Retail Therapy: Defensive Bets Extend Streak, Trounce SPY, QQQ As EVgo, Helen Of Troy, Magnite Lead Weekly Consumer Gains

Consumer ETFs posted gains while the S&P 500 had its worst week in 18 months, with buyout offers and a beat-and-raise quarter driving the biggest winners.

• Consumer Staples Select Sector SPDR Fund rose 0.74%, for a fifth straight week of gains, while the Consumer Discretionary fund climbed 1.91%.
• EVgo and Helen of Troy drew takeover proposals, and Magnite delivered a second consecutive “beat-and-raise” quarter.
• DraftKings slashed its outlook, Dutch Bros drew a wave of price-target cuts, and Tesla slid on merger doubts.

Consumer stocks again outperformed a rattled broader market last week, with EVgo (EVGO), Helen of Troy (HELE) and Magnite (MGNI) leading the gains as investors reacted to buyout proposals and strong earnings. Dutch Bros (BROS), DraftKings (DKNG) and Tesla (TSLA) were among the laggards.

The Consumer Staples Select Sector SPDR Fund (XLP) rose 0.74%, while the Consumer Discretionary Select Sector SPDR Fund (XLY) gained 1.91%.

Consumer Sector ETFs Shrug Off Market Rout

During the week of Nov. 2 to Nov. 6, XLP gained for a fifth straight week, suggesting investors kept leaning on defensive staples. XLY rose for a third straight week, pointing to returning appetite for discretionary names.

In comparison, the SPDR S&P 500 ETF Trust (SPY) fell 2.70%, its worst week in 18 months. The tech-heavy Invesco QQQ Trust (QQQ) dropped 4.98%, marking its fourth straight down week.

EVgo Jumps On Majority Owner’s Buyout Bid

EVgo stock led the weekly gainers, surging 45%, after the fast-charging network operator disclosed an unsolicited, non-binding proposal from LS Power Equity Advisors to acquire all Class A shares it doesn’t already own for $2 per share in cash. LS Power holds about 56% of EVgo’s combined voting power.

The board has formed a special committee of independent directors to evaluate the proposal and may retain its own legal and financial advisors. Analysts turned cautious. Cantor Fitzgerald’s Andres Sheppard downgraded the stock to ‘Neutral’ from ‘Overweight’ and cut his price target to $2 from $3. He noted the offer is a “non-binding expression of interest only,” but said LS Power is prepared to move immediately to finalize a deal. UBS’s Jon Windham also downgraded EVgo to ‘Neutral’ from ‘Buy’ with a $2 target, down from $3.

Helen Of Troy Rejects $37 Offer

Helen of Troy stock climbed 29% over the week after Empower Brands Holdings Group, jointly owned by Spectrum Brands (SPB) and Oaktree Capital Management, proposed to buy the company for $37 per share in cash, an implied enterprise value of about $1.6 billion. An Empower affiliate already owns around 4.5% of the company.

Empower first bid $34 per share on Aug. 19 before raising its offer on Oct. 12. Spectrum CEO David Maura said the company “does not have the scale” to compete in the current landscape and promised “certainty of closing.”

Helen of Troy’s board was unmoved. It unanimously rejected the offer as opportunistic and said it undervalues the company. The board cited a three-phase turnaround plan under new CEO G. Scott Uzzell, a $244 million debt reduction over 18 months, and a stock price that has climbed 67.5% fiscal year-to-date versus 10% for the S&P 500. It added that it remains open to opportunities that serve shareholders.

Magnite Earns A Price-Target Boost

Magnite stock jumped 27% after the company beat expectations and raised its outlook for the second consecutive quarter. Evercore ISI raised its price target to $33 from $25 and maintained an ‘Outperform’ rating. The firm said the stock is reasonably valued, with several potential growth drivers ahead. It also noted that connected TV advertising trends remain strong, despite political campaigns taking up some of the budgets that brands would otherwise spend on advertising. 

Dutch Bros, DraftKings And Tesla Lead Declines

Dutch Bros stock fell 21% in a weekly rout after disappointing third-quarter results. Revenue rose 30% to $549.8 million, topping estimates, but earnings of $0.20 per share missed the $0.25 consensus. Customer visits rose just 1% at company-operated shops, and the coffee chain trimmed its adjusted EBITDA outlook to about $380 million from $385 million to $390 million. 

RBC’s Logan Reich cut his target to $38 from $46 with a ‘Sector Perform’ rating. He noted management cited consumer volatility as a headwind for the first time since Q1 2023. Stephens also lowered its target to $47 from $65.

DraftKings stock slumped 11% after the sports-betting company cut its full-year revenue guidance to $6.35 billion to $6.55 billion and slashed its adjusted EBITDA outlook to $175 million to $275 million from $700 million to $900 million. It blamed a $650 million to $700 million investment in its prediction markets business. 

The third-quarter loss of $0.94 per share was far wider than the $0.41 loss analysts expected. Stifel downgraded the stock to ‘Hold’ from ‘Buy’ with a $21 target, down from $32, calling the strategy “sound” but the “optics challenging.”

Tesla stock fell 10% as strategists questioned a potential SpaceX merger. Strategic Wealth Partners’ Mark Tepper said he doesn’t “see the SpaceX merger happening” given rising political pressure after the midterms, and Gary Black warned that an all-stock deal’s premium could vanish. 

However, Deutsche Bank believes concerns that Elon Musk’s political support for Republicans could lead to government retaliation against SpaceX may be overblown. The firm noted that Congress cannot directly block a potential SpaceX-Tesla merger, although hearings could delay the process. 

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