory management further intensified volume pressure on RPM. Specialty Products Group faced challenges from soft specialty OEM demand, particularly in markets with higher exposure to residential housing. On a more positive note, the Construction Products Group and Performance Coating Group prevented a more significant decline in Q2 sales, achieving growth rates of 8.1% and 5.1%, reaching $661.75 million and $374.86 million, respectively. Both segments benefited from a focus on repair and maintenance, along with robust demand for infrastructure reshoring and high-performance buildings. RPM's management changes and MAP 2025 initiatives yielded positive results, with increased collaboration among sales teams in Africa, the Middle East, and Asia Pacific contributing to growth in these regions. MAP 2025 also led to double-digit adjusted EBIT growth and reiterated FY24 growth in the low double-digit to mid-teen range. However, challenges within the Consumer and Specialty Products segments are expected to persist throughout the year, resulting in a reduced FY24 revenue growth outlook of a low-single-digit percentage, down from mid-single-digits. The relative strength observed in RPM's Construction Products and Performance Coatings segments is encouraging and holds promise for peers PPG Industries and Axalta Coating Systems, both of which have greater exposure to performance and industrial coatings than RPM. Conversely, due to elevated interest rates, existing home turnover has been at a multi-decade low, and until interest rates decrease and homeowners consider moving, RPM's Consumer and Specialty Products segments may continue to face challenges, which could also impact competitor Sherwin-Williams negatively.

Mobileye Global (MBLY), a semiconductor company specializing in Advanced Driver Assistance Systems (ADAS) and self-driving technology, is facing a significant downturn in its FY24 outlook due to an excess inventory issue. While semiconductor companies dealing with PC, laptop, and mobile device markets are recovering from previous inventory challenges, a new supply-demand imbalance is emerging in the automotive end market. MBLY attributes its weak FY24 guidance to excess inventory levels at its customers, impacting the sales of its EyeQ Systems-on-Chip (SoCs). The company anticipates a substantial decline of around 50% year-over-year in revenue for Q1, contrasting sharply with the anticipated 20%+ growth predicted by analysts. This guidance downgrade has led to selling pressure not only for MBLY but also for other chip makers in the automotive sector, such as Ambarella (AMBA), which manufactures computer vision chips for advanced driver-assistance systems. Although Intel (INTC) has reduced its direct exposure to the auto industry following the spin-off of MBLY in 2022, its stock is affected due to an 88% stake in MBLY. INTC's potential use of MBLY holding as a source of capital for facility construction contributes to its weakened stock performance. Despite MBLY's previous strong performance, with nearly 90% gains from its IPO price, the current challenges stem from dwindling demand amid inventory drawdowns among Tier 1 auto OEM customers. EyeQ shipments are projected to decrease to 31-33 million units compared to an estimated 37 million units in 2023. Consequently, MBLY anticipates a 1Q24 adjusted operating loss ranging from ($80)-($65) million, in contrast to the $124 million adjusted operating profit in the year-earlier period. The unexpected severity of the FY24 guidance downgrade is catching market participants off-guard, signaling challenges not only from the ongoing auto industry inventory correction but also potential cautious ordering due to macroeconomic conditions.

Despite Conagra (CAG) reporting Q2 (Nov) results with a modest upside in earnings per share (EPS) and generally in-line revenues, the company is experiencing a pullback of 2.4%. The main concern stems from the lowered EPS and organic revenue guidance for FY24, indicating a weaker second half of the fiscal year than previously anticipated. In the Grocery & Snacks segment, revenue declined by 4.1% to $1.3 billion, attributed to a 0.4% price/mix decrease and a more significant 3.7% volume decrease, primarily due to ongoing lower consumption trends. However, CAG managed to gain dollar share in snacking and staples categories. The Refrigerated & Frozen (R&F) segment faced a more substantial revenue decline of 5.8% to $1.3 billion, with a 2.5% price/mix decrease and a 3.3% volume decrease, reflecting shifts in consumer behavior toward multi-serve meals and scratch cooking. While CAG's smaller International and Foodservice segments showed growth, their contributions are relatively small compared to the primary segments. CAG attributed the challenges to shifts in US consumer behavior starting in spring 2023 due to inflation, causing a reprioritization of food choices. The company expects these trends to be transitory but acknowledges a slower-than-expected return to normal consumer behavior, affecting volumes and mix in Q2. Despite ongoing macro challenges and increased brand investments, CAG highlighted solid margins and EPS delivery in Q2. However, investors are disappointed, as progress in volume recovery has been slower than anticipated, dashing hopes for a meaningful recovery in the second half. The stock had trended lower from early May to October but showed signs of consolidation and slow recovery, setting expectations for a more optimistic Q2 or a bullish outlook for the second half.

Despite Walgreens Boots Alliance (WBA) managing to reverse its trend of two consecutive earnings misses in Q1 (Nov), beating estimates by a low-single digit and reporting accelerated year-over-year sales growth, the company is facing a significant downturn, reflected in a 9% decline in its stock value. Although WBA maintained its FY24 (Aug) earnings target, it announced a substantial 48% reduction in its quarterly dividend, previously boasting a rich 7.5% annual yield. The cut is aimed at freeing up capital for investment in its pharmacy and healthcare businesses under the leadership of the new CEO, Tim Wentworth, who took the helm in late October. Margins continued to compress in Q1, with adjusted gross and operating margins declining by 180 basis points and 110 basis points year-over-year, leading to a 43% year-over-year drop in WBA's bottom line to $0.66 per share. However, the contraction was less severe than analysts anticipated, resulting in WBA's first earnings beat since 2Q23 (Feb). Despite robust top-line growth of 9.9% year-over-year to $36.7 billion, outperforming expectations, the challenging retail landscape is evident in the U.S. Retail Pharmacy segment's underperformance, with just a 6.4% climb on +8.1% comp growth. The retail environment remains weak, as retail comps fell -5.0% in Q1, indicating stressed consumers shifting towards value brands. International sales, however, were a positive standout, increasing by 12.4% year-over-year to $5.83 billion, with Boots UK showing positive comparable pharmacy and retail sales. In the U.S. Healthcare segment, pro forma sales grew by 12.0% year-over-year, led by VillageMD and Shields, and adjusted operating losses narrowed, indicating a path to profitability. WBA reiterated its forecast of reaching adjusted EBITDA breakeven in FY24 (Aug), a $425 million improvement year-over-year. Despite these encouraging developments, the slashed dividend, challenges in the end consumer market, and an unfavorable cold and flu season have dampened initial enthusiasm. WBA remains a risky turnaround play, especially in the current retail environment, and caution is advised ahead of CVS Health's (CVS) Q4 (Dec) report next month.

SentinelOne (S), a cybersecurity company that has been gaining ground in the endpoint protection sector, recently made headlines by announcing its cash-and-stock acquisition of PingSafe, a cloud native application protection platform (CNAPP). Despite the positive momentum behind SentinelOne, particularly with its Singularity Platform challenging CrowdStrike (CRWD), the news resulted in a sell-off of SentinelOne shares. The decline, however, is not only attributed to profit-taking following a substantial 45% surge in December but also to concerns about the dilutive impact of the PingSafe acquisition. While the company has showcased progress in profitability, reducing its Q3 non-GAAP net loss significantly, investors seem uneasy about taking a potential step backward. The lack of specific financial details for the PingSafe deal and the absence of financial data for PingSafe itself contribute to the uncertainty surrounding SentinelOne's future financials. Despite strong recent financial results, including an 11% increase in net new ARR and an eight-percentage point expansion in non-GAAP gross margin, the acquisition is met with skepticism. From a strategic standpoint, SentinelOne sees PingSafe as a fitting addition to enhance its cloud workload security and cloud data security capabilities. This move aligns with the company's strategy of providing a unified security system, eliminating the need for enterprises to integrate multiple-point solutions. SentinelOne's Singularity Platform, known for its AI-powered autonomous threat protection and response capabilities, offers a unified view of incidents and threats across all endpoints and cloud workloads. While this strategy seems promising for creating a best-of-breed cloud security platform in the long term, investors are currently not rewarding SentinelOne, focusing on the potential dilutive impact on earnings in the near term.

Previous update:

DoorDash (DASH) has started 2024 with a modest slowdown, as its shares dip following a report from the Financial Times indicating the food delivery company's plans to extend beyond its primary U.S. restaurant-focused business. In 2023, DoorDash prioritized expanding its offerings beyond U.S. restaurants, domestically and internationally, following its acquisition of the food and merchandise delivery platform Wolt for approximately €7.0 billion in the summer of 2022. Leveraging its strong global presence and diversifying revenue streams, especially given its market leadership in U.S. food delivery, remains advantageous for DoorDash. Beyond the U.S., DoorDash operates in 27 countries, a result of its Wolt partnership. Despite impressive growth across various regions, the company acknowledged a need for improvement, especially compared to its core U.S. market. Consequently, in 2024, DoorDash emphasizes overseas expansion, whether in food delivery or venturing into other channels. The expansion into new verticals played a significant role in DoorDash's stellar performance in 2023. The new categories business, involving deliveries from merchandise vendors, saw sequential acceleration in Q3, with the grocery business alone witnessing a doubling in gross order volume year-over-year. Utilizing its existing network of drivers, DoorDash can swiftly enhance unit economics within its new categories business. Amid the fragmented landscape of the food delivery industry, DoorDash, as a leader, might incorporate mergers and acquisitions (M&A) into its expansion strategy to fortify its market dominance. This approach aims to distance the company from its nearest competitors and preserve its leadership position. Despite the positive momentum, DoorDash anticipates challenges in 2024, primarily arising from cumulative inflationary pressures and the impact of weight-loss drugs. Regarding the latter, the company's management remains uncertain about the drugs' effect, while on the inflation front, DoorDash is experiencing cost-related pressures due to certain regulations like minimum wage increases. Additionally, consumer spending tightening with the resumption of student loan payments and widespread inflation poses demand-side challenges. However, DoorDash believes it has already navigated peak inflation, which exhibited a slower rise in the latter half of 2023. With a turnaround momentum from an exceptional 2023, DoorDash aims to capitalize on its success by deploying capital efficiently and considering potential M&A opportunities.

Previous update:

Jabil (JBL) has maintained a relatively stable position despite revising its Q2 (Feb) guidance downward, and this adjustment appears to be solely attributed to the quicker-than-expected divestiture of its Mobility business. Initially projected to conclude on January 31, the deal has already closed, prompting the guidance modification. The divestiture involved Jabil selling its Mobility business to BYD Electronic for a cash transaction valued at $2.2 billion, as announced on September 26. The expedited completion of the deal enables Jabil to commence plans for reducing stranded costs and initiating an accelerated series of buybacks throughout FY24. Anticipating a full utilization of its $2.5 billion repurchase authorization this fiscal year, Jabil expresses confidence in offsetting lower income in Q2 and achieving core earnings exceeding $9.00 per share for FY24. Strategically, the divestiture aligns with Jabil's focus on higher-growth areas by reducing exposure to the fluctuating and intensely competitive consumer electronics market. With the Mobility business specializing in consumer electronics, this move shields Jabil from the uncertainties associated with discretionary spending in this segment. Despite challenges, Jabil maintains a resilient business, notably in key growth sectors such as electric vehicles (EVs), autonomous driving, artificial intelligence (AI), cloud computing, renewable energy, and healthcare. While acknowledging a broad slowdown in demand across multiple end-markets and subsequent adjustments in demand schedules by customers, Jabil anticipates this slowdown to be temporary. The company still foresees growth in crucial areas like EVs and renewables, albeit at a slightly slower pace than initially expected. Its healthcare business remains robust, and in the cloud sector, Jabil is thriving in the AI data center space. However, the Connected Devices segment has experienced prolonged softening, and this trend is not anticipated to change in the short term. Within the enterprise, communications, and 5G, Jabil acknowledges expectations of continued softness tied to global roll-outs. Renewables, specifically in solar and wind, have observed a decline. Given the mixed landscape of Jabil's end markets, the decision to divest the Mobility segment aligns logically with the prevailing conditions. The challenging macroeconomic environment has led to reduced spending on discretionary items like consumer electronics. Consequently, the divestiture is poised to enhance results over the coming quarters and strengthen Jabil's financial position. The downward revision in guidance is viewed as a non-event, primarily attributed to timing considerations rather than reflecting operational or demand challenges.

NVIDIA (NVDA) is aiming to conclude an exceptional year on a positive note with the recent introduction of a specialized version of its top-tier GeForce RTX 4090 graphics card, named the RTX 4090D, designed specifically for the Chinese market. The move comes as part of NVIDIA's strategy to navigate new U.S. export restrictions on AI chips to China by developing products that align with revised computing thresholds. This launch falls within the expected timeframe outlined by management for the first quarter of 2024. Given that approximately a fifth of NVIDIA's total revenue is derived from China, the ability to cater to this region is crucial. The competitive landscape is intensifying, particularly with China's Huawei making strides in developing its own AI chips, occasionally surpassing NVIDIA's offerings. During the October quarter earnings call in November, NVIDIA had already hinted at the forthcoming availability of China-focused chips designed to comply with U.S. export regulations. The company acknowledged that these products were unlikely to significantly impact Q4 (Jan) revenue. As a result, market attention is now focused on NVIDIA's other products, particularly those based on its Hopper architecture. The Hopper architecture, specifically designed for data centers, features the H100 product, priced at approximately $40,000 in contrast to the $2,000 range for the 4090, boasting substantial performance enhancements over the highest-end RTX card. NVIDIA's latest Hopper-based cards are in full production and are expected to contribute to a new multibillion-dollar product line in 2024, catering to customers aiming to establish an AI factory. Notably, due to export restrictions on lucrative AI-focused products to countries like China, Vietnam, and specific nations in the Middle East, NVIDIA anticipates a significant decline in sales to these regions in Q4. While the introduction of the slower-spec 4090 GPU in China is a positive development, investors are eagerly awaiting updates on other NVIDIA products, particularly those based on the Hopper architecture. NVIDIA is actively working with affected customers to pursue U.S. licenses, although the outcome and potential revenue impact remain uncertain. The company acknowledges the possibility of disruptions but anticipates compensating for the slowdown through heightened demand in other regions in the short term. However, persistent delays could lead to more substantial revenue disruptions in subsequent quarters of 2024. NVIDIA's management emphasizes the importance of global investments in AI infrastructure for economic growth and industrial innovation. If China faces challenges in acquiring the latest AI-powered GPUs from NVIDIA, it may turn to domestic competitors. With NVIDIA's stock having surged by over 240% this year, the company operates in a territory where minor setbacks could trigger significant profit-taking actions.