Futures mixed, UnitedHealth tanks, Eli Lilly pops, DR Horton warns, Hertz short squeeze
My son has informed me he can’t go to school because “his ear is not working today.” I can overhear his sister asking if he has a fever to which he responded “Yes, there is a beaver in my ear.” Beavers have a funny way of showing up right before a long weekend.
From tariffs to RFK Jr, there are no shortage of headwinds for the healthcare sector right now. This isn’t the time to chase some of the beaten up names lower says Rob Moffat of Middlefield. In our latest episode of In the Money with Amber Kanwar he talks about playing defense in healthcare, which names he is avoiding, and the select few he is holding. Tune in! Listen on Apple, Spotify or here.
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Shaken, not stirred: US futures are mixed this morning after a sell-off yesterday in tech stocks amidst trade tensions and compounded by Fed Chair Jerome Powell who signaled there is no rush to raise rates. The latter is drawing the ire of US President Donald Trump who said Powell’s termination can not come soon enough. The TSX managed a positive showing thanks to the record move in gold bullion, though it is pulling back slightly right now. The Bank of Canada chose to pause rate cuts at its meeting yesterday but this morning the ECB chose to cut rates for a 7th meeting in a row as tariffs threaten European growth. This morning we have earnings to focus on and the primary reason the Dow is under pressure is because of United Health’s disappointing results and profit warning (more on that below). The broader market is tentatively higher as earnings get into full swing and positive results for Charles Schwab (+3.5% on record quarter) and regional banks offsetting weakness in American Express (lower despite better results) and Alcoa (-1.7% as it has taken a $20 hit from tariffs on Canadian imports). Alcoa’s CEO is lamenting that there really is no immediate alternative to the situation saying moving production the to US would take up to a decade and cost billions.
Reset: Shares of UnitedHealth are plunging 20% in the pre-market after earnings missed expectations and slashing its profit forecast. The health insurance company is on pace for the worst stock drop since 1999, according to Bloomberg. Sales in its OptumHealth unit, which provides healthcare services, came in well below expectations due to “unanticipated changes” that are affecting reimbursements. Furthermore, the company saw a spike in healthcare costs “far above” what they were expecting. While it is rare for UnitedHealth to miss earnings and even rarer for them to cut their profit frorecast, medical costs have been coming in higher than expected for several quarters in a row now. I addressed this on the podcast with Rob Moffat of Middlefield and he laid out a case for holding on to the stock. Shares of rivals Humana (-12%), Elevance (-10%) and CVS (-6%) are under pressure on the back of UNH’s profit warning. “While we expect the miss and guidedown to set a cautious tone for managed care for the balance of the earnings season,” wrote RBC’s Ben Hendrix, “We see a strong read-through for providers on the late-1Q heightened care activity, which should bode well particularly for our top hospital pick, (Tenet Healthcare), and for (Surgery Partners) given United’s outpatient services call-out.”
Tortoise & the hare: Shares of EliLilly are soaring 12% after data showed its weight-loss pill worked as well as Novo Nordisk’s Ozempic shot. This comes as Pfizer recently abandoned their obesity pill efforts. A needle-free alternative to these weight-loss drugs is seen as the next major catalyst for growth. This morning BMO is downgrading shares of Novo Nordisk noting that Lilly has made “sizable” advancements in its portfolio leading it to overtake Novo’s early lead. Rob Moffat of Middlefield picked Eli Lilly as a top stock idea and explained on the podcast why he likes it over Novo.
To the studs: Shares of DR Horton are poised to open at a 1.5 year low this morning after the US homebuilder cut its sales outlook. The spring selling season was muted as rates remain elevated in the United States. The company is resorting to higher sales incentives to drive traffic, which will weigh on margins and profitability. The CEO said he expects margins in the upcoming quarter to continue to contract on these incentives. The number of homes DR Horton closed in the quarter dropped 15% from last year while orders fell by the same. The good news is the CEO says Americans remain financially qualified to make the purchases, but sentiment is keeping them on the sidelines. Should that change this could be a sector poised to rip.
Hurts: Short-sellers are continuing to feel the mother of all short squeezes this morning as Hertz rallies 24% in the pre-market after surging 56% yesterday. Filings confirm earlier reports that Bill Ackman has taken a 19.8% stake in the embattled car rental company. This has been a favourite target by short-sellers with a whopping 47% of shares outstanding short. Hertz made a big bet on Tesla cars that didn’t pan out as it turns out people didn’t want to rent those cars and they are expensive to maintain.
