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Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<div><div><div><ul style="list-style-type: disc;"><li><p>MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader indices were roughly flat.</p></li><li>MLKN reported adjusted EPS of $0.37 in 1QFY24, above consensus of $0.21 consensus, and upped guidance.</li><li>Shares jumped 27% on Wednesday. All three major US firms in the sector advanced last week.</li></ul></div></div></div>

MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader indices were roughly flat.MLKN reported adjusted EPS of $0.37 in 1QFY24, above consensus of $0.21 consensus, and upped guidance.Shares jumped 27% on Wednesday. All three major US firms in the sector advanced last week.

Furniture/Furnishings Weekly  - MLKN Results Boost Sector; Consumer Confidence Dips

Thematic (Sector/Industry)

<ul style="list-style-type: disc;"><li><p>In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the Commercial/Contract Furniture issues.</p></li><li><p>SCS results supported a view that demand in the office furniture sector had troughed.</p></li><li><p>CFO Dave Sylvester noted that the weekly pace of orders in its Americas segment was steady through its fiscal 2Q and into 3Q and that the Y/Y order comparison for the first few weeks of September was up by ~18%. For details, see our update note from September 22.</p></li></ul>

In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the Commercial/Contract Furniture issues.SCS results supported a view that demand in the office furniture sector had troughed.CFO Dave Sylvester noted that the weekly pace of orders in its Americas segment was steady through its fiscal 2Q and into 3Q and that the Y/Y order comparison for the first few weeks of September was up by ~18%. For details, see our update note from September 22.

Furniture/Furnishings Weekly - SCS Results Boost Commercial/Contract Furniture Sector

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The S&amp;P500 rebalance traded with appropriate-to-expectations volumes, but the path from announcement to actual event was somewhat surprising.</li>
<li>Historically, DELETEs underperform peers and index from announcement to event date, including an initial jump weaker. This time they saw initial strength, but fell hard on the last day.</li>
<li>"The trade" from here, statistically speaking, would be to buy the S&amp;P500 DELETEs (<a href="https://www.smartkarma.com/entities/leggett-platt-inc" target="_blank" data-smartkarma-citation="entities:15843:1" rel="noopener">Leggett &amp; Platt (LEG US)</a>, <a href="https://www.smartkarma.com/entities/hanesbrands-inc" target="_blank" data-smartkarma-citation="entities:13641:1" rel="noopener">Hanesbrands Inc (HBI US)</a>, and <a href="https://www.smartkarma.com/entities/western-union-co" target="_blank" data-smartkarma-citation="entities:16761:1" rel="noopener">Western Union Co (WU US)</a>) against index.</li>
</ul>


The S&amp;P500 rebalance traded with appropriate-to-expectations volumes, but the path from announcement to actual event was somewhat surprising.
Historically, DELETEs underperform peers and index from announcement to event date, including an initial jump weaker. This time they saw initial strength, but fell hard on the last day.
"The trade" from here, statistically speaking, would be to buy the S&amp;P500 DELETEs (Leggett &amp; Platt (LEG US), Hanesbrands Inc (HBI US), and Western Union Co (WU US)) against index.


S&P500 Rebalance Recap - Strange Path Ends As Expected.

<ul>
<li>S&amp;P DJI Global Indices on Friday announced the changes to the S&amp;P500, S&amp;P Midcap 400, and S&amp;P 600 to be implement at the close on 17 December. </li>
<li>There were no surprises and the whole exercise is one of rearranging the deckchairs. Stocks move up an index, or down an index, but nothing moves out of the three.</li>
<li>The proprietary S&amp;P data suggests little opportunity, but empirical data suggests otherwise, and as in most cases, the interesting trades are the smaller ones.</li>
</ul>


S&amp;P DJI Global Indices on Friday announced the changes to the S&amp;P500, S&amp;P Midcap 400, and S&amp;P 600 to be implement at the close on 17 December. 
There were no surprises and the whole exercise is one of rearranging the deckchairs. Stocks move up an index, or down an index, but nothing moves out of the three.
The proprietary S&amp;P data suggests little opportunity, but empirical data suggests otherwise, and as in most cases, the interesting trades are the smaller ones.


S&P500 Rebalance for December 2021 - Rearranging the Deckchairs

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Factset Research Systems Inc / Event-Driven

<ul>
<li>There are 3 stocks migrating from the S&amp;P500 to the S&amp;P400 and vice versa and another 3 stocks migrating from the S&amp;P600 to the S&amp;P400 and vice versa.</li>
<li>The impact of changes in the number of index shares for quite a few index constituents and the funding trade take the one-way trade size to US$18.5bn.</li>
<li>There appear to be pre-positions on some of the stocks. While the flow is large on many stocks, there are only a few that have over 2 days of ADV.</li>
</ul>


There are 3 stocks migrating from the S&amp;P500 to the S&amp;P400 and vice versa and another 3 stocks migrating from the S&amp;P600 to the S&amp;P400 and vice versa.
The impact of changes in the number of index shares for quite a few index constituents and the funding trade take the one-way trade size to US$18.5bn.
There appear to be pre-positions on some of the stocks. While the flow is large on many stocks, there are only a few that have over 2 days of ADV.


S&P500 Index Rebalance: Migrations Across the Indices

United States

Leggett & Platt, Incorporated manufactures a wide range of engineered products. The Company's products include components for bedding, furniture, and other residential furnishings, as well as office and institutional furnishings components, retail store fixtures, and displays, specialty wire products, and automotive seating suspension and lumbar systems.

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Leggett & Platt (LEG US)

Furniture/Furnishings Weekly - MLKN Results Boost Sector; Consumer Confidence Dips

MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader...

Water Tower Research

Furniture/Furnishings Weekly - SCS Results Boost Commercial/Contract Furniture Sector

In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the...

Water Tower Research

S&P500 Rebalance Recap - Strange Path Ends As Expected.

S&P500 Rebalance Recap - performance ends as expected with unexpected path to last day. Volumes largely as tracking amounts would predict. The next...

Travis Lundy

S&P500 Rebalance for December 2021 - Rearranging the Deckchairs

The S&P announced its changes to the S&P500, S&P Midcap 400, and S&P Small 600 Indices. All names moving in and out of these indices are coming...

Travis Lundy

S&P500 Index Rebalance: Migrations Across the Indices

There are 3 migrations from the S&P400 to the S&P500 and vice versa and another 3 migrations from the S&P600 to the S&400 and vice versa. The one...

Brian Freitas

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