Xcerra sold for $796 million

Cohu to acquire Xcerra in cash, stock deal valued around $796M

Xcerra sold for $796 million, Stockwinners
Xcerra sold for $796 million, Stockwinners

Cohu (COHU) and Xcerra (XCRA) announced they have entered into a definitive merger agreement pursuant to which Cohu will acquire Xcerra for a combination of cash and stock.

The acquisition is expected to make Cohu a global leader in semiconductor test, with combined sales for Cohu and Xcerra in excess of $800M for the last twelve months.

Upon the closing of the transaction, Xcerra shareholders will be entitled to receive $9.00 in cash and 0.2109 of a share of Cohu common stock, subject to the terms of the definitive agreement.

Based on the closing price of Cohu common stock as of May 7, 2018, the transaction values Xcerra at $13.92 per share, or approximately $796M in equity value, with a total enterprise value of approximately $627M, after excluding Xcerra’s cash and marketable securities net of the debt on its balance sheet as of January 31, 2018.

The transaction value represents a premium of 8.4% to Xcerra’s closing price on May 7, 2018, and a premium of 15.4% to Xcerra’s 30-day average closing price.

The transaction is expected to be immediately accretive to non-GAAP earnings per share and generate over $20M of annual run-rate cost synergies within 2 years of closing, excluding stock-based compensation and other charges.

Xcerra shareholders are expected to own approximately 30% of the combined company upon the closing of the transaction. The transaction has been unanimously approved by the boards of both companies.

The transaction is expected to close in the second half of calendar year 2018, subject to approval by both companies’ respective shareholders, antitrust regulatory approvals and other customary closing conditions.


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Barron’s is bullish on Apple and Exxon

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

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin
Stockwinners offers Barron’s review of stocks to buy, stocks to watch

BULLISH   MENTIONS

Apple reaffirms position as tech’s ‘undisputed’ leader – In a follow-up story, Barron’s says that with its earnings report last week, Apple (AAPL) flexed its financial muscle and reaffirmed its position as “tech’s undisputed leader.” Fiscal second-quarter iPhone sales came in roughly as expected, while the company’s total profit was slightly ahead of estimates, the report notes, adding that Apple’s real surprise came from its updated buyback plans. Investors rewarded the company with its best five-day stretch in the stock market since October 2011, Barron’s says.

Apple raking in profits amid technology impasse – Warren Buffet’s Berkshire Hathaway (BRKA) has bought another 75M shares of Apple (AAPL), Tiernan Ray writes in this week’s edition of Barron’s. While the current impasse for technology is going to continue to reduce new opportunities for Apple, for competitors such as Samsung (SSNLF) and suppliers like Qorvo (QRVO), there is enough wealth in the steady supply of what exists to keep investors like Buffett delighted with the cash flow, he contends. Milking it, at the moment, triumphs over innovation, Barron’s says.

Boeing eyeing ‘air supremacy’  – Boeing  (BA) announced last week that it would acquire KLX, whose products include airplane parts, as part of the aircraft manufacturer’s long-term plan to bolster its presence in parts, components, and services, Lawrence Strauss writes in this week’s edition of Barron’s. This is a trend investors should keep an eye on, he contends.

Sarepta winning over investors – Sarepta Therapeutics (SRPT) has been winning over investors with rising sales of its drug to treat Duchenne muscular dystrophy and a promising pipeline of drugs targeted at the fatal muscle-wasting disease, Andrew Bary writes in this week’s edition of Barron’s. Part of the optimism surrounding Sarepta is that it can bring to market two drugs similar to Exondys 51, which treats about 13% of DMD patients, he notes, adding that these drugs – casimersen and golodirsen – target mutations at other points on the dystrophin gene and could treat another 16% of DMD patients.

Exxon Mobil looks appealing – Demand for oil and natural gas is expected to be strong for decades and to capitalize on this growth, Exxon (XOM) has an ambitious plan to increase the company’s energy output by 25% and more than double earnings by 2025, Andrew Bary writes in this week’s edition of Barron’s. At a share price of $77, Exxon looks “appealing,” he adds.

BEARISH  MENTIONS

Wolverine may face mounting cleanup costs – The Scotchgard chemicals that gave stain resistance to Wolverine’s Hush Puppies shoes have leached into wells and aquifers from rusting barrels of sludge and other factory waste scattered around Michigan’s Kent County, where Wolverine (WWW)  used the chemicals for about 50 years, Bill Alpert writes in this week’s edition of Barron’s. The footwear firm has provided water filters to area homes and last year it set aside $35M to cover expected legal and remediation costs, but the question is whether $35M is enough, Barron’s notes.


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Barron’s is bullish on GM and Delta

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

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Stockwinners offers Barron’s review of stocks to buy

BULLISH   MENTIONS:

Delta, GM look cheap, with growth potential – While a solid start to earnings season helped push share prices higher earlier this week, some remain deeply discounted, Jack Hough writes in this week’s edition of Barron’s. Despite Delta Air Lines’ (DAL) pessimistic valuation, consolidation has left only a handful of key players and the company faces less competition in key markets than some of its peers, the report adds. Additionally, Goodyear Tire (GT), General Motors (GM) and Lincoln National (LNC) also made the valuation cutoff, Hough says.

General Mills shares fall to ‘bargain territory.’  – General Mills (GIS) has fallen 27% so far this year and while the drop seems deserved because earnings growth has stalled, a closer look suggests sales trends are improving, thanks in part to new-product launches, Jack Hough writes in this week’s edition of Barron’s.

Cruise operators can offer ‘nice’ yields, solid dividend growth – Cruise operators, like Carnival (CCL), Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH), can offer nice yields and solid dividend growth, but economic downturns can pressure payouts, Lawrence Strauss writes in this week’s edition of Barron’s. Another option for investors looking for yield among cruise operators is Walt Disney (DIS), the report added. The entertainment company has a wide variety of holdings, and while its cruise business did not account for a large portion of its $55B of sales last year, it is not insignificant either.

Tech giants may make own custom chips to get edge on one another. – There has been a tension between the world’s largest tech companies- Alphabet (GOOG; GOOGL), Amazon (AMZN), Facebook (FB), Apple (AAPL), Microsoft (MSFT), Baidu (BIDU), and Alibaba (BABA)-and the chip companies they rely on, especially Intel (INTC) and Nvidia (NVDA), Tiernan Ray writes in this week’s edition of Barron’s. While the giants buy massive quantities of Intel’s microprocessors, and Nvidia’s graphics chips, or GPUs, to power their data centers, they are also in an arms race to have the best artificial-intelligence-based machine-learning functions, the report noted, adding that there was always the possibility they may decide to buy fewer off-the-shelf parts and make their own custom chips to get an edge on one another.

 MPL valuations look cheap – Master limited partnerships’ valuations appear cheap, and U.S. energy production is thriving, lifting cash flows for pipeline firms, Darren Fonda writes in this week’s edition of Barron’s. MLP, such as Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP), MPLX (MPLX), Plains All American Pipeline (PAA), could reward investors with higher yields as cash flows rise, Fonda adds.

OTHER MENTIONS

Trump’s tweets politicize U.S. markets, Barron’s says – With President Donald Trump, both politics and business appear personal as he continues his tweets aimed at individual companies, Vito Racanelli writes in this week’s edition of Barron’s. Before and after the election, he consistently aimed arrows at Amazon.com (AMZN) and at the proposed acquisition of Time Warner (TWX) by AT&T (T), the report noted. The President is not alone in singling out companies, Racanelli points out, adding that Democratic candidate Hillary Clinton also took issue with Mylan’s (MYL) price increases for its EpiPen. Maybe it is a sign of the times, but the rise of powerful social-media platforms is the key enabling factor, the report said.


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CACI withdraws offer to acquire CSRA

CACI withdraws offer to acquire CSRA

 

CSRA sold for $9.6 billion. Stockwinners.comCACI withdraws offer to acquire CSRA

CACI International (CACI) announced that it has withdrawn its previously announced offer to acquire all outstanding shares of CSRA (CSRA) for $44.00 per share in cash and stock.

CACI delivered a letter withdrawing its offer to CSRA’s Board Chair and CEO.

With regard to the decision to withdraw its offer, CACI CEO Kenneth Asbury commented, “CACI continues to believe that CACI and CSRA would be the superior strategic and financial business combination. The potential for such a high value and transformational transaction certainly warranted our pursuit of this unique opportunity. We will continue our aggressive pursuit of strategic opportunities, judiciously and without engaging in auctions at uneconomic levels…As demonstrated by our performance and increased guidance for Fiscal Year 2018, CACI is in a strong position for future growth.

We will continue to evaluate new opportunities to grow our business in ways consistent with our disciplined approach to M&A and the capture of major programs.

We are very confident in our time-tested business strategy to bring our unique, innovative, value-add capabilities to our customers and marketplace, and our commitment to increase shareholder value.”

General Dynamics (GD) and CSRA recently announced that they have entered into an amendment to their definitive merger agreement under which General Dynamics will acquire all outstanding shares of CSRA for $41.25 per share in cash, an increase from the prior $40.75 per share offer.


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General Dynamics raises CSRA offer to $41.25 per share

General Dynamics raises CSRA offer to $41.25 from $40.75 a cash

CSRA receives $44 a share buyout offer. Stockwinners.com
 General Dynamics raises CSRA offer to $41.25 from $40.75 a cash

General Dynamics (GD) and CSRA (CSRA) announced that they have entered into an amendment to their definitive merger agreement under which General Dynamics will acquire all outstanding shares of CSRA for $41.25 per share in cash, an increase from the prior $40.75 per share offer.

The transaction is now valued at $9.7B, including the assumption of $2.8B in CSRA debt.

In connection with the amended merger agreement, CSRA’s Board of Directors determined that the previously announced unsolicited proposal from CACI International, Inc to acquire CSRA could not reasonably be expected to lead to a Company Superior Proposal.

 General Dynamics raises CSRA offer to $41.25. Stockwinners.com
General Dynamics raises CSRA offer to $41.25 a share

In reaching that determination, CSRA’s Board of Directors took into account various factors, including among others, the value, certainty of value, certainty of closing and speed to closing of the General Dynamics offer, as amended, as compared to the CACI proposal.

CSRA’s Board of Directors recommends that CSRA stockholders tender their shares of CSRA common stock pursuant to the General Dynamics tender offer. Under the terms of the merger agreement, as amended, on March 5, 2018, General Dynamics commenced a cash tender offer to purchase all of the outstanding shares of CSRA common stock.

Today, the offer price was increased from $40.75 per share to $41.25 per share in cash. The tender offer and any withdrawal rights will expire at 11:59 pm, New York City time, on Monday, April 2, 2018, unless extended.

If the tender offer is completed, the parties expect to complete the merger as soon as practicable thereafter. At the effective time of the merger, CSRA will become a wholly owned subsidiary of General Dynamics.


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CSRA receives $44 a share buyout offer

CSRA confirms receipt of unsolicited proposal

 

CSRA receives $44 a share buyout offer. Stockwinners.com
CSRA receives $44 a share buyout offer. Stockwinners.com

CSRA (CSRA) confirmed receipt of an unsolicited proposal from CACI International (CACI) to acquire all of the outstanding shares of CSRA common stock for a combination of CACI common stock and cash, consisting of CACI common stock based on a fixed exchange ratio of 0.184 shares of CACI common stock for each share of CSRA common stock, and cash equal to $15 per share.

The combination of cash and stock is equal to approximately $44 per share, based upon CACI’s closing price on March 16, 2018 of $157.45 per share.

As previously announced on February 12, 2018, following unanimous approval from the company’s Board of Directors, CSRA entered into an Agreement and Plan of Merger with General Dynamics Corporation (GD) under which a wholly owned subsidiary of General Dynamics has agreed to acquire all outstanding shares of CSRA common stock for $40.75 per share in cash. Pursuant to the Merger Agreement, a wholly owned subsidiary of General Dynamics has commenced a tender offer to acquire all of the outstanding shares of CSRA common stock for $40.75 per share in cash.

The Offer is scheduled to expire at 11:59 p.m., New York City time, on April 2, 2018, unless extended or earlier terminated in accordance with the Merger Agreement.

CSRA’s Board of Directors, in consultation with its legal and financial advisors, will carefully review and consider the Proposal. CSRA remains subject to the Merger Agreement.

The CSRA Board of Directors has not changed its recommendation that CSRA stockholders tender their shares of CSRA common stock pursuant to the Offer.


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Gun stocks fall as pressure mounts on NRA

Gun stocks fall as corporate pressure mounts on NRA

Gun stocks fall as pressure mounts on NRA. Stockwinners.com
Gun stocks fall as pressure mounts on NRA – AR15

The National Rifle Association, or #NRA, an American organization that advocates for gun rights, is seeing public pressure mount from corporations that it has partnered with in the wake of the Parkland, Florida school shooting, which resulted in 17 deaths.

PARTNERSHIPS DROPPED

The nation’s largest privately owned bank, First National Bank of Omaha, said on Thursday that it will not renew its contract with the NRA for a branded Visa card.

A spokesman for the bank said in a statement, “Customer feedback has caused us to review our relationship with the NRA. As a result, First National Bank of Omaha will not renew its contract with the National Rifle Association to issue the NRA Visa Card.”

Additionally on Thursday, privately held Enterprise Holdings, which owns the Enterprise, Alamo, and National car rental brands, said it will end its partnership with the NRA — which gave NRA members discounts — next month.

FORMER PARTNERS DISTANCING THEMSELVES

Hotel companies Best Western and Wyndham Hotels, which were previously targeted for boycotts following the Newton, Connecticut elementary school shooting in 2012, have posted dozens of tweets each, letting customers know they are no longer affiliated with the NRA.

Wyndham tweeted repeatedly, “Please know, Wyndham is no longer affiliated with the NRA,” while Best Western tweeted a similar message, “Best Western Hotels & Resorts does not have an affiliation with and is not a partner of the National Rifle Association.”

MORE PARTNERSHIPS DROPPED

Over the course of the day, more companies joined the growing chorus, including Hertz (HTZ), which ended its rental car discount program with the NRA, Symantec (SYMC), which stopped its discount program with the NRA, Metlife (MET), which ended its insurance discount program with the NRA, and Chubb (CB), which will stop underwriting a NRA-branded insurance policy for gun owners.

PRICE ACTION

Publicly traded gunmakers are down in Friday’s trading on a day the broader markets are rising. American Outdoor Brands Corp (AOBC), formerly known as Smith & Wesson, is down 5.5% to $9.56, while Sturm Ruger & Company (RGR) is down 3.67% to $47.20.


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Barron’s in bullish on Citi, bearish on GE

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

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin
Stockwinners offers Barron’s review of stocks to buy, stocks to watch

BULLISH   MENTIONS: 

Hovnanian (HOV) stock too cheap to ignore- Hovnanian Enterprises offers an interesting speculative bet, because more than a decade’s worth of problems are reflected in the price, Brett Arends writes in this week’s edition of Barron’s. A successful resolution of its legal issues, a corporate turnaround, a takeover, or a continued recovery in the U.S. real estate market are all potential catalysts, he adds.

JPMorgan, Walmart cash flow yields exceed dividend yields – The cash flow yields of JPMorgan (JPM), Johnson & Johnson (JNJ), Walmart (WMT), Pfizer (PFE), Cisco (CSCO), AbbVie (ABBV), PepsiCo (PEP), 3M (MMM), Bristol-Myers (BMY), United Technologies (UTX), Texas Instruments (TXN) and Abbott Laboratories (ABT) exceed their dividend yields, a good signal for dividend coverage and growth, Lawrence Strauss writes in this week’s edition of Barron’s.

Alphabet, Citi well positioned for later stages of market rally – It is time for investors to think about how and when bull markets end, Jack Hough writes in this week’s edition of Barron’s. Groups to favor now include financials, which benefit from rising interest rates, and industrials, he notes, adding that technology still looks attractive. Alphabet (GOOG; GOOGL), Lam Research (LRCX), Citigroup (C), and Cummins (CMI) are all well positioned for the later stages of a long market rally, Hough contends.

Bears, bulls battle over Under Armour – In a follow-up story, Barron’s says that Under Armour (UA) reported fourth quarter revenue that beat Wall Street’s estimate, but is difficult to tell whether the revenue upside represents a turning point for the business. Bulls and bears both found something to support their arguments, as revenue increased but gross margin declined while inventories swelled and store count rose 22%, the report notes.

BEARISH  MENTION:

General Electric stock could drop another 10% – General Electric (GE) lost $6B in 2017 after a series of charges and impairments, cut its dividend by 50%, and its accounting is under investigation by the Securities and Exchange Commission, but lately it has been attracting fresh attention from value-oriented investors, Andrew Bary writes in this week’s edition of Barron’s. Nonetheless, the stock is not a bargain and could drop another 10% or more, he contends


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CSRA sold for $9.6 billion

General Dynamics to acquire CSRA for $40.75 per share or $9.6B in cash 

CSRA sold for $9.6 billion. Stockwinners.com
CSRA sold for $9.6 billion

General Dynamics (GD) and CSRA (CSRA) announced that they have entered into a definitive agreement under which General Dynamics will acquire all outstanding shares of CSRA for $40.75 in cash.

The transaction is valued at $9.6 billion, including the assumption of $2.8 billion in CSRA debt.

General Dynamics expects the transaction to be accretive to GAAP earnings per share and to free cash flow per share in 2019, and expects to generate estimated annual pre-tax cost savings of approximately 2% of the combined company’s revenue by 2020.

General Dynamics state: “We are committed to maintaining our strong credit ratings and using our robust cash flow for reduction of debt from the transaction, continuation of our dividend policy and the flexible deployment of capital, including ongoing investment in the business.”

CSRA Inc. delivers a range of information technology solutions and professional services to its U.S. government customers to modernize legacy systems, protect networks and assets, and enhance the mission-critical functions for war fighters and citizens. The company offers digital platforms and services, data and analytics, intelligent business processes, enterprise business services, and cyber security services.


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Barron’s is bullish on Danaher and GM

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

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin
Stockwinners offers Barron’s review of stocks to buy, stocks to watch

BULLISH   MENTIONS:

Danaher among more reliable stocks– Danaher’s (DHR) results were met with cries of sell even though they were stellar as ever, sending the shares into negative territory on Monday, Ben Levisohn writes in this week’s edition of Barron’s. Fast-forward to Friday, the stock market was in freefall but the stock weathered the blast, he notes, adding that there is something to be said for Danaher’s consistency. While it will never be the fastest grower, it has grown sales at 4%-5%, quarter after quarter, while cutting costs and improving efficiency to grow earnings, making it one of the more reliable stocks out there, the report says.

General Motors shares could rise more than 35% – General Motors (GM) has been turning in strong profits, which have helped it fund research into autonomous and electric cars, Jack Hough writes in this week’s edition of Barron’s. When Tesla’s (TSLA) stock-market value surpassed General Motors last year, it was big news, but recently the latter has edged back into the top spot, he adds. Selling at just seven times forward earnings, General Motors shares have room to rise more than 35% in the year ahead, Hough contends.

Cisco, Oracle among stocks with rising dividend estimates – Some of the large-cap companies whose dividend estimates for their current fiscal year have increased by at least 2% since July include Cisco (CSCO), Texas Instruments (TXN), UnitedHealth (UNH), Oracle (ORCL), Comcast (CMCSA), 3M (MMM), AbbVie (ABBV), Boeing (BA), Union Pacific (UNP), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC) and JPMorgan (JPM), Lawrence Strauss writes in this week’s edition of Barron’s.

TD Ameritrade adding round-the-clock trading – TD Ameritrade  (AMTD) is offering customers more social media capabilities and has added round-the-clock trading in 12 exchange-traded funds, from Sunday evening through Friday evening using its thinkorswim trading platform or TD Ameritrade Mobile Trader app, Theresa Carey writes in this week’s edition of Barron’s.

Apple, Facebook facing challenges, shares still holding up well – Considering the challenges they face, both Apple (AAPL) and Facebook (FB) shares held up well, Tiernan Ray writes in this week’s edition of Barron’s. Apple offered a forecast for its March quarter that missed expectations, and Wall Street now thinks that the company is reaching a bit too far in pricing the iPhone X at $999-$1150, he notes. Nonetheless, Apple is still an empire very much in control of its destiny, Ray contends. Meanwhile, Facebook said people are spending less time than before on the site, but Mark Zuckerberg calmly assured the Street that he thinks it is a good thing, the report points out.

Cisco, Salesforce among most sustainable companies – Cisco (CSCO) tops Barron’s first annual list of most sustainable companies, followed by Salesforce (CRM), Best Buy (BBY), Intuit (INTU), HP Inc. (HPQ), Texas Instruments (TXN), Microsoft (MSFT), Oshkosh (OSK), Clorox (CLX) and Xylem (XYL).

Spirit Air offers plenty of potential upside – Following a steep decline, shares of Spirit Airlines (SAVE) now trade for less than 12 times forward earnings estimates, a good value or growth play, Brett Arends writes in this week’s edition of Barron’s. Long-term investors may need to be patient because short-term headwinds pop up so frequently for airline stocks, but in return for its risks, Spirit offers reasonable valuations and plenty of potential upside, he argues

BEARISH  MENTIONS:

Musk new compensation package sets wrong targets – Tesla’s  (TSLA) new 10-year compensation package, which considers that Elon Musk could grow the company’s market capitalization from the current $58B to $650B in 2028, is not shareholder-friendly as it emphasizes market cap goals, not sustainable profits, Vito Racanelli writes in this week’s edition of Barron’s.


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Boeing reports tomorrow

What to watch in Boeing’s earnings report 

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Boeing reports tomorrow

Boeing (BA) is scheduled to report results of its fiscal fourth quarter before the market opens on Wednesday, January 30, with a conference call scheduled for 10:30 am ET.

What to watch for:

1. GUIDANCE:

When Boeing reported its fiscal third quarter results on October 25, 2017, the company increased its fiscal 2017 adjusted earnings per share view to $9.90-$10.10 from $9.80-$10.00, against consensus estimates of $10.04 at that time, and reaffirmed its FY17 revenue expectations of $90.5B-$92.5B, against analyst estimates of $92.15B.

Current consensus estimates sit at $10.21 and $92.55B, respectively. The company also backed its FY17 commercial airplane deliveries view of 760-765.

2. CAPITAL RETURNS:

On December 11, 2017, Boeing announced a new $18B share repurchase program and a 20% increase to its quarterly dividend. The board declared the dividend will increase 20% to $1.71 per share.

The board also replaced the existing share repurchase program with a new $18B authorization. The new dividend will be payable March 2, 2018, to shareholders of record as of February 9, 2018.

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Defense spending increase should help Boeing

The company this year has repurchased $9.2B worth of its shares from the $14B authorization approved in December 2016. The new repurchase program replaces the existing one, bringing the total authorization to $18B.

3. ANTI-DUMPING:

On December 20, 2017, U.S. Secretary of Commerce Wilbur Ross announced the affirmative final determinations in the antidumping duty and countervailing duty investigations of 100-seat to 150-seat large civil aircraft from Canada.

“This decision is based on a full and unbiased review of the facts in an open and transparent process.” said Secretary Ross.

“The United States is committed to a free, fair, and reciprocal trade and will always stand up for American workers and companies being harmed by unfair imports.”

Commerce determined that exporters from Canada sold 100- to 150-seat large civil aircraft in the United States at 79.82% less than fair value.

Commerce also determined that Canada is providing unfair subsidies to its producers of 100- to 150-seat large civil aircraft at a rate of 212.39%. Commerce will instruct U.S. Customs and Border Protection to collect cash deposits from importers of 100- to 150-seat large civil aircraft based on the final rates.

Bombardier (BDRBF), the Government of Canada, and Petitioners agreed that the proposed transaction between Bombardier and Airbus (EADSY) does not impact these investigations.

4. EMBRAER

Boeing confirmed takeover talks with Embraer (ERJ) during the quarter. The Brazilian government, which owns a golden share in Embraer, represents a potential hurdle in the deal.

Investors should look for more guidance on this topic when Boeing reports. BA last traded at $337.10.


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United to increase capacity by 5 percent

United’s plan to increase capacity drags down airline stocks 

United plan to increase capacity by 5%. Stockwinners.com
United plan to increase capacity by 5%.

Shares of United Continental (UAL) are sliding after the company said in its earnings conference call that it plans to grow capacity by 4%-6% in 2018, likely threatening its profit margin.

This comes as United looks for a competitive edge in its fight against low-cost carriers such as Southwest Airlines (LUV) and JetBlue (JBLU).

This morning, Evercore ISI analyst Duane Pfennigwerth downgraded United to a neutral-equivalent rating.

RESULTS, OUTLOOK

Last night, United Continental reported fourth quarter adjusted earnings per share of $1.40 and revenue of $9.4B, with consensus at $1.34 and $9.42B, respectively.

The company also said Q4 2017 consolidated passenger revenue per available seat mile was up 0.2% compared to Q4 2016.

Additionally, the carrier noted it sees 2018 capacity growth of 4%-6%, and a similar growth rate in 2019 and 2020.

United expects 2018 EPS to be $6.50-$8.50 and sees 2018 capital expenditures of $3.6B-$3.8B.

CAPACITY CONCERNS

In a research note to investors this morning, Evercore ISI’s #Pfennigwerth downgraded United Continental to In Line from Outperform, with a $75 price target, following its quarterly report.

The analyst noted that while United’s belief appears as high as ever in the view that restoring domestic share in its hubs is the shortest path to margin expansion, the “biggest missing ingredient” from its presentation was any evidence that the strategy is working.

The company’s higher growth pitch likely plays well with labor ahead of another round of contract negotiations in 2019 but limits broader participation from longer term investors seeking confidence at this point in the cycle, he contended.

Furthermore, the analyst argued that growth acceleration following poor pricing execution in 2017 and in the face of a significantly higher fuel curve is “surprising.”

Meanwhile, his peer at Stephens also voiced concern over the company’s capacity growth plans. While analyst Jack #Atkins acknowledged that he was encouraged that United issued both 2018 and long-term EPS guidance, he believes its plan to grow its system capacity by 4%-6% for each of the next three years is “concerning” as it implies about 6%-8% growth in the domestic market.

This level of capacity growth risks muting unit revenue growth in the market as well as potentially sparking a competitive response from one of United’s network peers, Atkins added.

The analyst told investors he expects the group to come under pressure as investors work to determine who has the most exposure to its incremental capacity growth and what it means for domestic revenue trends for the industry. He reiterated and Equal Weight rating and $78 price target on United Continental shares.

REMAINS TOP PICK

In a note of his own, UBS analyst Darryl #Genovesi told investors he expects estimates for United Continental to move higher over the next few days and that he came away from the company’s guidance meeting more positive on the fundamental go-forward strategy.

The analyst pointed out that he believes the capacity concerns will likely get swept under the rug if industry RASM continues to be strong. Genovesi reiterated a Buy rating and $90 price target on United shares.

PRICE ACTION

UAL is down 10.5% to $69.80.


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Emerson drops proposal to buy Rockwell Automation

Emerson withdraws proposal to acquire Rockwell Automation for $225 per share

Rockwell receives $29B takeover offer. See Stockwinners.com for details
Rockwell receives $29B takeover offer. See Stockwinners.com for details

Emerson (EMR) announced that it has withdrawn its proposal to acquire Rockwell Automation (ROK) for $225 per share due to the Rockwell Board of Directors’ continued unwillingness to engage in discussions about a potential combination.

“The Rockwell Board again rejected our offer, which would have delivered approximately $30 billion of value to Rockwell shareholders,” said Emerson Chairman and CEO David Farr.

“We are disappointed that the Rockwell Board refused even to discuss the potential combination of our two great companies. Instead of engaging in constructive dialogue, the Rockwell Board decided to let this unique and value-generative opportunity go unexplored.

We remain confident in the strategic plans we have in place, and in Emerson’s ability to create a global automation leader with a technology portfolio to meet evolving customer needs across process, hybrid and discrete product lines.

Our Company is in a great position – we have successfully repositioned our portfolio over the last two years, and have market-leading platforms in Automation Solutions and Commercial & Residential Solutions, both of which are performing well and have very attractive growth outlooks. Our future is bright, and we remain focused on accelerating core growth through new market penetration, technology innovation and strategic bolt-on acquisitions. We are also committed to returning capital to shareholders through our strong and growing dividend and our share repurchase program. Management believes the Company’s shares are an attractive investment opportunity.

Accordingly, we plan to accelerate repurchases over the next month and buy back up to $1 billion over the next 12 months. We look forward to executing on this strategy to drive near- and long-term value creation for all Emerson stakeholders.”

EMR closed at $61.88. ROK closed at $191.04.


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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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Stockwinners offers Barron’s review of stocks to buy, stocks to watch, Today’s Stocks, Stockwinners Voted Best Stock Research Site

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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Barron’s turns bullish on Baker Hughes

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

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin

BULLISH MENTIONS

Buy Baker Hughes – While it is “not easy” to be a General Electric company (GE) and seems like GE may be giving up on Baker Hughes (BHGE), it does not mean investors should, Ben Levisohn writes in this week’s edition of Barron’s. The recent selloff may be a chance to pick up shares of Baker Hughes at a bargain, he adds.

Activist investors Nelson Peltz still in P&G picture. – In a follow-up story, Barron’s notes that while a month ago Procter & Gamble (PG) claimed to have survived a challenge from activist Nelson Peltz, a new vote tally last week showed that Peltz’s Trian Fund Management had won a board seat. A Peltz win would be good for the stock, as the consumer-products giant has faced a lack of significant revenue growth, the publication contends

IBM could be next to fetch higher valuation – Investors are warming to moderately priced blue chips, and IBM could be the next “slumbering giant” that could fetch a higher valuation, Jack Hough writes in this week’s edition of Barron’s. IBM’s gross profit could grow in the current quarter for the first time in years, suggesting its big investment in analytic and cloud products are winning over customers, he notes, adding that a stock rebound could follow.

BEARISH MENTIONS

More needed for Cisco to have ‘groove back.’  – While the Nasdaq composite returned to its heights a couple of years ago, it took Cisco Systems (CSCO) until last week to regain its footing, with an upbeat outlook by the company, Tiernan Ray writes in this week’s edition of Barron’s. Cisco has “certainly achieved something,” but not everything it needs, he notes, adding that while it seems to have stability, it has a kind of fixation on its own balance sheet that does not bode well for its competitiveness in the years to come.

Risk remains after GE dividend cut – While buying General Electric (GE) shares after a big payment cut may seem like a safe move, it might not be as GE would have to move still lower to give it the “sort of plump yield befitting a struggling giant” in need of a turnaround, Jack Hough writes in this week’s edition of Barron’s. 


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