Broadcom tumbles on plans to redomicile in the U.S.

Broadcom confirms plans to redomicile in the U.S.

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Broadcom Limited (AVGO) announced that it intends to initiate a redomiciliation process to change the parent company of the Broadcom corporate group from a Singapore company to a U.S. corporation.

The redomiciliation will occur whether or not there is corporate tax reform in the United States, although the final form and timing of the redomiciliation will be affected by any corporate tax reform.

The redomiciliation will be voted on by the company’s shareholders and is expected to be effected in a manner intended to be tax-free to Broadcom’s equity holders.

“We believe the USA presents the best place for Broadcom to create shareholder value,” said Hock Tan, the company’s President and CEO.

“We expect the tax reform plan effectively to level the playing field for large multinational corporations headquartered in the United States and to allow us to go all in on U.S. redomiciliation. However, we intend to redomicile to the United States even if there is no corporate tax reform.”

“The returns we can drive by continuing to pursue our growth strategy far outweigh the incremental taxes we would expect to pay by redomiciling in the USA,” said Tom Krause, the company’s CFO.

“We support the tax reform plan because it is pro-growth and would allow companies like us to bring off-shore earnings back to the United States after paying an annual U.S. minimum tax on global profits.”

EARNINGS GUIDANCE

Earlier today,  the company said for Q4 2017, Broadcom expects revenue will be at the higher end of the business outlook provided during its earnings announcement on August 24.

The company said in August it expected GAAP revenue in Q4 ended Oct. 29 at $4.78 billion plus or minus $75 million and non-GAAP revenue at $4.8 billion plus or minus $75 million.

ANALYST COMMENTS

BofA Merrill Lynch estimates moving its domicile to the U.S. could raise Broadcom’s (AVGO) tax rates from 4%-5% to about 12%, but the firm thinks this could be offset by potential Brocade (BRCD) synergies. The firm keeps a Buy rating on Broadcom, arguing that the reasons to own the stock – namely its premium assets, best-in-class management, and dividend potential – remain intact. The firm adds that being in the U.S. could be a precondition to acquiring Brocade and may enable Broadcom to pursue future M&A.

JPMorgan analyst Harlan Sur says Broadcom’s (AVGO) U.S. domiciliation process will occur with or without tax reform, which should pave the way for the Brocade (BRCD) deal to close in two weeks. Assuming a worst case of no tax reform, the analyst estimates the company’s earnings power including the contribution from Brocade will be $18.00-$18.50 in 2018. Assigning a Semiconductor group price-to-earnings multiple would drive fair value for Broadcom to around $310 to $315 per share, Sur tells investors in a research note. Further, citing strong near-term demand trends, the analyst remains confident management raising the annual dividend by at least 50% to $6.00 in early December. He keeps an Overweight rating on Broadcom shares with a $315 price target.

AVGO last traded at $252.16, down $7.12.


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“Home Health Stocks” higher on CMS decision

Amedisys, peers jump after CMS pushes out home health group model changes

 Amedisys, peers jump after CMS pushes out home health group model changes . See Stockwinners.com for details

Shares of Amedisys (AMED) are on the rise after the Centers for Medicare & Medicaid Services announced it is not finalizing the Home Health Groupings Model and “will take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model.”

Following the announcement, Mizuho upgraded Amedisys and HealthSouth (HLS) to Buy.

Additionally, both Almost Family (AFAM) and LHC Group (LHCG) are higher following the CMS’ update.

PAYMENT RATES, HHGM UPDATE

Last night, the Centers for Medicare & Medicaid Services issued a final rule that updates the 2018 Medicare payment rates and the wage index for home health agencies serving Medicare beneficiaries.

The rule also finalizes proposals for the Home Health Value-Based Purchasing Model and the Home Health Quality Reporting Program.

It added, “CMS is not finalizing the Home Health Groupings Model and will take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model.

CMS will take the comments submitted on the proposed rule into further consideration regarding patients’ needs that strikes the right balance in putting patients first.” CMS projects that Medicare payments to HHAs in 2018 will be reduced by 0.4%, or $80M, based on the finalized policies.

BUY AMEDISYS, HEALTHSOUTH

Commenting on CMS’ decision to take the public comments about Home Health Groupings Model under further consideration, Mizuho analyst Sheryl Skolnick upgraded Amedisys and HealthSouth to Buy from Neutral.

The analyst told investors that she is “even more convinced” that Home Health Groupings Model is not likely to be reintroduced for some time, clearing the way for 2018 and probably 2019 to be normal years.

#Skolnick expects Amedisys shares to have strong positive follow through and has increased confidence in 40% EBITDA growth year-over-year. Meanwhile, the analyst noted that she also has increased confidence in HealthSouth’s execution and free cash flow generation.

HOME HEALTH STOCKS RALLY

Also commenting on the update, Jefferies analyst Brian Tanquilut told investors in a research note of his own that the CMS’ decision to indefinitely postpone the implementation of the Home Health Groupings Model is a positive for the home nursing industry.

Further, the analyst argued that given the steep selloff in Almost Family, Amedisys and LHC Group since the release of the proposed rule, all three stocks should recover lost valuation. He believes the postponement of the Home Health Groupings Model “significantly reduces the risk of irrational rate cuts.” Tanquilut, who believes sector fundamentals are among the best across the HC Services landscape, has Buy ratings on all three stocks.

PRICE ACTION

In morning trading, shares of Amedisys have jumped almost 17% to $54.29, while HealthSouth’s stock has gained 8% to $48.83. Shares of Almost Family have also jumped more than 26% to $51.05, and LHC Group’s stock has advanced about 9% to $70.96.


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Under Armour Slumps on Management Changes, Earnings

Under Armour drops amid management shake up, lowered expectations

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Shares of Under Armour (UA, UAA) dropped in Thursday’s trading following a report that two more senior executives are leaving the company.

The news follows several downgrades by analysts following the company’s weak quarterly sales, when it cut its fiscal year revenue outlook for the second quarter in a row, citing operational challenges and lower demand in North America.

SENIOR DEPARTURES

The Wall Street Journal reported yesterday that Under Armour’s chief marketing officer and the head of its women’s business are leaving the company, according to a person familiar with the matter.

Marketing chief Andrew Donkin and Pamela Catlett, SVP and general manager of Under Armour’s women’s and youth categories, will leave later this month after “mutually agreeing to part ways,” according to an internal memo circulated among company leaders Tuesday night.

Donkin joined Under Armour from Amazon (AMZN), while Catlett spent over a decade at Nike (NKE).

Donkin and Catlett are the latest in a series of senior departures at Under Armour, with other recent exits include Ben Pruess, the president of sport fashion.

Additionally, Kip Fulks, a co-founder of Under Armour and widely seen as the deputy to Kevin Plank, the company’s chief executive officer, went on sabbatical last month.

In June, Patrik Frisk was hired as president and chief operating officer, and he has taken over some of Fulk’s responsibilities.

A person familiar with the matter told the Journal that Frisk is “shaking up the company’s leadership team,” and believes more changes may follow.

WEAK REVENUE, LOWERED GUIDANCE

Earlier this week, Under Armour reported third quarter revenue of $1.41B, falling short of analysts’ estimates, though its adjusted earnings per share view beat expectations. The company lowered its expectations for fiscal 2017 EPS to 18c-20c from 37c-40c and cut its revenue guidance to up at a low single-digit percentage rate vs. its previous growth rate view of 9%-11%.

The company said guidance was being lowered to reflect lower North American demand and operational challenges due to the implementation of its enterprise resource planning system and related service levels.

Looking to 2018, Under Armour said initial assumptions include “continued strength across our international [direct-to-consumer] business…contrasted with a difficult environment in our North America wholesale business well into next year.”

CEO Plank added that “against this difficult backdrop, our management team is working aggressively to evolve our strategy and level of execution to proactively address these challenges.”

ANALYSTS LOWER EXPECTATIONS POST-EARNINGS

Following Under Armour’s earnings report, Canaccord, SunTrust and JPMorgan downgraded the stock, while Wells Fargo, FBR Capital, Deutsche Bank, Citi Bernstein and Wedbush all lowered their respective price targets.

Morgan Stanley, which noted that the Q3 report fell short of even the lowest expectations, said this is not necessarily the bottom for the stock.

JPMorgan sees five “red flags” for Under Armour, including North America revenues dropping double digits with a “slow to re-grow” game-plan and international growth moderating. Citi said there is not much to feel positive about, as the stock has been “hammered and downside risk is still present.”

PRICE ACTION

Class A shares of Under Armour (UAA) dropped another 3.7% to $11.60 in morning trading. Year-to-date, shares are down about 60%.


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Meet the next Fed Chief

Fed Policy: the nomination of Powell as Fed Chairman is all but sealed

Meet the next Fed Chief. See Stockwinners.com for details

Fed Policy: the nomination of Jerome Powell as Fed Chairman is all but sealed. The secret was fairly well kept, but late yesterday newswires largely confirmed it.

The markets have already reacted, by and large, with yields having dropped from last week’s jump when John Taylor was seen as the leading contender.

The dollar did soften a bit further yesterday.

Powell has been a governor on the Federal Reserve Board since 2012, and never dissented. Hence, this is a “continuity” pick and he’s seen following the gradualist approach of Yellen (and Bernanke).

He is also seen as a moderate on regulatory issues too. His confirmation process shouldn’t be problematic since he was already cleared as a Fed governor.

Of interest, he would be the first Fed chairman without a Ph.D. in economics since Volcker.

Along with serving on the Fed Board for the past five years, Powell, 64, has worked inside and outside government.

He was a Treasury undersecretary from 1990 to 1993 under President Bush.

More recently he was a partner and managing director of the Carlyle Group.

Note that newly installed governor Quarles also once worked at the Carlyle Group (CG).

There will be four vacancies on the seven member Fed Board, assuming Yellen retires from her governor position, giving President Trump lots of opportunities to make his mark on the Fed.


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Ocera Therapeutics sold for $75 million

Mallinckrodt to acquire Ocera Therapeutics for $1.52 per share plus CVR

Ocera Therapeutics sold for $75M. See Stockwinners.com for details

Mallinckrodt (MNK) and Ocera Therapeutics (OCRX) announced that they have entered into an agreement under which Mallinckrodt will acquire Ocera, a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for orphan and other serious liver diseases with high unmet medical need. Ocera’s developmental product OCR-002, an ammonia scavenger, is being studied for treatment of hepatic encephalopathy, a neuropsychiatric syndrome associated with hyperammonemia, a complication of acute or chronic liver disease.

A subsidiary of Mallinckrodt will commence a cash tender offer to purchase all of the outstanding shares of Ocera Therapeutics common stock for $1.52 per share, or approximately $42M, plus one Contingent Value Right to receive one or more payments in cash of up to $2.58 per share, or up to approximately $75M, based on the successful completion of certain development and sales milestones.

Mallinckrodt expects dilution from the acquisition to adjusted diluted earnings per share by 25c-35c annually beginning in 2018, assuming the expected 2017 close.

“Guidance on the impact of the acquisition to the company’s GAAP diluted earnings per share has not been provided due to the inherent difficulty of forecasting the timing or amount of items that would be included in calculating such impact,” the company said.

Subject to customary closing conditions, the company estimates the transaction will close in the fourth quarter of 2017.


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