Barron’s is bullish on Verizon

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names: 

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BULLISH  MENTIONS

 

Rising sales may lift Mondelez (MDLZ)- There is reason to hope that growth is returning to Mondelez, with sales perking up in its latest quarter, especially in the developing markets, Bill Alpert writes in this week’s edition of Barron’s. If the company and its new CEO can deliver sales growth, many analysts think Mondelez’s stock could rise to $50 or more, the report notes.

Wheat prices may rise amid cold December – A “brutal cold snap” in December is likely and could lift winter wheat prices higher than $5 a bushel, a rally that would aid the farm economy that has been hurt by steadily falling wheat prices since mid-2012, Simon Constable writes in this week’s edition of Barron’s. Among companies that benefit from higher crop prices are fertilizer makers Mosaic (MOS) and Agrium (AGU), the report notes.

Infrastructure stocks should rise if Congress passes legislation – It may be easy to be skeptical about President Donald Trump’s ambitious effort to rebuild aging bridges, roads and other elements of the country’s infrastructures, but there is reason for hope, John Kimelman writes in this week’s edition of Barron’s. For investors in a group of about a dozen infrastructure companies such as Vulcan Materials (VMC) and Fluor (FLR), legislation cannot be considered soon enough, he contends. Other companies that may get meaningful boosts include Martin Marietta Materials (MLM), Aecom (ACM), Jacobs Engineering Group (JEC), Granite Construction (GVA), Eagle Materials (EXP), and U.S. Concrete (USCR), Barron’s notes, adding that even equipment companies like Caterpillar (CAT) could benefit.

Tencent still has upside – While Tencent (TCEHY) is up 125% this year, the stock still has lots of upside, Assif Shameen writes in this week’s edition of Barron’s.

Verizon could return 20% over the next year – A long price war in wireless is easing, which has left Verizon’s (VZ) shares looking cheap, Jack Hough writes in this week’s edition of Barron’s. They could return 20%, including a dividend yield of 5%, over the next year, he adds.

BEARISH  MENTIONS

Challenges at HP Enterprise loom large– In a follow-up story, Barron’s says that as HP Enterprise (HPE) CEO Meg Whitman prepares to retire in February, the company no longer “has to shut the lights at night to save money.” However, plenty of challenges remain, notwithstanding Whitman’s moves to reconfigure the business, the report notes. The challenges at HP Enterprise loom large, as cloud-computing leaders Amazon (AMZN), Microsoft (MSFT) and Alphabet’s (GOOGL; GOOG) increasingly buy less HPE gear because they are building their own, the report notes.


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CalAtlantic sold for $51.34 per share

Lennar, CalAtlantic to merge in deal valued at about $9.3B

CalAtlantic sold for $9.1 billion. See Stockwinners.com for details

Lennar (LEN) and CalAtlantic (CAA) announced that their respective boards of directors have unanimously approved a definitive merger agreement pursuant to which each share of CalAtlantic stock will be exchanged for 0.885 shares of Lennar Class A common stock in a transaction valued at approximately $9.3B, including $3.6B of net debt assumed.

The business combination will create the nation’s largest homebuilder with the last twelve months of revenues in excess of $17B and equity market capitalization, based on current market prices, of approximately $18B.

The combined company will control approximately 240,000 homesites and will have approximately 1,300 active communities in 49 markets across 21 states, where approximately 50% of the U.S. population currently lives.

It is currently anticipated that the transaction will generate annual cost savings and synergies of approximately $250M, with approximately $75M achieved in fiscal year 2018.

These synergies are expected to be achieved through direct cost savings, reduced overhead costs and the elimination of duplicate public company expenses.

Additional savings are also expected through production efficiencies, technology initiatives, and the roll out of Lennar’s digital marketing and dynamic pricing programs. Under the terms of the merger agreement, each share of CalAtlantic stock will be converted into the right to receive 0.885 shares of Lennar Class A common stock. Based on the closing price of Lennar’s Class A common stock on the NYSE on October 27, the implied value of the stock consideration is $51.34 per share, representing a 27% premium to CalAtlantic’s closing price that same day.

CalAtlantic’s stockholders will also have the option to elect to exchange all or a portion of their shares for cash in the amount of $48.26 per share, subject to a maximum cash amount of approximately $1.2B.

CalAtlantic stockholders will receive Lennar stock unless they exercise an option to receive cash. On a pro forma basis, CalAtlantic stockholders are expected to own approximately 26% of the combined company.

The transaction is expected to close in the first calendar quarter of 2018. The transaction is subject to approval by Lennar and CalAtlantic stockholders. Stuart Miller and the Miller Family Trusts have agreed to vote their 41.4% voting interest in Lennar in favor of the merger. MP CA Homes LLC, an affiliate of MatlinPatterson Global Opportunities Partners III L.P., has agreed to vote its 25.4% voting interest in CalAtlantic in favor of the merger.

Additionally, MP CA Homes has agreed to exercise the cash election for at least the number of shares to cause the maximum cash consideration amount to be fully subscribed by electing stockholders.

Upon completion of the transaction, Stowell, CalAtlantic’s Executive Chairman, will join the Lennar board.


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Barron’s is bullish on biotechs, Target

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names: 

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BULLISH  MENTIONS

Local Chinese consumer plays to have significant advantages – China’s 19th Communist Party Congress gave expanded powers to President Xi Jinping to wield in a second five-year term as the country’s leader, endorsing the continued shift of China’s economy toward domestically focused consumer goods and services, which should be bullish for stocks such as Alibaba (BABA) and China Life Insurance (LFC), John Kimelman and Assif Shameen write in this week’s edition of Barron’s. Meanwhile, U.S. companies with footholds in the country’s consumer markets can expect to face regulatory and other roadblocks in the years ahead, they add.

Biotech selloff creates buying opportunity for investors – Biotech companies are not looking that healthy, with Amgen (AMGN), Biogen (BIIB), Celgene (CELG), and Gilead Sciences (GILD) all offering disappointments of one kind or another, but the selloff has created a buying opportunity for investors, Ben Levisohn writes in this week’s edition of Barron’s. Biotech looks like a victim of high expectations and could be ready to run again, he adds.

Tech giants continue to exploit their dominance – The latest earnings, particularly from Amazon.com (AMZN), Alphabet (GOOGL; GOOG), and Microsoft (MSFT), show that tech giants continue to exploit their dominance to Wall Street’s amazement, Tiernan Ray writes in this week’s edition of Barron’s. All three are examples of network effects, the ability of a business to exploit its position in a kind of virtuous cycle, and the payoff continues to astound Wall Street, he adds, noting that Apple (AAPL) is expected to report earnings this Thursday.

Playing double-up strategy with GE worth considering – General Electric (GE) stock is down 34% this year and seems poised to trade even lower amid fears that it may cut its dividend, Steven Sears writes in this week’s edition of Barron’s. While Sears has profitably recommended wagering against the stock since May, and still thinks bearish trades make sense, he recognizes that many investors feel stuck with their GE holdings and are not sure what to do. The “humble double-up strategy” is worth considering for anyone who wants to maintain ownership of the stock, and also realize a tax loss, he argues.

Target shares could return up to 30% amid renovation – Target’s (TGT) missteps have cost the company $15B in stock-market value over the past three years, Vito Racanelli writes in this week’s edition of Barron’s. The retailer is now remodeling stores, cutting costs and ramping up its online business to combat Amazon (AMZN), and store traffic and earnings look poised to rise in coming years, which could lead to an upward revaluation of the shares, he adds.

May be ‘lots to be gained’ from CVS/Aetna possible tie-up – In a follow-up story, Barron’s says that while CVS Health (CVS) shares were under pressure following a report by The Wall Street Journal saying the company and Aetna (AET) were in talks, there is “lots to be gained from a tie-up.” By securing better drug pricing from CVS than it gets now, Aetna stands to win more health-plan customers, and it can send many of them to CVS for drugs but also for care, the report explains, adding that the deal would help transform CVS into a company that also profits from health outcomes. Further, Barron’s argues that it could help protect it from future changes in health-care law, and from losing sales to Amazon (AMZN).

Enterprise Products Partners promises growth, income – Enterprise Product Partners (EPD) is a leader among U.S. energy master limited partnerships but its units are depressed like those of many peers, with investors worrying about slowing growth, competitive pressures, weak energy prices and cuts or moderating gains in distributions, Andre Bary writes in this week’s edition of Barron’s. However, he argues that compared with other MLPs, Enterprise has better corporate governance and a stronger sheet, offering an “enticing yield” of nearly 7% and a good growth outlook that investors should see as a “winning combination.”

Apple iPhone X may be catalyst for Sony – Long ago considered a rival of sorts for Apple (AAPL), Sony (SNE) has instead emerged as one of its key suppliers, but its stock is up just 10% over the past six months, while other suppliers have seen their shares almost double in the same period, Assif Shameen writes in this week’s edition of Barron’s. Sony supplies iPhone X’s12-megapixel camera, as well as state-of-the-art 3-D sensors designed to boost iPhone’s Face ID and augmented-reality capabilities, he adds, noting that Jefferies analyst Atul Goyal believes these attributes merit a re-rating for the shares, which he thinks can rise at least 40%.

Shire bear case may be too extreme – While Shire (SHPG) has struggled against generic pressures and rising competition, the bear case may be too extreme, Victor Reklaitis writes in this week’s edition of Barron’s.


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Ford announces Safety Recall

Ford issues four safety recalls in North America 

Ford Issues Safety Recall. See Stockwinners.com for details

Ford (F) is issuing four safety recalls in North America:

Ford is issuing a safety recall for approximately 73,000 2015-17 Ford Transit vehicles equipped with a trailer tow module for water intrusion into the module and connector resulting in potential wiring corrosion and damage to the module.

In affected vehicles, water intrusion into the module may result in rapid flashing of the turn signals, loss of the instrument cluster display, loss of heater and air conditioning controls, and loss of multimedia including radio, screens and SYNC.

Ford is not aware of any accidents or injuries associated with this issue.

Ford is aware of two reports of vehicle fires on Canadian fleet vehicles potentially related to this condition. Affected vehicles include 2015-17 Ford Transit vehicles built at Kansas City Assembly Plant, Feb. 3, 2014 to Aug. 2, 2017.

The recall involves approximately 73,443 vehicles in North America with 5,206 in the United States and federalized territories and 8,365 in Canada. The Ford reference number for this recall is 17S34.

Ford recalls F-150s. See Stockwinners.com for details

Ford is issuing a safety recall for approximately 15,000 2018 Ford F-150 vehicles with 3.3-liter engines, six-speed transmissions and column-mounted shift lever for inaccurate gear selection that could result in unintended vehicle movement.

In affected vehicles, rapid movement of the transmission shifter from park to drive may cause loss of PRNDL gear indication in the instrument cluster and momentary engagement of reverse operation before the vehicle achieves forward drive function.

Ford is not aware of any accidents or injuries associated with this issue.

Ford is issuing a safety recall for approximately 15,000 2017 Ford F-150 vehicles with 10-speed automatic transmissions for an inability to shift the transmission using the shift lever.

In affected vehicles, the pin attaching the transmission shift linkage to the transmission may come out. If this happens, movement of the shift lever by the driver will not change the transmission gear, which will remain in the gear it was in when the pin came out regardless of the position of the shift lever. Ford is not aware of any accidents or injuries associated with this issue.

Ford is issuing a safety recall for approximately 30 2018 Ford F-150 vehicles with 3.5-liter engines for possible loss of motive power and engine failure. In affected vehicles, certain cylinder heads manufactured for 3.5-liter engines are missing machined holes intended to supply lubrication to the camshaft-bearing journals.

Ford is not aware of any accidents or injuries associated with this issue.

F last traded at $12.00.


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Caterpillar reports on Tuesday

What to watch in Caterpillar earnings report

Caterpillar reports on Tuesday. See Stockwinners.com for details

Caterpillar (CAT) is scheduled to report results of its third fiscal quarter before the market opens on Tuesday, October 24, with a conference call scheduled for 11:00 am ET.

What to watch for

1. GUIDANCE:

On July 25, Caterpillar reported results for its fiscal second quarter and raised its forecast for fiscal 2017. The company said it expected earnings per share, excluding-costs, to be about $5.00, up from the prior view of $3.75, against analyst expectations of $4.32 at that time.

The company also raised its FY17 revenue guidance to $42B-$44B from $38B-$41B, against analyst consensus of $40.54B at that time. For FY17, Caterpillar said it expected profit per share of about $3.50 at the midpoint of the sales and revenues outlook range, or adjusted profit per share of about $5.00. The previous outlook for 2017 profit was about $2.10 per share at the midpoint of the sales and revenues outlook, or adjusted profit per share of about $3.75. The company now expects to incur about $1.2B of restructuring costs in 2017. The outlook does not include potential mark-to-market gains or losses related to pension and other post-employment benefit plans.

2. RETAIL MACHINES SALES

On August 18, Caterpillar reported retail machines sales in the three months ending in July were up 12%. For reference, retail sales of machines were up 7% in the period ending in June and up 8% in the period ending in May.

The company reported world Resources Industries sales up 8% in the July-end period, compared to a June period decline of 1%.

Construction Industries world sales were up 13% in the July-end period, better than the 10% increase in the June-end period. Total Energy & Transportation Retail Sales were down 2% in the July-end period, worse than the 1% increase seen in the June period.

On September 21, Caterpillar reported retail machines sales in the three months ending in August were up 11%. For reference, retail sales of machines were up 12% in the period ending in August and up 7% in the period ending in June.

The company reported world Resources Industries sales up 5% in the August-end period, compared to a July period increase of 8%. Construction Industries world sales were up 12% in the August-end period, a tick worse than the 13% increase in the July-end period. Total Energy & Transportation Retail Sales were down 3% in the August-end period, worse than the 2% decrease seen in the July period.

On October 23, the company reported retail machines sales in the three months ending in September were up 13%. For reference, retail sales of machines were up 11% in the period ending in the prior month and up 12% in the period ending in July.

The company reported world Resources Industries sales up 8% in the September-end period, compared to a August period increase of 5%.

Construction Industries world sales were up 15% in the September-end period, better than the 12% increase in the prior period. Total Energy & Transportation Retail Sales were up 5% in the September-end period, better than the 3% decrease seen in the prior three-month period.

3. MANAGEMENT CHANGES

On August 1, Caterpillar announced that Chief Financial Officer Brad Halverson will retire in early 2018. The company added that it will launch a global, external search to fill the CFO position and Halverson’s decision to continue working into early 2018 helps to ensure a smooth transition for the CFO position.

On August 10, the company’s board appointed former U.S. senator Kelly Ayotte to the board and will be a member of the Public Policy & Governance Committee of the board. Senator Ayotte’s appointment was effective on that date.

On August 11, the company appointed Suzette Long as the company’s general counsel and corporate secretary. The group she will lead includes Caterpillar’s Legal Services Division and Global Government & Corporate Affairs Division.


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GE Disappoints!

GE shocks with ‘unacceptable’ results, guidance cut

GE gets $15B contract from Saudi Arabia

Shares of General Electric (GE) are lower in Friday’s  trading after the company reported quarterly profit that missed consensus estimates by 20c per share.

GE also cut its outlook for fiscal 2017 as new CEO John Flannery called the results “unacceptable.”

MISS AND CUT

GE this morning reported third quarter industrial operating earnings per share of 29c excluding restructuring charges, missing analysts’ estimates of 49c.

Total revenue for the quarter was $33.47B, which beat analysts’ expectations of $32.56B.

The company said that while the majority of its business units had “solid” earnings performance, “this was offset by a decline in Power performance in a difficult market.” “This was a very challenging quarter,” CEO John Flannery said.

Looking ahead, GE cut its FY17 EPS view to $1.05-$1.10 from $1.60-$1.70, well below estimates of $1.53.

“We are focused on redefining our culture, running our businesses better, and reducing our complexity,” Flannery added.

EXECUTIVE COMMENTARY

On GE’s earnings call, Flannery said the results were “unacceptable to say the least” and that while there are many areas of strength at the company, “it’s clear we need to make some major changes.”

Flannery said GE is doing “deep dives” on all aspects of the company, adding that “everything is on the table and there have been no sacred cows.” The company has started to outline its restructuring plans, saying it plans to exit more than $20B of its businesses in the next one to two years, but noted that the dividend is a “priority.”

STRATEGY UPDATE UPCOMING

GE is planning to update its company strategy and 2018 framework on November 13. Flannery has already been cutting jobs, research operations and corporate jets and cars.

PERSONNEL CHANGES

GE has also undertaken personnel changes, including the earlier-than-expected retirement of Chairman Jeff Immelt. According to a spokeswoman, “[Immelt felt Flannery] is prepared to be chairman and CEO now and leaving GE allows him to look at opportunities outside the company.”

Additionally, on October 6, GE said CFO Jeff Bornstein would leave the company on December 31 and will be succeeded by GE Transportation CEO Jamie Miller.

Bornstein said on today’s earnings call that GE was not “living up to our own standards or investor standards and the buck stops with me.”

Earlier this month, GE announced the election of Trian Fund’s Ed Garden to its board to replace Robert Lane, who is retiring. Trian’s Nelson Peltz said he had pushed to get Garden on GE’s board to “bring a fresh mindset.”

‘SHOCKING’ RESULTS

Deutsche Bank analyst John Inch called GE’s weaker than expected Q3 results this morning “shocking,” noting that the company “falls well short” of generating enough cash to pay its $8B common dividend from operations, which raises the prospects of a pending dividend cut and/or raising financial leverage to pay for the dividend. He has a Sell rating and $21 price target on GE shares.

Meanwhile, Citi analyst Andrew Kaplowitz said the earnings report indicates that the mounting challenges developing over time in the Power business now appear to be fully materializing. Kaplowitz, who has a Buy rating and $31 price target on GE, thinks shares could potentially be approaching a bottom.

PRICE ACTION

GE shares are down about 3%  at $22.72, improving quickly from their opening lows. The early drop pushes the stock’s year-to-date losses to nearly 30%. Shares have a 52-weeks trading range of $22.10 – $32.38.


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Barron’s is bullish on JD.com, Softbank

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names: 

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M&A may be easiest way for Google to catch-up in the Cloud – Alphabet’s (GOOG; GOOGL) Google has been chasing competitors Amazon (AMZN) and Microsoft (MSFT) in cloud computing, Tiernan Ray writes in this week’s edition of Barron’s. The easiest way to close in may be through M&A, the publication notes, with rumors saying Alphabet could contemplate a deal as large as buying Workday (WDAY) or Salesforce (CRM).

JD.com could rise 25% or more – With the China Single’s Day – the biggest shopping day of the year – less than a month away, investors looking for growth stocks in the country may want to look to JD.com (JD), its number two online retailer after Alibaba (BABA), Jack Hough writes in this week’s edition of Barron’s. JD.com stock could gain 30% or more in the next year, he adds.

Post-Peltz, P&G must to do more than cut costs – Last week, Procter & Gamble (PG) announced that its eleven standing board members won re-election, while activist Nelson Peltz had not won a seat, Vito Racanelli writes in this week’s edition of Barron’s. Nonetheless, Peltz has yet to concede, saying the vote remains too close to call, with an independent inspector expected to certify the results, the publication adds. Management’s victory means that its CEO David Taylor is on “a short leash,” facing the task of doing more than just cutting costs, Racanelli contends.

Softbank shares can still go higher – SoftBank (SFTBF) is reportedly ready to announce a $10B deal to buy up to 17% of Uber, as it negotiates a merge of its Sprint (S) unit with rival T-Mobile (TMUS) to challenge Verizon (VZ) and AT&T (T), Assif Shameen writes in this week’s edition of Barron’s. SoftBank stock is up 27% year to date and 140% from the lows of February 2016, but its shares can go still higher, the publication adds.

Time to rethink how to play Wal-Mart. – Wal-Mart (WMT) has had a good run, so it is time to rethink how to play the stock, Steven Sears writes in this week’s edition of Barron’s. The sell-side analyst community may spend the next few months getting bullish on Wal-Mart’s digital future, while realizing that more than 4,000 retail stores offer competitive advantages, Sears noted, adding that the November earnings report should provide additional evidence for “analysts to update earnings models, raise price targets, and hike investment ratings.”


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KB Home CEO Punished

KB Home punishes CEO for rant at Griffin by cutting bonus

KB Home CEO Punished. See Stockwinners.com

Shares of KB Home (KBH) are in focus after the homebuilder said it would cut its chief executive officer’s bonus after a recording surfaced this week of Mezger berating his neighbor.

WHAT’S NEW

KB Home said in a regulatory filing that it will cut the annual bonus of President and CEO Jeffrey Mezger by 25% after he was caught on audio berating his neighbor, actress and comedian Kathy Griffin, and her boyfriend.

On a more than two-minute recording published by HuffPost, Mezger used sexist and homophobic slurs after Griffin and her boyfriend called the police with a noise complaint about the CEO, who went on a tirade when police officers arrived at the scene.

KB Home said its board decided to cut the bonus Mezger would have “otherwise been entitled to receive” because his “recent behavior in his personal dealings with a neighbor is unacceptable and a negative reflection on KB Home.”

The board also added that “If in the future there is any similar incident, he will be dismissed,” but noted that Mezger has been a “very effective CEO.”

WHAT’S NOTABLE

Mezger, who has been CEO of KB Home since 2006, received a salary of $1M in 2016 and nearly $8M in other compensation. He did not receive a cash bonus in 2016. The last time he received a bonus was 2014, according to filings.

UPCOMING EARNINGS

KB Home, which handily beat consensus estimates for its second quarter in June, is expected to report third quarter earnings on September 28.

The homebuilder previously forecast Q3 housing revenue of $1.08-$1.15B and raised its fiscal 2017 housing revenue view to $4.2B-$4.4B from $4B-$4.3B. However, hurricane activity ramped up doing Q3, with Harvey and Irma impacting areas of Texas and Florida in the past weeks, which could potentially impact KB Home’s results.

Yesterday, Mizuho analyst Haendel St. Juste told clients that builders’ margins could be hurt as labor and material costs rise following Harvey and Irma.

In a note to clients this morning, MKM Partners analyst Megan McGrath said that hurricane activity is likely to dominate the earnings conversations, and will likely focus on short-term topline impacts as well as medium-term impacts like labor shortages and commodity inflation.

McGrath noted that 35% of the homebuilder’s communities are in the Florida, Houston and San Antonio markets. She is also looking to see if the company’s order growth re-accelerated prior to the hurricanes.

OTHERS TO WATCH

Other publicly traded homebuilding companies include Lennar (LEN), Toll Brothers (TOL), Beazer Homes (BZH), D.R. Horton (DHI), Hovnanian (HOV) and PulteGroup (PHM).

PRICE ACTION

Shares of KB Home slid nearly 3% yesterday as the CEO’s rant was widely re-circulated on various media channels. In Thursday morning’s trading, the stock is up 0.5% to $20.81.


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Barron’s is bullish on Cullen/Frost and Caterpillar

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names:

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BULLISH  MENTIONS

Affiliated Managers bull case ‘working out well,’ – In a follow up story, Barron’s says that Affiliated Managers (AMG) stock has jumped about 25% over the past 12 months but the opportunity is not over.

Betting on Cullen/Frost (CFR) stock could produce a 25% gain – Frost Bank has survived the Great Depression, the oil-patch bust of the 1980s, and the housing bubble of the 2000s, but investors seem to be betting it will have a tough time handling Texas latest challenges, namely weak energy prices and the effects of Hurricane Harvey, Lawrence Strauss writes in this week’s edition of Barron’s. However, he believes anyone making that wager is likely to lose in the long run, with the shares of its parent Cullen/Frost Bankers looking like a bargain for patient investors who could have a 25% gain.

Caterpillar, Analog Device among few stocks rising on earnings surprises – Until recently, companies that beat quarterly earnings estimates could routinely expect shares to rise, but not anymore, Jack Hough writes in this week’s edition of Barron’s. Although there is a shortage of true upside surprises, Hough says there are still some, with Align Technology (ALGN), Analog Services (ADI), Caterpillar (CAT), E-Trade Financial (ETFC) and Red Hat (RHT) among those who beat earnings and revenue estimates and enjoyed quick share price gains as a result, which should bode well for future performance.

 

BEARISH  MENTIONS

Equifax breach unsettles online investors – Equifax (EFX) breach unsettles online investors, with brokers stressing the need for getting rid of Social Security IDs and for close monitoring of accounts for unusual activity, Theresa Carey writes in this week’s edition of Barron’s.

Almost no one expecting FedEx results to be good– FedEx  (FDX) is set to report first-quarter earnings on Tuesday, and almost no one is expecting them to be good, Ben Levisohn writes in this week’s edition of Barron’s. Levisohn argues, however, that just because FedEx is “an express shipper doesn’t mean we need to rush to judgment,” and says sitting back and waiting to see how TNT plays out looks like the best strategy.

Goldman Sachs might be underdog – Goldman Sachs (GS) is rarely thought of as an underdog, but it might be right now, Ben Levisohn writes in this week’s edition of Barron’s. Goldman’s decline is a result of its own missteps, Levisohn notes, adding that if it can correct its problems, its stock may be able to close the performance gap with its peers.


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Dover to Sell its Upstream Energy Unit

Dover to explore strategic alternatives of separation of upstream energy unit

Dover to explore strategic alternatives for upstream energy unit. See Stockwinners.com for details

Dover (DOV) announced that it is exploring strategic alternatives for the separation of its upstream energy businesses within its Energy segment, collectively, the “Wellsite” business.

The Company is considering options which may include a tax-free spin-off, sale or other strategic combination.

Dover’s Wellsite business, including Dover Artificial Lift, Dover Energy Automation, and US Synthetic, operates in some of the most attractive segments of the oil & gas drilling and production industry.

Dover Artificial Lift is a leading provider of a full range of artificial lift equipment and solutions and includes the industry-leading brands Norris, Harbison-Fischer, Accelerated, PCS Ferguson and Oil Lift.

Dover Energy Automation provides wellsite productivity software, equipment and IIoT solutions and includes the leading brands Norriseal-Wellmark, Spirit, Quartzdyne, Theta and Windrock.

USS is the industry leader in the development and production of polycrystalline diamond cutters used for oil and gas exploration.

In 2017, the Wellsite business is expected to generate approximately $1B in revenue and $250 million in earnings, before interest, taxes, depreciation and amortization.

The Bearings & Compression and Tulsa Winch Group businesses, which are also reported within the Energy segment, are not part of the strategic review.

“Today’s announcement continues our strategy of streamlining our portfolio to focus and invest in our core platforms of market-leading businesses competing in attractive industrial markets that offer lower volatility and strong growth prospects,” said Robert Livingston, Dover’s President and CEO.

“As a result of our strategic review, we have decided to explore options for separating the Wellsite business. Over the years our teams have built Wellsite into a great set of businesses that are leaders in their markets, differentiated by their technology, customer service and trusted brands, and that have generated high returns for our shareholders,” Livingston added.

“We are pleased with the performance of the business in 2017 and the momentum heading into 2018, and will leverage these strengths as we complete a review of separation alternatives to assess which option we believe will create the best long-term results for the businesses and the most value for shareholders.”

Dover expects to complete its assessment of strategic separation alternatives by the end of the year.


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Travel Stocks Lower on Hurricane Irma

Cruise line operators slammed as Irma prepares to make landfall

Cruise Line Stocks tumble as Iram approaches Florida. See Stockwinners.com for details

Shares of cruise line operators are in focus amid concerns about the potential impact of Hurricane Irma on the cruise and travel industries, as well as the lingering effect of Hurricane Harvey.

HURRICANE IRMA

Hurricane Irma, which has intensified into a Category 5 storm, is forcing cruise operators to cancel or divert ships as it heads towards the Caribbean and the Florida coast.

The National Hurricane Center has said Irma is a “potentially catastrophic storm” with winds up to 185 miles an hour that will move toward the Virgin Islands and Puerto Rico later this week and then make its way toward Turks and Caicos, the Bahamas and Cuba before heading toward the Florida coast. Hurricane Harvey recently caused widespread damage when it hit the Houston area, with cruise operators rerouting some vessels and canceling other voyages to avoid the storm.

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IMPACT ON CRUISE OPERATORS

Cruise line operators are monitoring the storm, canceling voyages that haven’t left port and rerouting other ships to avoid stops at islands that may be affected.

According to reports, Norwegian Cruise Line (NCLH) will bring its two Miami-based ships back home ahead of schedule to avoid the storm. Both the 2,004-passenger Norwegian Sky and 4,248-passenger Norwegian Escape will return to Miami from Caribbean trips on Thursday instead of Friday and Saturday, respectively. The cruise operator also canceled sailings of the ships that were scheduled to begin on Friday and Saturday.

Yesterday, Royal Caribbean (RCL) canceled two sailings of Port Canaveral and Miami-based vessels to the Bahamas scheduled to begin on Friday and is rerouting one ship to the west and evaluating other sailings to the Caribbean, Cuba and Bermuda.

Carnival (CCL, CUK) has rerouted four vessels from an Eastern Caribbean to a Western Caribbean itinerary for the week, with a spokeswoman saying “We are watching Irma closely, but we are not canceling any sailings as of now.”

ANALYST COMMENTARY

Morgan Stanley analyst Jamie Rollo said on Tuesday that cruise demand is “solid,” but softened “a little” in August from July due to adverse weather, terror attacks and a U.S. travel warning for parts of Mexico. The analyst thinks Carnival, which reports earnings on September 26, will guide to slower yields in Q4. The firm remains “relatively cautious” on cruise stocks, but raised its price target on Carnival to $61 from $59.

OTHERS TO WATCH

Airline stocks, including American Airlines (AAL), United Continental (UAL), Southwest Airlines (LUV) and Delta Air Lines (DAL) are also on hurricane watch, and will likely be canceling flights in the affected areas.

This morning, United CFO Andrew Levy said Hurricane Harvey was the “largest operational impact we’ve had in the company’s history” and lowered its third quarter pre-tax margin and PRASM guidance. American Airlines President Robert Isom said the company is “keeping an eye” on Irma.

PRICE ACTION

In Wednesday’s trading, shares of Norwegian are down about 1%, Carnival shares trading in New York are down 0.5% and Royal Caribbean is down 1.2%.


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Harvey’s Winners and Losers

Harvey impact seen as boon for some E&Cs, bane for others

Insurance Stocks down on Harvey. See Stockwinners.com Market Radar for details

As Harvey leaves a path of destruction in Texas, Citi analyst Andrew #Kaplowitz tells investors he sees potential impacts for Engineering & Construction names he covers, both positive and negative.

Meanwhile, his peer at Wells Fargo noted that multiple Houston area refineries have initiated shutdowns or curtailed operations, and may remain offline.

IMPACT FOR E&CS

Commenting on the potential impact of Hurricane Harvey, Citi’s #Kaplowitz noted that he sees potential impacts for his Engineering & Construction names, both positive and negative.

While it is way too early to tell how much ultimate impact the storm will have on the companies he covers, the analyst told investors he thinks there could be modest positive impacts for Jacobs Engineering (JEC), Fluor (FLR) and potentially Aecom (ACM) and for Quanta Services (PWR) and MasTec (MTZ), as E&Cs can assist with recovery and relief.

Additionally, he sees potentially negative impacts for Chicago Bridge & Iron (CBI). There are several larger projects still currently under construction on the Texas Gulf Coast and Southern Louisiana that could be significantly impacted by flooding rains, Kaplowitz pointed out, including CBI’s Cameron and Freeport LNG, and Axiall/Lotte Cracker, and Fluor’s CP Chem Ethylene Cracker and Sasol’s Cracker.

Nonetheless, the analyst acknowledged that forecasting any negative impact on these projects would be “highly speculative” at this point.

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ROOFING and BUILDING SUPPLY STOCKS

One primary beneficiary of any natural disaster of this magnitude would be supplier of products that are needed to rebuild. Here are a list of such companies:

  • Beacon Roofing (BECN): The company is a maker of roof shingles
  • Home Depot (HD)
  • Lowes (LOW)
  • Lumber Liquidator (LL)
  • United Rentals (URI)
  • Waste Management (WM)
  • Republic Industries  (RSG)

IMPACT FOR REFINERS

Significant portions of U.S. refining capacity are offline following Category 4 Hurricane Harvey’s landfall on the middle Texas Coast and epic flooding in the Houston area, Wells Fargo’s Roger Read noted.

The analyst told investors that the majority of the refining units from Corpus Christi to Houston, Texas are offline and will remain so for much if not all of the coming week.

With approximately 25% of Gulf Coast refining capacity offline the impact of Hurricane Harvey is on par with prior major hurricane impacts on the Gulf Coast, he contended, adding that disruptions to normal activities may persist, crack spreads are likely to remain elevated and refining equities are likely to respond positively.

Nonetheless, Read noted that it is unclear if the flooding has damaged the refining units. Including condensate splitters, the analyst estimates 2.5-3.0 million barrels per day of refining capacity is offline, which represents just over one-quarter of Gulf Coast capacity and about 15% of U.S. refining capacity. Publicly traded companies in the refining space include Delek US (DK), HollyFrontier (HFC), Marathon Petroleum (MPC), Phillips 66 (PSX), Tesoro (TSO), Valero (VLO) and Western Refining (WNR).

PRICE ACTION

Fluor and Aecom are fractionally up in late morning trading, Quanta Services has gained almost 2%, and MasTec and CBI have risen about 1%. HollyFrontier has jumped almost 7%, while Marathon Petroleum and Philips 66 are up 1% and Valero has gained about 2%.


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Insurance Stocks down on Harvey

Property & Casualty insurers under pressure in Harvey aftermath

Insurance Stocks down on Harvey. See Stockwinners.com Market Radar for details

Hurricane Harvey made landfall late Friday night as a Category 4 storm, with sustained winds of 130mph. The storm was the first Category 4 hurricane to hit the continental U.S. in over a decade.

Winds slowed throughout the day Saturday, with Harvey becoming a tropical storm by afternoon.

Commenting on what Harvey will mean for Property & Casualty insurers, #JPMorgan analyst Sarah #DeWitt told investors that this could result in up to $20B of insured losses, while her peer at Deutsche Bank argued that Harvey is likely less severe for insurers than feared.

HARVEY SEEN AS IN TOP 10 MOST COSTLY HURRICANES

In a research note to investors this morning, JPMorgan’s DeWitt noted that Harvey continues to linger and is far from over, bringing catastrophic amounts of flooding to the coast of Texas, including the Houston/Galveston area.

While it is early days and Harvey is expected to bring even more rain and flooding for another week, the analyst said her best guess at this point is the storm could result in $10B-$20B of industry insured losses, making it one of the top 10 most costly hurricanes to hit the U.S.

Further, DeWitt argued that while Harvey appears to be more of a flood event, noting that flooding is not covered under homeowner’s insurance though it is covered under commercial insurance and could result in meaningful losses for the commercial reinsurers and insurers.

The analyst listed Validus (VR), RenaissanceRe (RNR), Everest Re (RE), XL Group (XL), Arch Capital (ACGL), Travelers (TRV), Chubb (CB), Allstate (ALL) and Progressive (PGR) as the property casualty insurers with the most exposure to Texas hurricanes.

Meanwhile, Morgan Stanley analyst Kai #Pan told investors in a research note of his own that uncertainty surrounding losses from Harvey could pressure Property & Casualty carriers in the near-term.

Flood losses could dwarf wind losses, impacting commercial players more than personal, he noted, adding that Hartford Financial Services (HIG) and Travelers are top Texas commercial insurers among his coverage.

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LESS SEVERE THAN FEARED

Striking between Corpus Christie and Galveston, insured loss costs are probably lower than they would be had the storm landed further south and most certainly had it tracked further north, Deutsche Bank analyst Joshua #Shanker argued.

Windspeeds were generally higher than expected, and while the storm surge reached two to three feet in some areas, the analyst noted that it was not as high as was feared.

Shanker expects losses to skew toward the residential market as opposed to the commercial markets, with homeowners’ flood losses generally not covered by private insurance.

The analyst pointed out that he believes commercial carriers like AIG (AIG) and Chubb will generally avoid significant exposure to the event, and personal insurers like Allstate and Progressive will generally be exposed to flooded automobiles.

In all cases, Harvey could best be described as an earnings event and not a balance sheet event, he contended.

PRICE ACTION

In Monday morning’s trading, shares of AIG have slipped about 1%, while Everest Re and Travelers have dropped almost 3%. Validus, RenaissanceRe, Arch Capital, Chubb, Allstate, Progressive and Hartford Financial Services have slid about 2%.


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Allied Building Products Sold for $2.625 Billion

Beacon Roofing to acquire Allied Building Products from CRH for $2.625B in cash

Beacon Roofing to acquire Allied Building Products from CRH for $2.625B in cash. See Stockwinners.com Market Radar for details.

Beacon Roofing Supply (BECN) announced that the company has entered into a definitive purchase agreement to acquire Allied Building Products from global diversified building products group CRH (CRH) for $2.625B in cash.

#Beacon expects to finance the acquisition with approximately $2.2B of debt financing through an upsized ABL revolving credit facility, an upsized term loan B facility, a new unsecured senior note and approximately $500M of committed convertible preferred equity financing from an entity affiliated with the investment firm Clayton, Dubilier & Rice, which in October 2015 sold Roofing Supply Group to Beacon.

The parties currently expect to consummate the transaction on or around January 2, 2018, subject to satisfaction of customary closing conditions.

The combination of Beacon and Allied will make Beacon one of the largest publicly traded wholesale building materials distributors in North America with pro forma revenues of approximately $7B and 593 branches in all 50 states and 6 provinces across Canada.

Beacon will also become the fourth largest wallboard and acoustical ceiling tile wholesale distributor in the U.S., with more than $1B of revenue in the interior market category.

The combined company is expected to realize $110M in annual run-rate synergies within two years of closing.

Excluding year one incremental transaction-related amortization of approximately $70-80 million and year one acquisition costs of approximately $65-75 million, Beacon expects the transaction will be immediately accretive to adjusted earnings per share by approximately $0.50-0.60 in year one.

Beacon expects the transaction will be accretive to GAAP earnings per share in year two. Following the close, Beacon expects rapid de-levering to result from the anticipated combined EBITDA of the new Beacon entity, realization of cost savings and strong pro forma free cash flow generation.

The trailing twelve month June 30, 2017 Adjusted EBITDA of Allied coupled with significant run rate synergies of $110M results in a transaction purchase multiple of 8.7x. Following completion of the transaction, Isabella will continue to serve as President and CEO of the combined company, and Buck will remain Chairman of the Board of Directors. Feury, CEO of Allied, will continue in a key executive leadership role, focused on integration and growth, reporting to Isabella.

Philip Knisely, an advisor to the CD&R Funds, will remain on Beacon’s Board of Directors. Sleeper, a Partner at CD&R, will rejoin Beacon’s Board of Directors.


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Barron’s is Bullish on Starbucks, Bearish on Motorola Solutions

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names:

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BULLISH MENTIONS

Advance Auto Parts hit wall on Q2 results, but turnaround intact – In a follow up story, Barron’s says Advance Auto Parts (AAP) ran into a brick wall when it reported Q2 adjusted EPS of $1.58, below analyst expectations of $1.66, with revenue flat at $2.26B. Nonetheless, Advance Auto remains an “attractive self-help story,” with the turnaround expected to become clearer in Q4 and beyond, the publication noted

Gardner Denver integrated strategy beginning to pay off – Under KKR (KKR), who bought the company for $3.9B in 2013, Gardner Denver (GDI) has retooled its compressor and pump business, Jack Willoughby writes in this week’s edition of Barron’s. Based on Gardner Denver’s first quarterly report as a born-again public company, the integrated strategy is beginning to pay off, the publication noted, saying that upside is 40%.

Lockheed Martin should benefit from boost in military outlays – Large-cap defense stocks have had 20%-plus total returns over the past year, and more gains could be ahead for shares of the No. 1 U.S. defense contractor, Lockheed Martin (LMT), Lawrence Strauss writes in this week’s edition of Barron’s. An expected boost in U.S. military spending amid global tensions is driving the defense sector, the publication noted, adding that President Trump’s initial budget proposal for fiscal 2018 calls for a 9% increase.

Retail stocks swings could provide opportunity – This earnings season, retail companies are “either hitting a home run or striking out,” with misses from Foot Locker (FL),  and L Brands (LB), while Urban Outfitters (URBN) and Ross Stores (ROST) were massive winners, Ben Levisohn writes in this week’s edition of Barron’s. While this could be a new normal for retail stocks, the market’s sudden swings could provide opportunity, the publication noted.

Starbucks could jump 20% – There were plenty of reasons for skepticism when Starbucks (SBUX) rolled out its digital ordering system nationally in September 2015, but the company’s mobile order-and-pay feature has become a major hit, Alex Eule writes in this week’s edition of Barron’s. In the last quarter, 9% of Starbucks’ U.S. orders were placed in advance, and nearly a third of all its orders were paid for via the company’s phone app, the publication noted. Eule believes that the stock could jump 20% or more over the next 12 months

BEARISH MENTIONS

Public-safety broadband network may supplant Motorola systems – FirstNet has tapped AT&T (T) to build a public-safety network that could link every police, fire, and emergency medical officer in the U.S., Bill Alpert writes in this week’s edition of Barron’s. Alpert says it is a “nice opportunity” not only for AT&T, but also for cellular infrastructure providers like Crown Castle International (CCI), SBA Communications (SBAC), American Tower REIT (AMT), and CommScope Holding (COMM). However, it could produce “terrible static” for Motorola Solutions (MSI), the supplier of most traditional two-way radios, the publication noted, adding that eventually FirstNet may supplant the old systems.


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