4 reasons to like Wells, Lilly’s latest launch, Boeing ramps production
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Market update : Stocks are slightly higher on Tuesday in what’s generally been an up-and-down session. The big banks are having a strong day thanks to several upbeat presentations at conferences. Cyclicals like the industrials and materials underperformed the rest of the market. Bond yields are a little higher, and we’ll see over the next two days how August PPI and CPI factor into rate cut expectations ahead of next week’s big Federal Reserve meeting. 4 reasons to like Wells : Wells Fargo stock gained about 2% Tuesday after CFO Mike Santomassimo shared positive mid-quarter updates about the bank’s financials at the Barclays Global Financial Services Conference. Four areas of the executive’s remarks stuck out to us. Now that the firm’s long-standing $1.95 trillion asset cap has been lifted , Santomassimo said Wells Fargo is seeing “really good green shoots” this quarter in its efforts to go back on the offense. Management cited more flexibility to attract retail and commercial deposits, along with growth in its wealth and asset management lines of business. “We started to change the company and really pivoted towards the businesses that we think have the best opportunity over the long run,” Santomassimo said at the event. Wells has bought $5.5 billion of its stock so far this quarter. That’s the most the bank has bought back in a single quarter all year. We take that as a stamp of confidence in the bank’s earnings outlook and capital levels. There was no change to Wells’ net interest income guidance (NII), a key source of revenue for the bank. This is probably being viewed as a sign of relief following management’s decision to cut its full-year outlook in July. Finally, Santomassimo said the credit card business presents a “huge opportunity” for Wells. The CFO predicted that credit cards would “more meaningfully impact the bottom line” over the next couple of years after being historically under penetrated with Wells’ existing customer base. Wall Street analysts were upbeat on Santomassimo’s commentary, too. Piper Sandler on Tuesday raised its price target by a buck to $88 apiece and reiterated its buy-equivalent rating. The analysts described it as “overall, a constructive update,” highlighting the share repurchases, in particular, which were “well above our prior assumption.” Meanwhile, TD Cowen was “encouraged by the progress, but [believes] that it will likely take time for revenue growth to re-emerge more materially.” Analysts maintained their price target of $82 and their hold rating on the stock. Eli Lilly’s latest: Shares of Eli Lilly rallied on Tuesday after the Institute for Clinical Economic Review said in a new draft report that GLP-1 obesity drugs are cost-effective at current prices. Analysts at Bank of America pointed out that this update reversed what the organization said in 2022. Why this matters, as Bank of America argues, is that it is “an important and necessary step towards securing better employer and payer coverage, which has admittedly slowed.” If more employers cover GLP-1s, access and prescriptions to these lifesaving medications will increase, which is positive for Lilly’s growth outlook. Separately, Lilly on Tuesday launched an artificial intelligence platform designed to advance early-stage drug discovery for biotech companies. Dubbed Lilly TuneLab, the AI platform falls under the umbrella of Lilly Catalyze360, an initiative that the drugmaker unveiled last year to “accelerate emerging and promising science.” Among its offerings, Catalyze360 offers lab facilities for up-and-coming biotech firms; houses an investment arm called Lilly Ventures; and has a program that helps companies navigate the complex clinical trial process. Now, Lilly TuneLab is entering the mix. The way to think about Catalyze360 is that it’s one prong of Lilly’s larger business development strategy, which also covers things like M & A and licensing deals for experimental therapies. It may not be an immediate financial needle mover, but in the pharmaceutical industry, where patent clocks are always ticking, companies need to aggressively pursue innovation. At the JPMorgan Healthcare Conference last year, Lilly CEO Dave Ricks mentioned Catalyze360 as he discussed the company’s plan to pursue big ideas to keep growing rapidly. As for TuneLab, specifically, the AI platform hosts drug discovery models that were originally trained using Lilly’s research data. Biotech companies will be able to use TuneLab at no cost, but in exchange for the access, they will contribute their own research data, “which fuels continuous improvement of the models for all users,” a Lilly spokesperson told CNBC in an email Tuesday. Using an approach to data privacy called federated learning, Lilly or other companies using TuneLab won’t see anyone else’s data. Lilly partnered with a company called Rhino Federated Computing to host TuneLab, according to the spokesperson. Rhino Federated uses some of Nvidia’s technology to run its own platform. The Lilly spokesperson also told CNBC that companies that use TuneLab are eligible to join Nvidia’s educational program for startups called Inception. On its earnings call in late August, Nvidia mentioned that Lilly was leveraging its enterprise-focused RTX Pro servers for drug discovery. Boeing ramps up : On Tuesday, the aerospace giant said it delivered 57 aircraft in August, up from 48 in July. This was Boeing’s best August result since 2018. Of those 57 deliveries, 42 were MAXs that went to Ryanair , United , CDB Leasing, AerCap , Air China, and Southwest . Boeing also booked 26 gross orders in the month with no cancellations. The stock didn’t really react to the news. Our focus is getting that 737 MAX monthly production cap lifted so Boeing can start making (and delivering) more aircraft. We expect management will address this on Thursday when it speaks at Morgan Stanley’s Laguna Conference. Up next: Oracle , Synopsys , and AeroVironment report earnings after the closing bell on Tuesday. Chewy reports before the opening bell on Wednesday. Also out: weekly mortgage applications and the producer price inflation (PPI) report for August. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) 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