A survey of North American equities heading in both directions
On the rise
Shares of Royal Bank of Canad) was higher by almost 5 6 after it 5 6after it 5 after it 5after it after it after it fter it ter it er it r it it it t per cent by almoon Wednesday after it beat analysts’ quarterly profit estimates as it set aside a smaller than expected sum to protect against bad loan losses and wrapped in HSBC’s domestic operations.
The results were also powered by a 17-per-cent rise in earnings at its personal and commercial banking segment to $2.49-billion, of which $198-million came from its $13.5-billion acquisition of HSBC’s domestic operations.
A breakdown of the big banks’ third-quarter earnings so far
Canada’s biggest bank by market capitalization, RBC has moved to rejig its upper ranks and change its reporting segments while absorbing HSBC’s 780,000 clients and $71-billion loan book in the country.
“Royal reported a standout quarter... (its) earnings are gaining the lift of a full quarter’s inclusion from HSBC,” Jefferies analyst John Aiken wrote, noting the lender had rebuilt its capital level and was no longer a laggard.
At the end of July 31, RBC’s Common Equity Tier 1 ratio, a measure of a bank’s resilience that compares its capital against its assets, stood at 13 per cent, well above the Canadian banking regulator’s requirement.
A resurgence in dealmaking activity as expectations of a soft landing gave corporate executives the confidence to pursue acquisitions and sell stocks and bonds to raise capital drove a 23-per-cent jump in net income at RBC’s capital market business to $1.17-billion.
Provisions for credit losses came in at $659-million, compared with analysts’ estimate of $903-million, according to LSEG data.
The bank’s adjusted net income rose 16.2 per cent to $4.73-billion. On a per share basis, the bank earned $3.26 compared with the average analyst estimate of $2.95.
National Bank of Canada (NA-T) was higher by almost 6 per cent after it posted profits that exceeded analysts’ expectations on Wednesday, a week ahead of a key vote on country’s sixth-largest bank’s proposed $5-billion takeover of rival Canadian Western Bank.
Montreal-based National Bank earned $1.03-billion in total profit or $2.89 per share in the third quarter. That’s up 24 per cent from the $2.33 earnings per share (EPS) in the prior year. Its adjusted EPS, which removes certain items, was $2.68 in the three months ending July 31, well ahead of the $2.47 estimate from analysts.
“Over all, we have a positive view on Q3/24 results as core EPS was better than our estimate and consensus,” said analyst Darko Mihelic at RBC Capital Markets in a report.
The bank said strong performance from all its business contributed to the 24-per-cent increase in earnings from the same period a year ago.
“Our strong financial results for the third quarter reflect our diversified earnings mix and solid credit profile,” said Laurent Ferreira, chief executive officer at National Bank, in a press release.
“With our prudent approach to capital, credit, and costs, we remain well-positioned in a complex macro environment and we look forward to the growth opportunities ahead,” Mr. Ferreira said.
The stronger-than-expected financial results come as National Bank looks to win regulatory and shareholder approval for its proposed takeover of Edmonton-based Canadian Western. The transaction, announced in June, would dramatically increase National Bank’s presence in Alberta and B.C.
- Andrew Willis
Bank of America Corp. (BAC-N) climbed 0.7 per cent after billionaire Warren Buffett’s Berkshire Hathaway (BRK.B-N, BRK.A-N) has sold some more of its shares over the past few days, raking in US$981.9-million, as the conglomerate continues to trim down its stake in the second-largest U.S. lender.
Warren Buffett’s Berkshire Hathaway tops US$1-trillion market value
Berkshire has now shed about US$5.4-billion worth of Bank of America shares in a string of sales since mid-July.
The conglomerate sold about 24.7 million shares of the lender between Aug. 23 and Aug. 27, according to a regulatory filing on Tuesday.
Shares of Bank of America have fallen 4.8 per cent over the last month, compared with a 1.7-per-cent fall in the KBW Bank Index.
Mr. Buffett, one of the world’s most revered investors, started investing in Bank of America in 2011, when Berkshire purchased US$5-billion of preferred stock.
The 93-year-old’s investment in the lender came at a time when some investors were worried about the bank’s capital needs.
The stake sales mark a turnaround from last year when Buffett singled out Bank of America and its CEO Brian Moynihan for praise.
“I like Brian Moynihan enormously,” Mr. Buffett told CNBC in April 2023. “I don’t wanna sell it.”
After the latest stake sale, Berkshire still remains the bank’s largest shareholder, owning 903.8 million shares, worth US$35.85-billion based on Tuesday’s closing price.
Nordstrom (JWN-N) posted a second-quarter profit that topped estimates on Tuesday, with sales propped up by its crucial Anniversary Sale event, sending its shares up 4.2 per cent.
The upmarket department store chain also raised the lower end of its annual comparable sales growth forecast to between flat and 2 per cent from a prior view of a 1-per-cent drop to 2-per-cent rise.
The Seattle, Washington-based company aims to revitalize the business by focusing on high-demand categories such as women’s apparel to boost its profit margins. It has also reduced discounts and is selling more items at full price.
“Anniversary sales were driven by newness and fall fashion... including our Nordstrom private brands,” President Pete Nordstrom said.
The event, which ran from July 15 through Aug. 4 this year, saw strong demand for sportswear brands, including On Holding , New Balance, and Vuori, as well as beauty products.
Its off-price brand, the Rack, also drove sales, and the company plans to open 12 additional Rack locations in the country before the holiday shopping season begins.
“Opening more Rack stores is a major part of Nordstrom’s current plan, so the positive sales certainly suggested that plan is working pretty well. ... merchandising is probably working better at Rack too,” Morningstar analyst David Swartz said.
Affluent shoppers continue to spend, albeit at a slower pace, benefiting apparel chains such as Abercrombie & Fitch and Gap.
Nordstrom’s shares have declined approximately 3 per cent over the past month. Analysts cited muted demand during the sale period, with Placer.ai foot traffic data suggesting July was the quarter’s weakest month.
The stock is up about 16 per cent this year compared with a roughly 18-per-cent rise in the broader S&P 500 index.
Total revenue at the company rose 3.2 per cent to US$3.89-billion in the quarter ended Aug. 3, from US$3.77-billion a year earlier, almost in line with analysts’ average expectation of US$3.90-billion, according to LSEG data.
On an adjusted basis, Nordstrom earned 96 US cents per share compared with expectations of 71 US cents.
Kohl’s (KSS-N) raised its annual profit forecast after topping second-quarter earnings, as the U.S. department store operator benefited from a tight leash on costs and leaner inventories in the face of cautious spending on apparel and accessories.
The company’s shares rose 0.3 per cent on Wednesday. They are down about 32 per cent so far this year as retailers struggled with uneven demand amid sticky inflation and higher-for-longer interest rates.
Clearance events toward the start of the year helped Kohl’s offer fresher styles in footwear, baby products and women’s dresses in the key spring shopping season.
Inventory in the second quarter declined 9 per cent, after falling 13 per cent in the preceding quarter. Gross margin rose 59 basis points, following an increase of 48 basis points in the first quarter.
Kohl’s now expects annual earnings per share between US$1.75 and US$2.25, compared with US$1.25 to US$1.85 earlier.
Beauty retailer Sephora was again a bright spot, helping offset the impact from weaker sales at Kohl’s own labels.
Excluding items, Kohl’s earned 59 US cents per share, beating estimates of 45 US cents, as per LSEG data.
Meanwhile, Kohl’s posted a bigger-than-expected drop in comparable sales in the second quarter and lowered its annual net sales target.
“Kohl’s place in the retail landscape also makes it highly vulnerable to swings in consumer spending patterns,” said Emarketer senior analyst Zak Stambor.
“While it is making progress on the bottom line, it must develop a stronger value proposition and unique market identity.”
Comparable sales fell 5.1 per cent in the second quarter, compared with expectations of a 2.19-per-cent drop.
Kohl’s now expects annual net sales to decline between 4 per cent and 6 per cent.
On the decline
Investors expressed concern over a leadership change at Kinaxis Inc. (KXS-T), sending its shares plummeting 14.5 per cent despite a reaffirmation of its full-year guidance.
After the bell on Tuesday, the Ottawa-based supply chain management and sales and operation planning software company announced CEO John Sicard will retire from his role at the end of the year and recently appointed Chief Sales Officer Claire Rychlewski would be departing in November to pursue a new opportunity.
“Without question – the optics are bad – particularly with respect to the Chief Sales Officer (CSO) Claire Rychlewski who was recently appointed to the role following the departure of Paul Carreiro, President Global Field Operations,” said National Bank analyst Richard Tse. “From our vantage point, it likely points to some material challenges within the Company’s sales organization which we have highlighted in our written research. Our read of the departure is that not only do those challenges remain, but they are likely not easy fixes given the short tenure of the Company’s recently appointed CSO.
“With respect to the retirement of John Sicard, while the optics are also bad, the reasons are less clear at this point. What we can say, it comes shortly after recent changes at the Board level which saw changes in the Board Chair role to Robert (Bob) Courteau from John (Ian) Giffen. In our view, it likely has something to do with a heavier focus on improving sales and marketing performance which we believe to be disconnected from the quality of the product portfolio.”
After sliding 6.5 per cent on Tuesday following its third consecutive quarterly earnings miss, shares of Bank of Montreal (BMO-T) continued to decline, closing down 1.5 per cent.
Four equity analysts on the Street have now downgraded its shares with several others making notable reductions to their target prices.
“A downgrade now, especially with the stock down [6.5 per cent] on earnings day, may seem backward looking, but while we can still see a bullish path forward here, what has changed is our confidence in its ability to emerge over the coming few quarters,” said Scotia’s Meny Grauman, who lowered his recommendation to “sector perform” from “sector outperform” previously.
Shares of Nvidia Corp. (NVDA-Q) slid 2.1 per cent ahead of the highly anticipated release of its quarterly results after the bell that have the Street on edge.
Nvidia has led the artificial intelligence boom to become one of the stock market’s biggest companies, as tech giants continue to spend heavily on the company’s chips and data centers needed to train and operate their AI systems.
Nvidia results could spur record US$300-billion swing in shares, options show
The company is now worth over US$3-trillion, with its dominance as a chipmaker cementing Nvidia’s place as the poster child of the AI industry ahead of the release of its latest financial results after the close of trading Wednesday.
Wall Street expects the company to report second-quarter adjusted earnings of 65 US cents per share up from 27 US cents a year ago. Revenue is expected to have surged to US$28.74-billion, more than double what it earned in the comparable quarter one year ago. By comparison, S&P 500 companies overall are expected to deliver just 5-per-cent growth in revenue for the quarter, according to FactSet.
The problem, critics say, is such stellar growth has set off too much euphoria among investors. Through the year’s first six months, Nvidia’s stock soared nearly 150 per cent. At that point, the stock was trading at a little more than 100 times the company’s earnings over the prior 12 months. That’s much more expensive than it’s been historically and than the S&P 500 in general. That’s why analysts warn of a selloff if Wall Street sees any indication that AI demand is waning.
Demand for generative AI products that can compose documents, make images and serve as personal assistants has fueled sales of Nvidia’s specialized chips over the last year. In the past three quarters, Nvidia’s revenue has more than tripled on an annual basis, with the vast majority of growth coming from the data center business.
Super Micro Computer (SMCI-Q) delayed the filing of its annual report, citing a need to assess “its internal controls over financial reporting,” sending shares down over 19 per cent in heavy trading on Wednesday.
The delay comes one day after short-seller Hindenburg Research said it had taken a short position in the stock, alleging “accounting manipulation” at the company. Since peaking in mid-March, Super Micro shares have been in a downward spiral, losing nearly two-thirds of their value following a boom in AI stocks.
It was not immediately clear if Super Micro’s decision was related to the Hindenburg report. The company declined to comment beyond its statement on Wednesday when asked about Hindenburg’s allegations.
“It’s ‘shoot first, ask questions later,’” said Thomas Hayes, chairman and managing member at Great Hill Capital, of the market reaction. “A delayed filing is a red flag - especially in light of the allegations. Time will tell who is correct. But for now, investors seem to be assuming that if there is smoke, there may be fire too.”
Super Micro said on Wednesday it did not update results for the fiscal year and quarter ended June 30 that it announced earlier this month. The company posted a decline in quarterly margins due to increasing costs of server production and competitive pricing from rivals, including Dell.
Super Micro was a big winner in the generative AI boom as businesses bet on the tech needed to power applications such as ChatGPT. The company’s value has surged since the beginning of 2023, rising from a valuation of roughly US$4.4-billion to a March peak of US$67-billion.
With files from staff and wires