It was a sobering week for US investors as some of the recent gains on Wall Street were reversed off the back of weak economic data.
The manufacturing PMI (purchasing managers index) reading showed factory activity levels contracting more than expected, while the services sector expanded less than forecast and job openings were lower than anticipated at 9.93 million against the 10.49 million estimate. The flood of negative news sparking recession fears.
The technology sector was led lower by Tesla (TSLA:NASDAQ) and as satellites firm Virgin Orbit (VORB:NASDAQ) filed for Chapter 11 bankruptcy. Oil firms caught a bid off the back of a spike in oil prices as producers' cartel OPEC moved to cut its output.
Positive broker comment helped give healthcare provider UnitedHealth (UNH:NYSE) a lift. With John Ransom at US investment bank Raymond James moving his recommendation to 'strong buy' and increasing his price target from $615 to $630. Health insurance firm Humana (HUM:NYSE) was another name in the space performing strongly.
TESLA
Things are seldom simple with Tesla (TSLA:NASDAQ). The electric vehicle (EV) maker reported a 36% jump in first quarter 2023 deliveries to a record 422,875 yet the shares have lost more than 10% over the past week.
‘Price cuts implemented paid dividends and China, we believe, was a core source of strength,’ tweeted Wedbush analyst Dan Ives. But what about margins, said investors'
Year-on-year growth remains below the 50% long-term compounded growth rates that the company is targeting and at this rate, Tesla's run-rate growth also falls short of the optimistic two million delivery target for 2023.
There's also the hint of further price cuts as the EV price war accelerates, so what that might do to profits is a concern. Investors will find out more when Tesla reports first quarter earnings on 19 April.
JOHNSON & JOHNSON
Healthcare firm Johnson & Johnson (JNJ:NASDAQ) saw its shares rise after it agreed to pay $8.9 billion to settle tens of thousands of lawsuits which claim its Baby Powder and other products cause cancer.
Analysts were optimistic the proposal could bring an end to the lawsuits given it has the backing of some 60,000 claimants and represents a big increase on the $2 billion originally offered.
In a research note TD Cowen analyst Joshua Jennings said: ‘Overall, we believe the proposed settlement has vast support by the plaintiff supermajority and the top 18 law firms representing the claimants.’
The resolution could improve investor sentiment ahead of the company's planned spin-off of its consumer healthcare unit Kenvue via an IPO (Initial public offering) which is expected to list before the end of the year.
The latest development follows a US appeals court decision which invalidated Johnson & Johnson's controversial ‘Texas two-step’ manoeuvre which involved offloading the legal liabilities into a new subsidiary which then filed for bankruptcy.
WALMART
Walmart (WMT:NYSE) shares made modest gains to hit a one-month high, buoyed by a well-received two-day investor event in Tampa.
America's biggest retailer reiterated full year 2024 guidance for a slowdown in sales growth to between 2.5% to 3% and earnings per share (EPS) of $5.90 to $6.05. Walmart also reaffirmed guidance to grow operating income by more than 4% over the next three to five years.
As it braces for a slowdown in sales with the US consumer grappling with cost-of-living pressures, Walmart is planning a big efficiency drive. Investors were excited that by the end of its 2026 financial year, the retail behemoth believes roughly 65% of its stores will be serviced by automation. ‘We are in a unique position to serve our customers and members however they want to shop, which will fuel continued growth,’ said president and CEO Doug McMillon.
‘As we grow, we will improve our operating margin through productivity advancements and our category and business mix, and drive returns through operating margin expansion and capital prioritisation.’
