A survey of North American equities heading in both directions
On the rise
Bank of America (BAC-N) rose 0.5 per cent after its third-quarter profit dropped as it paid more to customers to hold onto their deposits but the earnings beat estimates, propelled by stronger investment banking and trading.
Investment banking fees jumped 18 per cent compared with a year ago to US$1.4-billion as confidence among clients improved, spurring them to issue more debt and equity.
“Our customers’ deposit balances and asset quality are healthy, and we believe we have good opportunities to grow,” Chief Financial Officer Alastair Borthwick told journalists.
Regarding investment banking, Mr. Borthwick said, “We feel pretty good looking forward. We’ve got a good pipeline.
CEO Brian Moynihan called the earnings “solid,” citing growth in investment banking, asset management fees and sales and trading revenue.
A revival in mergers and acquisitions has also boosted advisory fees, while the Federal Reserve’s interest rate cut last month could spur even more dealmaking.
The earnings echo those of rival JPMorgan Chase (JPM-N) and Wells Fargo (WFC-N), whose results last week surpassed expectations, underpinned by improving conditions for investment banking.
Sales and trading revenue jumped 12 per cent to US$4.9-billion, the 10th consecutive quarter of year-on-year growth, as equities climbed 18 per cent while fixed income, currencies and commodities rose 8 per cent.
Equities trading was bolstered by buoyant markets. Stocks rallied in the third quarter as investors speculated that the Federal Reserve would cut interest rates and spur economic activity.
The second-largest U.S. bank’s net income fell to US$6.9-billion, or 81 US cents per share, from US$7.8-billion, or 90 US cents per share, a year earlier. Analysts on average expected BofA to earn 77 US cents per share, according to estimates compiled by LSEG.
Goldman Sachs’ (GS-N) third-quarter profit beat estimates, fueled by a rebound in bond sales, stock offerings and mergers, pushing its shares higher.
It joined JPMorgan Chase, which also gained from an investment banking revival, as corporate clients became more confident in the economic outlook, spurring debt and equity offerings.
“Our performance demonstrates the strength of our world-class franchise in an improving operating environment,” CEO David Solomon said in a statement on Tuesday.
Robust U.S. jobs and wage growth have underscored the resilience of the economy, while an interest-rate cut by the Federal Reserve have also encouraged companies to pursue deals.
Investment banking fees jumped 20 per cent to US$1.87-billion. Leveraged finance, which refers to loans made to risky ventures like funding buyouts, and investment-grade activity powered a jump in debt underwriting.
Equity underwriting also fetched higher revenue, thanks to a slew of secondary share sales.
The investment bank continues to take a hit from its ill-fated consumer business two years after stepping back from it. Goldman has since shifted its focus back on traditional mainstays of investment banking and trading.
The bank is exiting its credit card venture with automaker General Motors, which has signed a deal with Barclays .
Goldman took a one-time hit of US$415-million that included a writedown related to the transfer of the GM credit card business to Barclays.
Its card partnership with Apple is also facing an uncertain future, with JPMorgan in talks to replace Goldman as the tech behemoth’s credit-card partner.
Total profit jumped 45 per cent to US$2.99-billion, or US$8.40 per share, for the three months ended Sept. 30, higher than expectations of US$6.89, according to the estimates compiled by LSEG.
Brokerage firm Charles Schwab’s (SCHW-N) third-quarter net income rose about 25 per cent on Tuesday, driven by a jump in asset management fees and client assets hitting a record high, sending its shares soaring over 6 per cent.
The Westlake, Texas-based company’s total client assets rose 27 per cent to a record US$9.92-trillion in the three months ended Sept. 30.
Net interest revenue fell about 0.7 per cent to US$2.22-billion.
The company posted profit of US$1.41-billion, or 71 US cents per share, for the quarter, compared with US$1.13-billion, or 56 US cents per share, a year earlier.
Schwab’s results often reflect trends in the investment landscape. Its diversified business model spans across brokerage services, asset management, banking and other financial solutions.
The results are also among the last under the watch of CEO Walt Bettinger, who will retire at the end of 2024 after nearly 16 years at the helm, and could set the tone for the company as new chief Rick Wurster takes over.
Boeing (BA-N) filed papers with the U.S. markets regulator on Tuesday for raising up to US$25-billion through a stock and debt offering and entered into a US$10-billion credit agreement amid a crippling strike and upcoming debt maturities.
The planemaker is looking to shore up its finances that have been strained due to a slump in production of its best-selling 737 MAX jet following a mid-air door panel blowout earlier this year and a strike by thousands of union workers since Sept. 13.
It was not clear when and how much Boeing will raise via the stock offering, but analysts estimate that Boeing would need to raise somewhere between US$10-billion and US$15-billion to be able to maintain its credit ratings, which are now just one notch above junk.
The planemaker’s shares were higher by 2.2 per cent in Tuesday trading.
Boeing said in a statement it had not drawn on the new US$10-billion credit facility or its existing credit revolver.
“These are two prudent steps to support the company’s access to liquidity,” Boeing said, adding that the credit agreement provides additional short term access to liquidity as it navigates through a “challenging environment.”
“This universal shelf registration provides flexibility for the company to seek a variety of capital options as needed to support the company’s balance sheet over a three year period,” Boeing said, referring to its filing with the U.S. Securities and Exchange Commission.
The company will use the funds for general corporate purposes, according to the filing. The planemaker had cash and cash equivalents of US$10.89-billion as of June 30.
Walgreens Boots Alliance (WBA-Q) said it would shut 1,200 stores over the next three years as new CEO Tim Wentworth plots a turnaround at the struggling pharmacy chain operator hit by sluggish consumer spending and low drug reimbursement rates.
The company also narrowly beat Wall Street’s lowered estimates for fourth-quarter adjusted profit, and forecast fiscal-year earnings that were mostly in line with expectations.
Its shares jumped 16 per cent in Tuesday trading.
“At first blush, (the forecast) looks better than worst-case scenario,” said Leerink Partners analyst Michael Cherny, adding that Walgreens continues to be buffeted by macro challenges that did not abate in the quarter.
Pharmacy chains are facing multiple challenges as consumers avoid high-priced grocery items and pressures mount on payments they receive from drug middlemen for filling prescriptions.
As a result, Walgreens’ stock is trading near 30-year lows and down 65 per cent this year, making it the worst performer on the S&P 500 index.
CEO Wentworth has unveiled a series of changes since taking on the top job last year, including the removal of multiple mid-level executives and a US$1-billion cost-cutting program.
“This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term,” said Mr. Wentworth in a statement.
The closures were announced in June but the company had not disclosed the number of affected stores at that time. It had over 8,000 stores in the United States as of Aug. 31 last year.
In the fourth quarter of its fiscal year 2024, Walgreens recorded goodwill impairment charges related to its home care unit CareCentrix and equity investments in China. It reported a loss of US$3-billion on a reported basis, versus US$180-million a year ago.
Excluding those items and other charges, the company earned 39 US cents per share. Analysts had expected a profit of 36 cents per share, according to data compiled by LSEG.
For fiscal 2025, Walgreens said it expects adjusted earnings of US$1.40 to US$1.80 per share, versus estimates of US$1.73 per share.
Johnson & Johnson (JNJ-N) raised its 2024 profit and sales forecasts on Tuesday after reporting strong sales of oncology drugs and quarterly results that beat Wall Street expectations.
Sales of J&J’s oncology drugs rose nearly 19 per cent worldwide for the quarter, driven by more than US$3-billion for multiple myeloma treatment Darzalex, up 20.7 per cent or more than US$500-million from a year ago.
Analysts, who expect Darzalex to bring in revenue of about US$11-billion this year, had forecast sales of US$2.92-billion for the third quarter.
J&J Chief Financial Officer Joe Wolk said continued adoption of the subcutaneous version of Darzalex, which significantly reduces treatment time, and regulatory approval for additional uses helped drive sales.
The New Jersey-based healthcare conglomerate boosted its profit forecast for the year at the midpoint by 10 US cents to US$10.15 per share, excluding a 24-US-cent charge related to its purchase of medical device maker V-Wave.
The company also said it expected to post sales of between US$89.4-billion and US$89.8-billion for the year, up from its prior forecast of US$89.2-billion to US$89.6-billion.
However, it now expects to earn between US$9.86 and US$9.96 per share for the year, including charges related to mergers and acquisitions. The company previously forecast a profit of US$10 to US$10.10 per share for 2024.
Shares of the drug and medical device maker turned higher in Tuesday trading.
J&J earned US$2.42 per share on an adjusted basis in the third quarter, falling 9 per cent on the previous year but beating analysts’ average estimates of US$2.21, according to LSEG data.
The company’s quarterly sales were US$22.5-billion, ahead of analysts’ expectations of US$22.16-billion.
U.S. chipmaker Wolfspeed (WOLF-N) soared after the U.S. Commerce Department said Tuesday it is set to receive US$750-million in government grants for its new North Carolina silicon carbide wafer manufacturing plant facility.
Commerce added that the preliminary funding agreement requires Wolfspeed “to take additional steps to strengthen its balance sheet to better protect taxpayer funds.”
Wolfspeed said a consortium of investment funds led by Apollo Global Management, the Baupost Group, Fidelity Management & Research Company and Capital Group have agreed to provide the company an additional US$750-million of new financing.
The company, which counts General Motors and Mercedes-Benz among its customers, makes chips using silicon carbide, a more energy-efficient material than standard silicon, that are used in tasks such as transmitting power from an electric vehicle’s batteries to its motors.
Commerce noted Wolfspeed’s devices are utilized for renewable energy systems, industrial uses, and artificial intelligence applications.
Wolfspeed also said it plans to expand its existing silicon carbide device manufacturing facility in Marcy, New York, and increase its production capacity by approximately 30 per cent. Both projects are part of the company’s previously announced US$6-billion capacity expansion plan.
On the decline
Citigroup (C-N) posted a smaller-than-expected drop in profit for the third quarter thanks to gains in investment banking, but its shares closed over 5 per cent lower on Tuesday.
The third-largest U.S. lender’s dealmakers joined rivals at JPMorgan Chase and Wells Fargo in benefiting from a rebound in capital markets as corporate clients issued more debt and equity.
Investment banking was a bright spot for the second straight quarter, as revenue jumped 31 per cent to US$934-million. Wall Street executives are optimistic that the Federal Reserve’s interest-rate cut last month will pave the way for more deals and initial public offerings.
“In a pivotal year, this quarter contains multiple proof points that we are moving in the right direction and that our strategy is gaining traction,” CEO Jane Fraser said in a statement.
Total operating expenses declined 2 per cent in the third quarter.
Citi’s total allowance for credit losses rose to about US$22.1-billion at the end of the quarter, compared with US$20.2-billion a year earlier.
That led to its net income dropping to US$3.2-billion, or US$1.51 per share, compared with US$3.5-billion, or US$1.63 per share, a year earlier.
It still handily beat analysts’ average expectations of US$1.31 per share, according to estimates compiled by LSEG.
Citi shares have gained 28 per cent so far this year, while an index tracking large-cap banks is up 25 per cent and the S&P 500 index has climbed 23 per cent over the same period.
UnitedHealth Group’s (UNH-N) third-quarter medical costs exceeded Wall Street estimates on Tuesday, as the insurer paid out more due to persistently high demand for healthcare services and received lower reimbursements on government-backed insurance plans.
Demand for healthcare services under the government’s Medicare plans - for people aged 65 years and older or those with disabilities - has surged since late last year as many older adults opted for procedures they had delayed during the pandemic.
Shares of UnitedHealth fell after the health conglomerate also trimmed the higher end of its annual adjusted profit forecast by 25 US cents to US$27.75 per share.
The cut was partially due to an increased hit of 10 US cents per share from a cyberattack on UnitedHealth’s technology unit, Change, in February. The company now sees a business disruption impact of US$705-million, or 75 US cents a share, this year.
UnitedHealth issued billions in loans to providers affected by the ransomware attack on Change, part of the conglomerate’s healthcare services unit Optum, and incurred costs related to notifying customers of the breach.
Despite the rise in medical costs, UnitedHealth beat Wall Street estimates for adjusted profit by 15 US cents due to increased memberships across its businesses.
Higher medical costs were also partially offset by lower-than-expected selling and general expenses, J.P. Morgan analyst Lisa Gill said.
The company reported revenue of US$100.8-billion, compared with estimates of US$99.28-billion.
U.S. semiconductor stocks fell on Tuesday after chip equipment maker ASML (ASML-Q) cut its annual sales forecast and a report said the Biden administration was considering capping sales of advanced artificial intelligence processors to some countries.
AI chip giant Nvidia (NVDA-Q) fell 4.5 per cent, retreating from a record high hit in the previous session that had put it on the brink of dethroning Apple (AAPL-Q) as the world’s most valuable company.
Tuesday’s drop was set to reduce the AI chip major’s market capitalization by about US$138-billion to US$3.25-trillion, widening the gap with Apple’s value of US$3.58-trillion.
Other chip firms, including AMD, Intel, Arm , Broadcom and Micron, fell, which dragged the Philadelphia SE Semiconductor Index down nearly 4 per cent and weighed on the Nasdaq index.
U.S.-listed shares of ASML were down 16.3 per cent after the Dutch company published results ahead of schedule in an apparent error, reporting weak bookings, lowering forecast, and indicating slower chip demand recovery outside AI sector.
“ASML’s fat finger error isn’t cause for concern in itself, but the content of the release didn’t make comforting reading for investors,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
Separately, Bloomberg News reported on Monday that U.S. officials have been considering implementing a cap on export licenses for AI chips to specific countries - mostly in the Persian Gulf region, citing national security concerns.
With files from staff and wires