A survey of North American equities heading in both directions
On the rise
Amazon (AMZN-Q) surged on Friday after the e-commerce heavyweight reported higher-than-expected holiday quarter sales and its lucrative cloud business signaled early gains from AI-powered features.
The company joined Microsoft and other tech firms in starting to see results benefiting from their heavy AI investments, while also outlining more spending in 2024 to develop the much-hyped tech.
“AWS (Amazon Web Services) is also seeing a strong ramp in early Gen AI revenue, though still a small contribution on a about $100 billion run-rate business. We believe AWS will gain meaningful traction in Gen AI over the coming year,” J.P.Morgan’s Doug Anmuth said.
At least 13 brokerages raised their price targets on the stock as the online retail giant posted a 14-per-cent rise in sales in the holiday quarter, pointing to strong spending despite a strained economy.
“We believe Amazon is executing extremely well and the challenges the company faced in Retail during the pandemic and in AWS through optimizations will make the company stronger on the other side,” Anmuth said.
Shares of the company, which climbed 81 per cent in 2023, closed up 7.9 per cent at US$171.81, also lifted by an upbeat revenue forecast.
Amazon projected current-quarter revenue to be as much as US$143.5-billion. Analysts had expected US$142.13-billion, according to LSEG data.
“The real reaction is to their guidance, where other tech firms have been softening revenue ranges and earnings per share targets, Amazon has come out with a much higher-than-expected range,” said Jamie Meyers, senior analyst at Laffer Tengler Investments, which holds shares of Microsoft, Alphabet and Amazon.
As of last close, the stock was trading at 40.51 times its forward earnings per share, compared with 31.57 for cloud rival Microsoft (MSFT-Q) and 23.75 for retail competitor Walmart (WMT-N) .
Amazon is set to add about US$115-billion to its market capitalization if premarket gains hold.
Despite hefty investments this year going into building cloud infrastructure to support the rapid adoption of generative AI technology, investors were bullish.
“I would expect that the recent state of generative AI investments should eventually lead to strong return on investment,” said Krishna Chintalapalli, portfolio manager at shareholder Parnassus Investments.
Meta (META-Q) added over US$214-billion in stock market value on Friday, with its shares surging to a record high after the Facebook parent declared its first dividend and posted robust results.
Meta’s stock jumped as much as 23 per cent and was last up 20.3 per cent for its third biggest daily percentage increase since its 2012 Wall Street debut. Its stock market value now stands at more than US$1.2-trillion.
Days ahead of Facebook’s 20th anniversary, Meta late on Thursday authorized an additional US$50-billion in share repurchases and said its quarterly dividend would be 50 US cents per share.
While dividends are associated with mature, slow-growth companies, Meta’s is the fourth offered by Wall Street’s most valuable technology-related heavyweights, along with Apple , Microsoft and Nvidia.
“Paying a dividend suggests the company wants to reboot its reputation and be taken more seriously. But ultimately the amount being paid is only a token gesture,” said Dan Coatsworth, an investment analyst at AJ Bell.
The dividend plan means a hefty payout for CEO Mark Zuckerberg, who owns about 350 million Meta Class A and Class B shares. The Facebook co-founder could get about US$175-million every quarter.
Optimism about the potential for artificial intelligence contributed to a 24-per-cent rally in the S&P 500 last year, with Meta, Nvidia, Microsoft and Broadcom recently hitting record highs. With Friday’s gain, Meta is now up 35 per cent in 2024.
The world’s biggest social media company flagged strong ad sales and a rebound in user growth during its fourth-quarter results that saw its revenue surge 25 per cent. Its forecast for current-quarter revenue also exceeded analysts’ estimates.
Surging revenue, combined with an 8% drop in costs and expenses after eliminating more than 21,000 jobs since late 2022, allowed Meta to triple its net income to US$14.02-billion.
“The ‘Year of Efficiency’ has paid off, with both headcount and costs dropping, and Meta exceeding our expectations for full-year 2023 ad revenue,” said Jasmine Enberg, principal analyst at Insider Intelligence.
While Meta’s dividend is small compared to many companies, it could make its stock more attractive to a broader swathe of investors, including exchange-traded funds focused on stocks that pay dividends.
Meta’s dividend yield is about 0.4 per cent following Friday’s stock rally. By comparison, Apple’s dividend yield is about 0.5 per cent, while Microsoft’s is 0.7 per cent and Nvidia’s is under 0.1 per cent, according to LSEG.
“This can start attracting investors who really do look for dividends and more steady income,” said Brian Jacobsen, Chief Economist at Annex Wealth Management.
Meta has been spending billions of dollars over the past decade to boost its computing capacity for generative AI products it is adding to Facebook, Instagram and WhatsApp, and to hardware devices such as its Ray-Ban smart glasses.
Indigo Books & Music Inc. (IDG-T) jumped in response to the news its is considering a proposal from its largest shareholder to take the company private, following a tumultuous year that included a debilitating cyberattack, the departures of board members and senior executives, and mounting financial losses.
Offer for Indigo ‘wholly inadequate’, says analyst
The offer comes from Onex founder and chairman Gerry Schwartz, Indigo’s controlling shareholder and member of the company’s board. Mr. Schwartz’s personal holding companies, Trilogy Retail Holdings Inc. and Trilogy Investments LP, announced on Thursday that they had made a non-binding privatization proposal to acquire all of Indigo’s common shares they do not already own, for $2.25 in cash per share.
Indigo founder Heather Reisman returned just months ago as chief executive officer, promising “a major transformation process” at Canada’s largest bookstore chain, which has lost money in four of its past five fiscal years.
Ms. Reisman, who is married to Mr. Schwartz, had retired from the top job in the fall of 2022, though she stayed on as executive chair of the board. Then last June, Indigo announced that Ms. Reisman would retire from the board in August. In the same press release, Indigo announced the resignation of four board members – one of whom said she had experienced “mistreatment” at the company and had lost confidence in the board’s leadership. Also in June, Reitmans Canada Ltd. announced that it had hired away Indigo president Andrea Limbardi to be its new CEO.
In July, Indigo reported that its losses widened to $50-million in its most recent fiscal year, which ended April 1, 2023. In September, the CEO who Ms. Reisman had hired to replace her, British retail executive Peter Ruis, also left.
- Susan Krashinsky Robertson
Chevron Corp. (CVX-N) on Friday beat analysts’ earnings estimates and increased dividends on higher oil and gas production, after a year of sharply lower profits on missteps and charges.
Shares were up almost 3 per cent after the company beat analysts’ consensus forecast by 24 US cents with adjusted earnings of US$3.45 per share in the fourth quarter and disclosed higher production targets for 2024.
The second largest U.S. oil producer reported a sharply lower, US$21.3-billion profit for 2023 as earnings from oil production and refining fuels tumbled.
The company has delayed expansion programs its oil and gas production business as work took longer and cost more than expected. In refining, U.S. margins fell sharply even as rivals reported better-than-expected results.
Even though full-year profits sank 40 per cent, Chevron said it would increase its dividend by 8 per cent in a sign of confidence. It returned a record US$26.3-billion last year to shareholders via dividends and buybacks.
“We returned more cash to shareholders and produced more oil and natural gas than any year in the company’s history,” CEO Mike Wirth said.
Oil and gas production rose to 3.12 million barrels of oil and gas per day in 2023 on shale gains and acquisitions. In the Permian basin, the top U.S. shale field, Chevron projected a 10% increase in output this year to about 860,000 bpd.
It also predicted a 4-per-cent to 7-per-cent increase in its global output, to 3.25 million bpd of oil and gas or more.
But lower prices, foreign currency hits and one-time charges offset the volume gains. Fourth-quarter earnings fell 18 per cent from a year earlier to US$6.45-billion, excluding US$3.7-billion in charges to impair existing assets in California and to cover decommissioning costs in the U.S. Gulf of Mexico.
Adjusted full-year earnings were US$24.69-billion, or US$13.13 per share, down from US$36.54-billion, or US$18.83 per share, in the prior year.
Clorox (CLX-N) raised its annual targets on Thursday, after handily beating quarterly earnings expectations, as the bleach maker replenished inventory at a faster pace after a production blip in 2023, putting it back on track to meet robust demand.
The company’s shares jumped 5.6 per cent after it said it was rebuilding retailer inventories ahead of schedule and recouping market share losses, bouncing back from a cyberattack in August that hampered its ability to fulfill orders.
“We made a lot more progress, more quickly than we anticipated... we lost less sales (in the quarter) because we had product back in retailer stores more quickly,” CFO Kevin Jacobsen said in an interview.
At the height of the cyberattack, Clorox lost over five market share points, but had recovered to a decline of just one point at December-end and was improving in January, he added.
Clorox’s health and wellness segment, home to brands including Pine-Sol cleaning products, saw a 25-per-cent surge in sales, mainly driven by higher volumes.
That, coupled with higher prices, drove a 16-per-cent jump in the company’s second-quarter sales at US$1.99-billion, beating LSEG estimates of US$1.80-billion.
Clorox’s results were in contrast with other consumer goods companies that reported last week — toothpaste maker Colgate-Palmolive (CL-N) forecast downbeat annual sales, while Kimberly-Clark (KMB-N) missed fourth-quarter estimates.
Excluding items, Clorox posted per-share profit of US$2.16 for the quarter, above Wall Street estimates of US$1.10.
Mattel (MAT-Q) gained 4.1 per cent as activist investor Barington Capital pushes the toymaker to effect big changes that include pursuing strategic alternatives for its Fisher-Price and American Girl brands and separating the role of CEO from the chairman.
Barington Capital has also asked for a pause on what it views as excessive stock-based compensation and has called for a US$2-billion share repurchase, it said in a letter to the CEO Ynon Kreiz on Thursday, without disclosing its stake in Mattel.
“The long decline at both Fisher-Price and American suggests that Mattel may not be the right owner of these brands,” Barington Chairman James Mitarotonda said in the letter.
On the sale of American Girl and Fisher-Price, Barington’s said: “We believe that these brands are now detracting from the success at Mattel’s other segments, and hurting shareholder value.”
“We look forward to engaging with Barington as we do with all our shareholders,” Mattel said in an email statement to Reuters, adding that it is in the process of reviewing their letter.
On the decline
Calgary-based integrated oil firm Imperial Oil Ltd. (IMO-T) finished 0.9 per cent lower after it raised its quarterly dividend by 20 per cent as it reported a fourth-quarter profit of $1.37 billion, down from $1.7- billion a year earlier.
The company said Friday shareholders will now receive a quarterly dividend payment of 60 cents per share, up from 50 cents per share.
The increased payment came as Imperial reported its profit amounted to $2.47 per diluted share for the quarter ended Dec. 31, down from a profit of $2.86 per diluted share a year earlier as it faced lower commodity prices.
“Our strong 2023 financial results were underpinned by solid operational performance across all of our businesses, highlighted by record production and substantial unit cost reductions at Kearl,” Imperial chairman and chief executive Brad Corson said in statement.
Revenue and other income totalled $13.11-billion, down from $14.45-billion in the last three months of 2022.
The company says upstream production in the quarter averaged 452,000 gross oil-equivalent barrels per day, up from 441,000 in the same period a year earlier.
Imperial said it was the highest quarterly production in over 30 years when adjusting for the sale of its stake in XTO Energy Canada in 2022.
Refinery throughput averaged 407,000 barrels per day compared with 433,000 barrels per day in the fourth quarter of 2022, while capacity utilization was 94 per cent compared with 101 per cent a year earlier.
The result followed the completion of a planned turnaround at Imperial’s refinery operations in Sarnia, Ont., that was finished ahead of schedule in October..
Shares of Open Text Corp. (OTEX-T) were lower by 1.8 per cent despite the release of second-quarter 2024 financial estimates after the bell on Thursday that topped analysts’ forecast.
After the bell on Thursday, the Waterloo, Ont.-based enterprise information management software reported revenue of US$1.535-billion, up 71 per cent year-over-year and above the Street’s expectation of US$1.503-billion driven by a 58-per-cent rise in annual recurring revenues and gains in its License business. Earnings per share of US$1.24 was 4 US cents above the consensus forecast.
“Cloud bookings materially surprised to the upside (63 per cent year-over-year) and OpenText essentially doubled its FY24 cloud bookings growth guidance (25-30 per cent from more than 15 per cent previously). The inflection in cloud bookings growth reflects new AI offerings and improves visibility to OpenText seeing stronger organic growth. Maintain Outperform, as we believe OpenText’s valuation is likely to continue to re-rate higher,” said RBC’s Paul Treiber in a research note.
Apple (AAPL-Q) slid 0.5 per cent forecast a drop in iPhone sales and targeted overall revenue US$6-billion below Wall Street expectations as its China business took a hit.
This overshadowed overall fiscal first-quarter sales and profit that beat analysts’ targets, powered by iPhone growth, sending Apple shares down.
The results confirmed some analysts’ concerns that the company’s signature product is losing ground in the key Asian market where consumers are buying foldable phones and phones from Huawei, powered by a China-made chip.
“China is the most competitive smartphone market in the world, and that hasn’t changed,” Apple CEO Tim Cook told Reuters in an interview. He said iPhone sales there were down “mid-single digits” in the December quarter, when accounting for currency exchange rates.
“In China, Apple is facing more competitive challenges not only because of Huawei but also because of foldables, which is a very popular and fast-growing segment in China - and as we all know, Apple does not have a foldable device - yet,” said IDC analyst Nabila Popal.
Apple said sales in China in the December quarter were US$20.82-billion, missing analyst estimates of US$23.53-billion, according to LSEG data.
Revenue in the current quarter will be at least US$5-billion less than a year ago, when the company sold iPhones rapidly to replenish inventories drawn down by COVID-related factory shutdowns, Apple Chief Financial Officer Luca Maestri told analysts on a conference call.
Mr. Maestri’s comments implied a revenue forecast of about US$90-billion and iPhone sales of around US$46-billion for the fiscal second quarter that ends in March. Wall Street expected nearly US$96-billion in revenue and iPhone sales of $50 billion. They were US$51-billion in the 2023 quarter.
That would make it the company’s worst fiscal second quarter of iPhone sales since widespread COVID lockdowns in March 2020.
“The drag would be China - and it has everything to do with their seasonality, and the elongated replacement cycle,” said Ben Bajarin, CEO of research firm Creative Strategies.
“Regardless of what happens, (a drop in) year-over-year iPhone sales would be more of a concern than a quarter.”
For its fiscal first quarter ended Dec. 30, Apple reported sales of US$119.58-billion and profit of US$2.18 per share, both above analyst expectations of US$117.91-billion and US$2.10 per share.
Sales of iPhones hit US$69.70-billion in the quarter, growing 6 per cent to beat analyst expectations of US$67.82-billion, on the strength of its iPhone 15 lineup, which includes devices capable of capturing three-dimensional video for the Vision Pro headset being released this week. Apple’s total installed base of devices hit 2.2 billion, up from 2 billion a year ago.
“We had particularly strong double-digit growth on iPhone in emerging markets outside of China,” Mr. Cook said.
Where Apple’s results disappointed, two other tech heavyweights, Amazon.com and Facebook owner Meta Platforms, reported quarterly results on Thursday which led to jumps in their share prices.
Microsoft (MSFT-Q) in January eclipsed Apple as the world’s most valuable company, with investors viewing Apple as lagging in the AI race among tech heavyweights.
Apple has rarely discussed generative AI but on Thursday Mr. Cook said on the conference call that it was a “huge opportunity” and there was “a lot of work going on internally” but that he did not plan to discuss it publicly until later this year.
Exxon Mobil (XOM-N) turned lower late in the trading day and finished down 0.4 per cent as it posted a better-than-expected US$36-billion profit for 2023, lifted by fuels trading and higher oil and gas production.
Profits from oil majors have been down in 2023 by about a third from record levels in 2022, pressured as oil and gas prices retreated after spiking when Russia invaded Ukraine.
Exxon Chief Executive Darren Woods said the industry “saw energy prices and refining margins start to normalize in 2023.”
Exxon’s earnings in the latest quarter still beat estimates and Woods signaled optimism about the coming year. He raised Exxon’s spending target after boosting capital spending in the most recent quarter by 4 per cent from a year ago.
Full-year capital expenditures in 2023 were US$26.32-billion.
Exxon, he said, “opportunistically accelerated drilling activity” in its two core oil production areas, the U.S. Permian Basin and Guyana, and kick-start lithium production to supply electric vehicle batteries.
Exxon “closed 2023 on a strong note” and enters 2024 in a strong financial position, said Peter McNally, Global Sector Lead for Industrials Materials and Energy at Third Bridge.
“But the big focus for investors will be the closing of the acquisition of Pioneer Natural Resources,” which will dramatically increase investments in the U.S. Exxon expects to close the deal in the second quarter.
Exxon results included a US$2.5-billion impairment charge for California properties that it has been trying to sell for more than a year. Excluding that charge, annual income fell 35 per cent to US$38.57-billion.
Top oil producers are writing off unwanted assets and cleaning up their balance sheets ahead of pending deals. Chevron has said it would take an about $4 billion impairment in the fourth quarter, while Shell on Thursday took a US$5.5=billion writedown.
For the fourth quarter, Exxon reported a profit that beat analysts estimates by 27 US cents at US$2.48 per share, or US$9.96-billion, compared to US$14.04-billion, or US$3.40 per share, from a year earlier.
The results were driven by higher trading profits in its fuels business and increased oil and gas production in the U.S. and Guyana, Chief Financial Officer Kathryn Mikells told Reuters.
U.S. safety regulators on Friday upgraded their probe into Tesla (TSLA-Q) vehicles over power steering loss to the status of an engineering analysis - a required step before the agency could demand a recall.
Tesla shares, which dropped more than 25 per cent in January alone, fell 0.5 per cent on Friday.
Tesla woes get investors talking about its successor in ‘Magnificent Seven’
The National Highway Traffic Safety Administration (NHTSA) said the investigation covered about 334,000 Model 3 and Model Y vehicles from the 2023 model year.
The agency’s upgraded probe follows a Reuters investigation that found tens of thousands of owners had experienced premature failures of suspension or steering parts since 2016, citing Tesla documents and interviews with customers and former employees. The Tesla documents showed that the automaker sought to blame drivers for frequent failures of suspension and steering parts it has long known were defective.
Tesla did not respond to a request for comment on the NHTSA’s upgraded probe.
NHTSA, which had opened a preliminary evaluation in July into loss of steering control reports in 280,000 Tesla Model 3 and Y vehicles after 12 drivers reported problems, said it had now identified a total of 2,388 complaints. Some Tesla owners reported an inability to turn the steering wheel while others reported an increase in required effort.
NHTSA said it is aware of over 50 vehicles allegedly towed as a result of the condition.
With files from staff and wires
David Leeder