Stocks in the news

Artificial intelligence application software company C3.ai's shares fell by 10% after a downgrade to "Underperform" from "Peer Perform" at Wolfe Research. The company's shares tagged their 200-day moving average (17.35) before getting a slight bounce. C3.ai has five primary software offerings focused on developing AI applications, deploying machine learning, applying AI to customer relationship management software, and employing AI for advanced data visualization. C3.ai's revenue growth has slowed in the past two quarters, raising concerns. However, the company has some promising prospects, including over 290 pilot opportunities in its pipeline, early data from its consumption-based pricing transition, and the C3 Generative AI technology. Unless C3.ai takes full advantage of the AI-related opportunities available at the moment, it could miss its upcoming financial targets.

Johnson & Johnson (JNJ) is reportedly nearing the launch of an IPO for Kenvue, the new name for JNJ's consumer health division, at a valuation of about $40 billion. Kenvue's proposed valuation equates to a P/S of approximately 2.7x based on FY22 sales of about $15 billion, which looks reasonable when compared to Proctor & Gamble's trailing P/S of 4.5x. The Kenvue IPO may come as early as next week if JNJ and its underwriters are able to drum up enough interest. JNJ's odds of a successful IPO may be better than they first appear given the strong demand for GE Healthcare's IPO earlier this year, despite less-than-ideal IPO market conditions. JNJ's consumer health business has lagged behind the growth of its counterparts within the company. JNJ is trying to resolve the talc-based litigation overhang ahead of the Kenvue IPO, but questions remain.

Coca-Cola's Q1 earnings surpassed expectations, with a slight EPS beat and positive sales momentum, reflecting sustained consumer demand despite inflationary pressures. The beverage giant reported a 4.8% increase in revenues to $11 billion, while sales on an organic basis increased by 12%, led by growth in EMEA and Latin America markets. Despite a 180 bp decline in operating margins to 30.7%, adverse FX impacts were the primary driver, and non-GAAP operating margins saw a 40 bp improvement year-over-year. The company reiterated its FY23 EPS and organic growth projections of +4-5% and +7-8%, respectively, reflecting steady operations.

Philips, a Netherlands-based health technology company, also reported impressive Q1 results with strong growth in its Diagnosis & Treatment segment, reporting 15% comp sales growth, leading to an adjusted EBITDA margin of 14.0% from 9.5% last year. The company reaffirmed prior guidance for FY23, including comparable sales growth in the low single digits, high single-digit adjusted EBITDA margin, and FCF of €0.7-0.9 billion.

PPG Industries, a company that produces paints, coatings, and specialty materials, set 52-week highs this morning after reporting better-than-expected earnings for Q1. The company had raised its EPS forecast earlier this month, and its bottom-line beat exceeded even this new forecast. However, PPG's FY23 earnings guidance only met analyst expectations, causing a quick pullback from its highs. PPG remains cautiously optimistic about its near-term outlook, with consistent macroeconomic conditions expected in Europe and modest improvements in China. However, PPG anticipates a sequential economic slowdown within certain end-use markets in the U.S., particularly those related to construction. While only 40% of PPG's sales come from the U.S., this slowdown could negatively impact Sherwin-Williams, which derives around 80% of its revenue from the U.S. Conversely, Axalta Coating Systems, which is similarly dependent on the U.S. market, may be similarly cushioned. PPG's Q1 revenue growth of 1.7% YoY to $4.38 billion was decent, with aerospace and automotive OEMs leading the charge, and Latin America also performing well. While uncertainties remain on the horizon, including those related to the U.S. construction market and general economic uneasiness, PPG's positive results helped the stock gap even higher.