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November 2, 2023

ATI, SHOP, DT Report

ATI, SHOP, DT Report

There have been a LOT of positives in the market this week on really big, macro issues.

First, the U.S. Treasury funding report was a major concern that wasn’t as bad as feared (especially on the long end) and that overhang has been somewhat diminished, helping to push down yields (10-year yield at 4.67%) and give a boost to equities.

Second, the FOMC meeting wrapped up with all members voting to hold rates steady. Jerome Powell’s press conference wasn’t as hawkish as some might have expected, and while the Fed isn’t talking cuts just yet (at least not publicly), analysts and market expectations strongly suggest the Fed is done, with first cuts now expected mid-2024 and a lower end-of-year rate (4.57% vs. 4.7%) than expected a few weeks ago. We will see – these are just market projections and not set in stone.

Lastly, a lot of the economic data (jobs, productivity) has ridden that dark and hazy line between “bad is good,” “bad is bad” and “good is good” such that the market’s takeaway (for now) is that “it’s neither too good nor too bad,” i.e., soft landing still on the table.

Despite all this, there are still a lot of earnings potholes out there. Thankfully, we avoided them today.

On to the three stocks in our portfolio that just reported.

ATI (ATI) shares are up nicely today (+8%) after the company reported Q3 results. Revenue actually missed expectations and shrank modestly (-0.6%) to $1.03 billion while EPS of $0.55 beat by $0.02. The reason shares are up is that Q4 guidance came in ahead of consensus expectations and both sales and profit margins in the Advanced Alloys & Solutions (AA&S) segment are seen stabilizing/improving, the High-Performance Materials & Components (HPMC) segment continues to be very strong, and oil and gas business is seen improving next year. The company has an investor event set for November 29 so there will likely be more talk about 2024 at that time. We’re up about 12% from our buy point last Wednesday and, while ATI could run for a bit, I’m considering taking a quick profit here. Let’s move to hold and I’ll keep a close eye on the stock. HOLD

Shopify (SHOP) is up +20% today after results beat expectations. Revenue grew 25.5% to $1.71 billion while EPS of $0.24 improved from a two-cent loss last year. Both beat expectations (EPS crushed by $0.09), and gross merchandise volume (GMV), a measure of goods flowing through the Shopify platform, beat by about $2 billion ($56.2 billion was the actual number). The big picture here is that profitability is taking off, and should continue to improve, now that the logistics business is history. Leaving rating as is as we look for shares to follow through with more strength. BUY A HALF

Dynatrace (DT) reported this morning with results that beat expectations and had the stock up today. Revenue grew 25.9% to $351.7 million (2% beat) while EPS grew 41% to $0.31 ($0.04 beat). As I expected (and nice to confirm), new customers are moving to Dynatrace and are inquiring about AI solutions (which the company is still working on monetization methods for). No real negatives were flagged, with some of the optimization (fancy word for getting more for your money) trends other providers are seeing less of a factor at Dynatrace. Watching for DT follow-through in the coming week. BUY

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.