Pacific Crest Securities resumed coverage of the interactive entertainment sector with a positive outlook. Fueled by higher digital distribution rates, the sector should generate additional gross margin gains going forward, the analyst stated.
Additionally, the broker believes that companies in the sector should be able to use data they obtain from online users to improve their games and raise their monetization levels.
The analyst recommends investors own the shares of video game makers Electronic Arts $EA , #Activation Blizzard $ATVI and #Take-Two Interactive $TTWO , as he resumed coverage of all three stocks with Overweight ratings.
ELECTRONIC ARTS: Broker says that Electronic Arts’ “high value” games with “predictable” sales volumes should enable its revenue and margins to increase over time. Additionally, he believes that the company is poised to lower its development costs going forward. He placed a $112 price target on the stock.
ACTIVISION: The video game maker’s “tremendous” intellectual property and popular digital games leave it well-positioned to benefit from increased spending on digital, the broker stated. Moreover, the large audiences of its digital games should enable it to continue attracting more users and allow its profits to beat expectations, according to Wingren, who set a $60 price target on the stock.
TAKE-TWO: The success of the company’s Red Dead Redemption 2 game, along with the “sustainability” of its GTA Online and NBA 2K franchises should enable its earnings power to exceed “historical norms,” Wingren wrote. He set a $74 price target on the stock.
WHAT’S NOTABLE: Video game and hardware retailer GameStop $GME announced this morning that it has just received a limited supply of Nintendo’s $NTDOY popular Switch systems, which are “available immediately for customers in-store only and while supplies last.” The shift of physical games to more digital delivery has frequently been cited in the past as a risk for GameStop.
S&P Dow Jones Indices will make the following changes to the S&P #MidCap 400 and S&P #SmallCap 600 indices effective prior to the open on Friday, April 28:
PBF Energy $PBF will replace Waddell & Reed Financial $WDR in the S&P MidCap 400, and Waddell & Reed Financial will replace Stillwater Mining $SWC in the S&P SmallCap 600.
Sibanye Gold (SBGL) is acquiring Stillwater Mining in a deal expected to be completed soon pending final conditions. Apollo Commercial Real Estate Finance $ARI will replace ZELTIQ Aesthetics $ZLTQ in the S&P SmallCap 600. S&P 100 and 500 constituent Allergan $AGN is acquiring #ZELTIQ Aesthetics in a deal expected to be completed on April 27 pending final conditions.
The #Trump administration plans to levy tariffs on Canadian exports of softwood lumber to the U.S., reports the Financial Times, citing statements from Commerce Secretary Wilbur Ross.
Ross said the U.S. would impose 3%-24% tariffs on five Canadian lumber exporters: West Fraser Mills, Canfor, JD Irving, Resolute FP Canada, and Tolko, the report says. “These duties will be applied retroactively, 90 days backward, because they were on notice that this was forthcoming and they didn’t change the practice of dumping subsidized lumber,” Ross added, according to the Financial Times.
White House budget director Mick Mulvaney said on Sunday, “I think what you’re going to see on Wednesday is some specific governing principles, some guidance. Also some indication of what the rates are going to be. I don’t think you’re going to see something — and I don’t think anybody expects us to roll out — bill language on Wednesday. In fact, we don’t want to do that.
So what you’re going to see on Wednesday for the #FirstTime is: Here’s what our principles are, here’s some of the ideas that we like, some of the ideas we don’t like. Here’s some of the rates we’re talking about.”
Asked whether the #taxreform will be revenue neutral, #Mulvaney said, “I don’t think we’ve decided that part yet. Keep in mind, it’s a balancing act on that. You can either have a small tax cut that’s permanent, or a large tax cut that is short term. I don’t think we’ve decided yet, but you’ll know more on Wednesday.”
Questioned about his recent statement that he doesn’t expect a “real plan, specifics, meat on the bone” until June, Mulvaney responded, “I think that’s still probably fair. Again, we want to start working — and have already started working with the committees in the House and the Senate as we try to build some momentum.”
The once high flying fashion maker bebe stores $bebe announced that it will close all of its stores. The company disclosed in a regulatory filing Friday: “On April 18, #bebe stores entered into a Consulting Agreement with Great American Group, an affiliate of #B.Riley & Co., the Company’s financial advisor, and Tiger Capital to, among other things, sell all merchandise and inventory owned by the Company and certain of its subsidiaries located in its existing retail stores and certain furnishings, trade fixtures, equipment and improvements to real property with respect to the Stores. We may incur a loss in connection with this sale of our merchandise and inventory, but we cannot estimate such loss at this time…
The Company currently anticipates that it will close all of the Stores by the end of May. The Company expects to recognize an impairment charge of approximately $20M, net of deferred rent and other credits, as a result of closing the Stores. This impairment charge will be recorded in the third and fourth quarters of fiscal year 2017.” The retailer is hoping that its online stores would bring life to its brand..
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Here is a re-cap of how President Trump’s comments moved stocks last week:
1. STEEL SECTOR: On Thursday, Donald Trump met with several steel company CEOs at the White House to discuss the state of the industry and the administration’s plans to crack down on steel dumping. Following the sit down, he signed a memorandum related to section 232 of the Trade Expansion Act of 1962 and said he has directed the Commerce Department to launch an investigation into whether or not foreign companies, particularly those from China, are dumping steel on the U.S. market. Publicly traded companies in the steel space include Steel Dynamics $STLD , AK Steel $AKS , U.S. Steel $X and Nucor $NUE .
2. HOSPITALS: Earlier this week, hospital stocks were under pressure following reports of Health bill progress. CNBC tweeted, “NEW: If health care changes in MacArthur memo are in bill text, they’d get 18-20 new @freedomcaucus votes. Brings total to
25-30, per source.” Publicly traded companies in the space include Community Health $CYH , HCA Holdings $HCA LifePoint $LPNT , Tenet $THC and Universal Health $UHS .
3. TECH COMPANIES: According to a news report by Recode, tech companies such as Amazon $AMZN , Apple $AAPL , Facebook $FB , Google $GOOG; $GOOGL , and Microsoft $MSFT have focused some of their lobbying sums in Washington over the past three months on fighting President Trump, as he looked toward major changes to the U.S. tax code and placed new restriction on foreign immigrants. Both issues are present on many companies’ first quarter lobbying reports, the publication notes.
4. HUMANA: On Friday, Jefferies downgraded Humana $HUM to Hold and lowered his price target on the shares to $221 from $237. The analyst told investors that he views the shares as expensive and pointed out that 2018 premium growth under President Trump is lower than 2017 under Obama. Events that would enhance Medicare Advantage decidedly above Medicaid and Commercial “are not blossoming,” Windley contended.
5. FINANCE-RELATED EXECUTIVE ORDERS: President Trump signed two finance-related executive orders on Friday aimed at unwinding regulations put into place after the financial crisis. The directives target “living wills” that banks must formulate to show how they would be broken up it there is danger of failure. Alongside banking measures, the administration is ordering a review on rules regarding inversions. Publicly traded money center banks include Bank of America $BAC , Citi $C , Goldman Sachs $GS , JPMorgan $JPM , Morgan Stanley $MS , U.S. Bancorp $USB and Wells Fargo $WFC .
6. TAX REFORM: On Thursday, Treasury Secretary Steven Mnuchin said during the International Finance Washington Policy Summit that the Trump administration is close to bringing forward “major tax reform.” The following day, Trump told Associated Press that he will unveil a tax plan next week that includes “massive” tax cut for individuals and businesses.
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General Motors #Venezolana $GM is forced to cease operations in Venezuela after 60 years due to seizure of its assets. On Wednesday, GMV’s plant was unexpectedly taken by the public authorities, preventing normal operations.
In addition, other assets of the company, such as vehicles, have been illegally taken from its facilities. The seizure was granted and enforced in total disregard of GMV’s right to due process, causing irreparable damage to the company, its 2,678 workers, its 79 dealers, and to its suppliers.
As a consequence, GMV announces the immediate cessation of its operations in the country, and ensures payment of the employees’ separation benefits arising from the termination of the employment relationships due to causes beyond the parties’ control. GMV strongly rejects the arbitrary measures taken by the authorities and will vigorously take all legal actions, within and outside of Venezuela, to defend its rights. The company is confident that justice will eventually be served, and looks forward to continue leading the Venezuelan market. In the meantime, GMV, through its dealers, will continue to provide aftermarket service and parts for its customers.
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The White House published President Trump’s request today for an investigation into steel imports. The document states: “As imports of #steel to the United States continue to rise, an examination of foreign practices is urgently needed… President Donald J. #Trump is taking action to ensure America’s steel industry comes first, in addition to his Buy American and Hire American policies.
Today, the President signed a Presidential Memorandum prioritizing an investigation initiated by the Secretary of Commerce into whether steel imports threaten to impair the national security… By law the investigation must be concluded and a report submitted within 270 days. If the report concludes that steel imports threaten to impair the national security, and the President concurs, he may take several actions, including #tariffs.”
Publicly traded companies in the steel space include Steel Dynamics $STLD , AK Steel $AKS , U.S. Steel $X and Nucor $NUE $ZEUS
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Arrowhead Pharmaceuticals presented clinical data from a Phase 2 study of ARC-520 and a Phase 1/2 study of ARC-521, the company’s prior generation investigatory medicines that were being studied for the treatment of chronic #hepatitis B virus infection, at The International Liver Congress 2017, the annual meeting of the European Association for the Study of the Liver.
The studies show that RNAi interference as a mechanism can rapidly and significantly reduce HBV viral antigens.
In addition, #RNAi appears to synergize with current standard-of-care nucleotide and nucleoside analogues to rapidly lower serum levels of HBV DNA. Arrowhead is currently developing ARO-HBV, a follow-on product candidate that utilizes the company’s next generation, proprietary subcutaneously administered delivery vehicle, as a potentially curative therapy for patients with chronic hepatitis B infection.
Another stock to watch $ICPT
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UMB Financial $UMBF announced the execution of an agreement to sell 100% of the stock of Scout Investments, its institutional investment management subsidiary with $27.3B in assets under management, to Carillon Tower Advisers, a unit of Raymond James Financial $RJF , for $172.5M in cash, subject to purchase price adjustments at closing.
The company plans to use the proceeds from the transaction to support its current growth strategies. “The decision to sell Scout Investments comes at a time when our company has evolved,” said Mariner Kemper, chairman and CEO of UMB Financial Corporation. “This transaction allows us to invest more time, energy and capital resources into our core businesses. We’re excited by this opportunity and what it means to be a relationship-based, diversified financial services company with a focus on enhancing long-term profitability.”
The transaction has been approved by the boards of directors at both companies, is anticipated to close by the end of the calendar year and is subject to customary closing conditions, including mutual fund board approval and consents of the mutual fund shareholders and certain advisory clients.
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AbbVie announced that two Phase 3 studies evaluating #veliparib did not meet their primary endpoints. The studies evaluated veliparib in combination with the chemotherapy regimen carboplatin and paclitaxel in patients with squamous non-small cell lung cancer and triple negative breast cancer.
Full results will be presented at upcoming medical meetings or published in a peer-reviewed journal. “Research shows there is a role for PARP inhibitors in cancers associated with DNA repair deficits, such as those with BRCA mutations.
In these clinical trials, we wanted to explore whether a PARP inhibitor could augment chemotherapy in patients with squamous non-small cell lung cancer and triple negative breast cancer by disrupting the repair of cancer cells,” said Gary Gordon, M.D., Ph.D., vice president, oncology clinical development, AbbVie. “Unfortunately, these data do not support the use of veliparib in combination with chemotherapy in these patients.”
Pfizer $PFE confirmed that the company had received grand jury subpoenas from the U.S. Justice Department as part of an antitrust investigation focused on intravenous saline solution makers, said Reuters.
Note that in a regulatory filing last night, ICU Medical $ICUI disclosed that on April 18, in connection with the Hospira Infusion Systems business that the company acquired in February 2017 from Pfizer.
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ICU Medical received a grand jury subpoena issued by the U.S. District Court for the Eastern District of Pennsylvania, in connection with an investigation by the U.S. Department of Justice, Antitrust Division.
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The analyst is encouraged by “solid” January intra-quarter volume growth, improving gas price trends, strong retail sales growth, and broadly positive card issuer trends.
Further, Greene continues to believe that MasterCard and Visa are attractive at current levels, given their defensible market positions and strong long-term prospects. Nonetheless, he prefers Visa relative to MasterCard at present given the continuing U.S. volume boost from the Costco $COST wins and JPMorgan Chase $JPM Sapphire Reserve momentum, apparent conservative guidance, and Visa Europe accretion benefits.
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