Stocks rebound from Monday dive
U.S. stocks rebounded from their worst day of the year on Tuesday, as investors appeared comfortable in buying the dip after China took steps to stabilize its currency. The major indices closed near session highs with the S&P 500 advancing 1.3%.
The Dow Jones Industrial Average increased 1.2%, the Nasdaq Composite increased 1.4%, and the Russell 2000 increased 1.0%.
Tuesday’s gains weren’t enough to completely undue yesterday’s sell-off, but when contrasting the results versus the capitulation-like mood in the futures market last evening, today did seem like a good day. At one point last night, the S&P 500 was indicated for more than a 2% drop at the open after the Treasury Department labeled China a currency manipulator.
China objected to the claim and fixed the yuan at a higher level, signaling intentions to keep the currency stable. This helped subside some of yesterday’s currency-related angst and contribute to a more opportunistic mindset throughout the day.
Nine of the 11 S&P 500 sectors finished higher by at least 1.0%. The information technology (+1.6%), financials (+1.5%), and industrials (+1.5%) sectors led the advance, while the energy sector (-0.1%) was the lone holdout as oil prices ($53.84/bbl, -$0.80, -1.5%) continued to decline.
Take-Two Interactive (TTWO 124.56, +9.18, +8.0%), KLA Corporation (KLAC 135.64, +9.18, +7.3%), and Zoetis (ZTS 121.17, +8.60, +7.6%) were some of today’s biggest gainers following upbeat results and/or guidance. Chemicals company Mosaic (MOS 22.02, -1.58, -6.7%) fell nearly 7% after providing disappointing results and guidance.
In other corporate news,DuPont (DD 68.53, +2.47, +3.7%) outperformed following a Bloomberg report indicating that the company is considering selling its biosciences unit, which could sell for $20 billion.
While equities rallied, the U.S. Treasury yield curve continued to flatten, which reflected ongoing concerns about the economic outlook. The 2-yr yield increased three basis points to 1.61%, and the 10-yr yield finished flat at 1.74%. The U.S. Dollar Index increased 0.1% to 97.62.
Tuesday’s economic data was limited to the JOLTS — Job Openings report for June, which showed job openings increase to 7.348 million from a revised 7.268 million in May (from 7.323).
Looking ahead, investors will receive the weekly MBA Mortgage Applications Index and the Consumer Credit report for June on Wednesday.
- Nasdaq Composite +18.1% YTD
- S&P 500 +15.0% YTD
- Dow Jones Industrial Average +11.6% YTD
- Russell 2000 +11.4% YTD
- Europe: DAX -0.8%, FTSE -0.7%, CAC -0.1%
- Asia: Nikkei -0.7%, Hang Seng -0.7%, Shanghai -1.6%
- Crude Oil -0.85 @ 53.77
- Nat Gas +0.04 @ 2.12
- Gold +7.80 @ 1484.00
- Silver +0.05 @ 16.45
- Copper +0.01 @ 2.56
Spotlight Issue: Shake Shack sizzles as delivery and new Shacks drive beat-and-raise report
Like retailers, restaurant owners and operators are increasingly turning to digital channels and delivery to generate growth.
For instance, McDonald’s (MCD), Chipotle (CMG), and Starbucks (SBUX) all recently added DoorDash as their delivery partner.
“Better burger” chain Shake Shack (SHAK) is not an exception to this trend.
Last night, SHAK reported impressive upside Q2 results and lifted its FY19 revenue and “same-Shack” sales guidance due to strong digital growth and the successful launch of 21 new restaurants so far this year.
Looking to build on the momentum in digital, SHAK also announced a new partnership with GrubHub (GRUB) to initially roll out delivery in four markets including Chicago, New York, New Jersey, and Connecticut.
Over the course of the next few quarters, SHAK will expand GRUB delivery across all of its U.S. locations.
While SHAK anticipates volatility in costs as it invests in the required technology to drive sustainable growth in delivery, the growth potential is what investors are honing in on.
For the quarter, SHAK posted EPS of $0.27, beating the $0.23 consensus, with revenue jumping by 31% yr/yr to $152.7 mln vs. the $149.8 mln expectation.
The standout metric was same-Shack sales, which increased 3.6% compared to the 2% estimate. The better-than-expected performance was mainly driven by a 1.3% bump in traffic and a combined increase of 2.3% in price and sales mix.
During the earnings call last night, CEO Randy Garutti commented that the digital channel was a key contributor to the results, although he didn’t offer specifics regarding digital revenue or growth. A favorable benefit from the shift in Easter timing into Q2 also helped.
The strong results gave SHAK the confidence to increase its FY19 revenue and same-Shack guidance to $585-$590 mln from $576-$582 mln and to 2% from 1-2%, respectively.
Delivery figures to be a meaningful growth driver in the near- and intermediate-term. But from a longer-term perspective, SHAK’s international growth aspirations could represent the next key catalyst.
This past January, SHAK entered mainland China for the first time, opening a restaurant in Shanghai. The first six months in Shanghai have gone exceptionally well, bolstering SHAK’s belief that China represents a substantial opportunity.
Consequently, the company announced a new partnership with Maxim’s Caterers to open 15 Shacks in the Beijing market over the next ten years.
Key Takeaways: SHAK is surging to its highest levels since its May 2015 IPO. While the beat-and-raise report was impressive, we believe most of the excitement revolves around SHAK’s new partnership with GRUB.
The digital channel is becoming a larger portion of total sales for restaurants, and SHAK’s commitment to significantly expand its delivery capabilities is a bullish development.
- Avid Tech (AVID) misses by $0.03, misses on revs; guides Q3 revs in-line; guides FY19 EPS in-line, reaffirms FY19 revs guidance
- Avis Budget (CAR) beats by $0.06, reports revs in-line; reaffirms FY19 guidance; increases share repurchase authorization by $100 mln
- Bausch Health (BHC) beats by $0.01, reports revs in-line; raises FY19 guidance
- Dean Foods (DF) misses by $0.19, misses on revs
- EverQuote (EVER) beats by $0.07, beats on revs; guides Q3 revs above consensus; guides FY19 revs above consensus
- Health Insurance Innovations (HIIQ) beats by $0.31, misses on revs; guides FY19 EPS above consensus, reaffirms FY19 revs guidance
- Insulet (PODD) misses by $0.01, beats on revs; guides Q3 revs above consensus; raises FY19 revs above consensus
- Mallinckrodt plc (MNK) beats by $0.45, reports revs in-line; raises FY19 EPS guidance, comments on sales projections; Specialty Generics spin-off plans suspended
- Marriott (MAR) reports EPS in-line, misses on revs, guides for Q3 gross fee revenue growth of 1-3%, issues downside FY19 EPS guidance
- Mosaic (MOS) misses by $0.17, misses on revs; lowers FY19 EPS below consensus
- NeoPhotonics (NPTN) beats by $0.07, beats on revs; guides Q3 EPS above consensus, revs above consensus
- Shake Shack (SHAK) beats by $0.04, beats on revs; guides FY19 revs below consensus
- ShockWave Medical (SWAV) beats by $0.15, beats on revs; guides FY19 revs in-line
- Take-Two (TTWO) misses by $0.38, beats on revs; guides Q2 EPS below consensus, revs above consensus; raises FY20 outlook
- General News:
- Allakos (ALLK) announces positive results from Phase 2 randomized, double-blind, placebo-controlled trial of AK002 in patients with eosinophilic gastritis and/or eosinophilic gastroenteritis
- GlycoMimetics (GLYC) -50% after Pfizer’s (PFE) Phase 3 Rivipansel pivotal study failed to meet its primary or key secondary efficacy endpoints
- New York Mortgage Trust (NYMT) upgraded to Buy from Neutral at Ladenburg Thalmann
- CIGNA (CI) upgraded to Outperform from Market Perform at Bernstein; tgt $205
- Northrop Grumman (NOC) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt to $418 from $335
- Ford (F) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt to $12 from $10
- EverQuote (EVER) upgraded to Outperform from Market Perform at Raymond James; tgt $20
- Cars.com (CARS) downgraded to Market Perform from Outperform at Barrington Research and downgraded to Neutral from Buy at DA Davidson
- Rio Tinto (RIO) downgraded to Hold from Buy at Jefferies
- Anheuser-Busch InBev (BUD) downgraded to Neutral from Buy at UBS
- RE/MAX Holdings (RMAX) downgraded to Neutral from Buy at Compass Point; tgt to $31 from $42
- Peabody Energy (BTU) downgraded to Hold from Buy at Jefferies; tgt to $18 from $27
- FireEye (FEYE) initiated with a Buy at Nomura; tgt $16
- Twitter (TWTR) reiterated with an Equal-Weight at Morgan Stanley; tgt to $35 from $32
- KLA Corp (KLAC) reiterated with an Outperform at Cowen; tgt to $155 from $145
- Econ Data (Wednesday):
- 7:00 ET: MBA Mortgage Index for week ended Aug 3 (Prior -1.4%)
- 10:30 ET: Crude oil inventories for week ended Aug 3 (Prior -8.5 mln)
- 15:00 ET: Consumer Credit for June (Briefing.com consensus $16.50 bln; Prior $17.10 bln)
- Monday (Aug 5)
- Pre-Market: ATRO CARS CYOU KMPR L TA TSN
- After-Hours: APLE CAR BKD CBT CZR CBPO COHU CXW PLOW DCO FRPT HIIQ PODD ITRI KLAC RAMP MAR O SHAK SWAV SNCR TTWO THC WWD
- Tuesday (Aug 6)
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- Wednesday (Aug 7)
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- After-Hours: ANGI AAOI AZPN BKNG CABO CWH CVNA CTL DAR ENV FRGI FLO FOSL IAC JACK KRO LYFT MELI NTRA NUAN PTLA QTWO RCII ROKU SFLY SWKS STMP UPLD ZG
- Thursday (Aug 8)
- Pre-Market: AZUL CAH ECOM COMM CRON CRON HIMX IBP LITE MGA MMS MUR NCLH PRTY PRGO RLGY REZI SUP THR USPH VIAB VSTO
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- Friday (Aug 9)
- Pre-Market: CLNY DPLO HPT SSP TRCO USCR YRCW
- After-Hours: None
- Monday (Aug 5)