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:  

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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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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:

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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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Rockwell Automation receives $29 billion takeover offer

Emerson raises bid for Rockwell Automation to $225 per share in cash and stock

Rockwell receives $29B takeover offer. See Stockwinners.com for details
Emerson (EMR) announced that its Chairman and CEO, David Farr, has sent a letter to Rockwell Automation (ROK) President and CEO, Blake Moret, proposing to acquire all outstanding shares of Rockwell for $225 per share, consisting of $135 per share in cash and $90 per share in Emerson shares.
The total enterprise value of the transaction is approximately $29B.
Farr’s letter states in part: “Over the past several months, we have attempted to engage with you privately regarding a business combination of Emerson Electric and Rockwell Automation. We remain convinced there is compelling strategic, operational, and financial merit to bringing together our two companies – and that such a combination would benefit our respective customers, employees and shareholders…Given our continued conviction in the significant value creation opportunity this combination represents, I am sending you an enhanced proposal for Emerson to acquire Rockwell in a transaction that would provide Rockwell shareholders with immediate and long-term value that we believe is well in excess of what Rockwell could achieve on a standalone basis…The portion of the consideration to be paid in Emerson stock would result in Rockwell shareholders owning approximately 22% of the combined company, allowing them to participate in the significant value creation from synergies generated by a combination.
Based on public information only, we estimate the total capitalized value of synergies to be in excess of $6 billion, which equates to over $1.3 billion or $10 per share of additional value to Rockwell shareholders through their continuing ownership.
Including the value of synergies, Rockwell shareholders would receive $235 per share in total value, representing aggregate value creation of 36% compared to Rockwell’s undisturbed 90-day volume weighted average share price as of October 30…We and our advisors have conducted extensive analysis of the regulatory approvals that would be required in connection with the proposed transaction, and we are confident that the transaction would receive all necessary approvals in a timely manner. We do not anticipate any material antitrust or other regulatory issues that would extend the normal timetable for closing a transaction of this nature.
We strongly believe the combined company would be able to do more for our customers than either of us could do separately…Our proposal is not subject to any financing contingency. We have had in-depth discussions with J.P. Morgan, which is highly confident Emerson can finance the cash portion of the transaction with a combination of cash on our balance sheet and newly issued debt. We sincerely hope you and your Board will objectively evaluate the strategic, financial and operational benefits of this transaction and agree to meet with Emerson to negotiate a mutually beneficial transaction.”


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Boeing paints a rosy picture

Boeing forecasts $730B market for new airplanes in Middle East

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Boeing (BA) forecasts that airlines in the Middle East will need 3,350 new airplanes over the next 20 years, valued at an estimated $730B.

Boeing presented its 2017 Current Market Outlook for the region during the Dubai Airshow.

“Traffic growth in the Middle East is expected to grow at 5.6% annually during the next 20 years,” said Randy Tinseth, vice president of Marketing, Boeing Commercial Airplanes.

“The fact that 85% of the world’s population lives within an eight-hour flight of the Persian Gulf, coupled with robust business models and investment in infrastructure, allows carriers in the Middle East to channel traffic through their hubs and offer one-stop service between many cities.”

More than half of the total deliveries in the Middle East will be single-aisle airplanes such as the 737 MAX.

Operators in the region will need 1,770 single-aisle airplanes valued at $190B, driven by the growth of low-cost carriers.

Boeing’s presence and support for the Middle East also includes Global Services, the company’s third and newest business unit that is expanding its service capability offerings to better support the region’s airlines and aircraft.

Around the world, Boeing has forecasted long-term demand for 41,030 new airplanes, valued at $6.1T.

These new airplanes will replace older, less efficient airplanes, benefiting airlines and passengers and stimulating growth in emerging markets and innovation in airline business models.

BA closed at $260.85.


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FedEx buys 50 planes from Airbus

FedEx Express to buy up to 50 turboprop planes from ATR

FedEx Express to buy up to 50 turboprop planes from ATR. See Stockwinners.com for details

FedEx Express, a subsidiary of FedEx Corp. (FDX), announced that it has completed a purchase agreement with ATR, a joint venture between Airbus (EADSY) and Italy’s Leonardo SpA, that will begin to modernize the company’s fleet of feeder aircraft.

Under the agreement, FedEx Express is making a firm purchase of 30 ATR 72-600F aircraft with options to purchase up to 20 additional ATR 72-600Fs.

Delivery of the first aircraft is expected in 2020, with subsequent deliveries of about six aircraft per year over a five year period.

“The purchase of new, more advanced feeder aircraft like the ATR 72-600F is the next step in our very successful fleet modernization strategy, which has helped us greatly improve our fuel efficiency and fleet reliability in recent years,” said David L. Cunningham, president and CEO, FedEx Express.

“We worked closely with ATR, which developed this new aircraft with special features to help us grow our business, especially in the air freight market where shipments are larger and heavier.” ATR 72-600Fs will have: a forward Large Cargo Door (LCD) and a rear upper-hinged cargo door; digital cockpits; advanced avionics technology and enhanced take-off performance; ADS-B “out” capabilities.

Current FedEx feeder aircraft do not carry containers or palletized freight, so these new features will help the company better serve customers in the air freight market where palletized shipments are the norm.

FedEx currently deploys more than 300 feeder aircraft in 45 countries. Most of these feeder aircraft are owned by FedEx, and are leased and operated by different third-party air carriers under their own operating certificates.

The FedEx feeder fleet is comprised of aircraft under 60,000 pounds maximum gross take-off weight, and allows the company to provide fast, economical service to small and medium-sized markets around the world.

FDX closed at $221.16. EADSY closed at $24.99.


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Barron’s is bullish on Facebook, bearish on GE

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

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BULLISH  MENTIONS

Cummins, United Technologies good industrial bets – Cummins (CMI), United Technologies (UTX), Honeywell (HON), Ingersoll-Rand (IR) and Illinois Tool Works (ITW) boast good dividends that should rise, Lawrence Strauss writes in this week’s edition of Barron’s.

Facebook still looks like a buy – In a follow-up story, Barron’s says that Facebook’s  (FB) political-advertising imbroglio has obscured some very good revenue news. Slowing supply growth helped drive up demand and prices for Facebook ads, marking a reacceleration of growth, the report notes, adding that the company is also coming up with innovative ways to cash in on booming interest in video and creating new ad opportunities on its Messenger and Instagram platforms.

Kohl’s updated return policy raises Amazon takeover questions – Following Kohl’s (KSS) announcement that Amazon (AMZN) purchases could be returned at its stores in Chicago and Los Angeles, some have questioned if the e-Commerce giant is planning to buy the retailer, Steven Sears writes in this week’s edition of Barron’s. Citing Madison Global Partners’ Bernard Sosnick, the publication said Amazon may be testing the merits of owning a retailer that can build private-label products to showcase Amazon devices and services, with the holiday season to test the theory further.

May be time to play Mattel – Mattel (MAT) is half the stock it used to be, but the maker of Barbie and Hot Wheels knows it has a problem, Ben Levisohn writes in this week’s edition of Barron’s. Management said it would target $650M in cost cuts through 2019, while also enacting initiatives to reduce unpopular products and create new ones to help boost sales, and if it works, Mattel could be a winner, he adds.

Upside ahead for smaller companies – As tech giants soar and as the rally favors the biggest companies, there may be upside on deserving, smaller companies, such as AMD (AMD), Impinj (PI) and Everspin Technologies (MRAM), Tiernan Ray writes in this week’s edition of Barron’s. Meanwhile, companies such as Finisar (FNSR), Lumentum (LITE), Viavi (VIAV), Oclaro (OCLR), Applied Optoelectronics (AAOI), Inphi (IPHI), and NeoPhotonics (NPTN) are grappling with a slowdown in spending in China, but are “back for real,” he argues.

Intel AI push to boost growth – Artificial intelligence has been perceived to be a threat to Intel’s (INTC) decades-long dominance in computer chips, but its shares are up 30% this year, maybe due to third quarter earnings or maybe due to its plans to release a new line of A.I. chips developed in collaboration with Facebook (FB), and as the company’s purchase of Mobileye makes it an early leader in autonomous driving, Jack Hough writes in this week’s edition of Barron’s, adding that he still sees more upside ahead.

IBM, Google among potential AI winners – After decades of development, Artificial Intelligence-style computing now works, and its impact will spread far beyond board games such as Go or chess, Bill Alpert writes in this week’s edition of Barron’s. Citing Wells Fargo analyst Ken Sena, the report says the biggest beneficiaries will be the firms pioneering the technology, with machine learning already powering search suggestions of Google (GOOG; GOOGL) and Microsoft (MSFT), chatbots like Amazon’s (AMZN) Alexa, and the recommendations at Facebook (FB), and Netflix (NFLX). Given China’s vast size, the analyst also has similar outperformance expectations for Alibaba (BABA), Baidu (BIDU), JD.com (JD), and Tencent (TCEHY), Barron’s adds.

BEARISH  MENTIONS

Powerful bearish trend in General Electric – Investor’s confidence has eroded and General Electric’s (GE) stock price is at 2012, with a powerful bearish trend, Michael Kahn writes in this week’s edition of Barron’s. But while it may look like a bargain and the stock could be the buy of the decade, Kahn argues that he still needs to see the market give him either an unambiguous selling climax, or a strong upside reversal. If not for inertia, most investors would probably have already sold their shares of General Electric, but they may be persuaded as early as November 13, when its new leader, John Flannery, holds an investor day meeting, Steven Sears writes in this week’s edition of Barron’s. However, he notes that it is difficult to know how investors will react to whatever is announced at the meeting. If GE releases a draconian restructuring plan, shares could rally as investors reason that all of the bad news is out of the way, but if they lack confidence in Flannery’s approach, the stock could trade sharply lower, Barron’s adds.

Sell Under Armour as troubles ‘run deep.’  – In a follow-up story, Barron’s says that despite the skid in Under Armour (UA) shares, the sportswear company faces continuing woes, from a shift to lifestyle garments to the internet. Further, the publication notes that there seems little reason to hold shares through the holidays in hopes of a rebound.


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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: 

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

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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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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Honeywell to reorganize itself

Honeywell announces planned portfolio changes

Honeywell to reorganize itself. See Stockwinners.com for details

Honeywell (HON) announced the results of its comprehensive portfolio review, including its intention to separately spin off its Homes product portfolio and ADI global distribution business, as well as its Transportation Systems business, into two stand-alone, publicly-traded companies.

The planned separation transactions are intended to be tax-free spins to Honeywell shareowners for U.S. federal income tax purposes and are expected to be completed by the end of 2018.

“Today’s announcement marks the culmination of a rigorous portfolio review involving a detailed assessment of every Honeywell business. As part of that review, we analyzed numerous criteria, including growth outlook, financial performance, market dynamics, potential for disruption, and, most importantly, assessment of fit as a Honeywell business,” said Honeywell President and CEO Darius Adamczyk.

“The remaining Honeywell portfolio will consist of high-growth businesses in six attractive industrial end markets, each aligned to global mega trends including energy efficiency, infrastructure investment, urbanization and safety.

These businesses are best positioned to leverage Honeywell synergies from our technologies, financial and business models, and talent. Our simplified portfolio will offer multiple platforms for organic growth and margin expansion through further deployment of our world-class HOS Gold operating system and the Honeywell Sentience Platform.

Honeywell will also have multiple levers for continuing to execute an aggressive capital deployment strategy, including a vigorous and disciplined M&A program.

“The spun businesses will be better positioned to maximize shareowner value through focused strategic decision making and capital allocation tailored for their end markets,” Adamczyk said.

“At Honeywell, we will continue our track record of execution, delivering growth, margin expansion, and aggressive capital allocation for our shareowners.”

The new Homes and Global Distribution business will be a leader in the home heating, ventilation and air conditioning, or HVAC, controls and security markets, and a leading global distributor of security and fire protection products. The business is expected to have annualized revenue of approximately $4.5B, a high-yield credit rating, approximately 13,000 employees, and financial responsibility for certain Honeywell legacy liabilities.

The new Transportation Systems business will be a global leader in turbocharger technologies with best-in-class engineering capabilities for a broad range of engine types across global automobile, truck and other vehicle markets.

The business is expected to have annualized revenue of approximately $3B, a high-yield credit rating, approximately 6,500 employees and financial responsibility for Honeywell legacy automotive segment liabilities in an amount equal to our Bendix legacy asbestos liability.

The planned separations will not require a shareowner vote.

Each spin-off will be subject to finalization of the contours of the spun-off business, assurance that the separation will be tax-free to Honeywell shareowners for U.S. federal income tax purposes, finalization of the capital structure of the three corporations, the effectiveness of appropriate filings with the SEC, final approval of the Honeywell board, and other customary matters.

HON closed at $143.60.


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Honeywell lowers its business jet delivery forecast

Honeywell projects 8,300 business jet deliveries valued at $249B through 2027

Honeywell lowers its business jet production. See Stockwinners.com for details

The business jet aviation industry is likely facing a modest pace for near-term orders due to an uncertain economic and political environment along with a very competitive used aircraft market, per the 26th annual Global Business Aviation Outlook released by Honeywell (HON).

The Global Business Aviation Outlook forecasts up to 8,300 new business jet deliveries worth $249 billion from 2017 to 2027, down 2-3 percentage points from the 2016 10-year forecast.

Key global findings in the 2017 Honeywell outlook include: Deliveries of approximately 620-640 new jets in 2017, a decline of roughly 30 aircraft year over year.

This pullback comes on the heels of a moderate decrease in 2016 and is largely due to slower order rates for mature airplane models and a transition to new models slated for late 2017 and 2018.

Operators plan to make new jet purchases equivalent to about 19 percent of their fleets over the next five years as replacements or additions to their current fleet, a decrease of 8 percentage points compared with the 2016 survey results.

Of the total purchase plans for new business jets, 19 percent are intended to occur by the end of 2018, while 17 percent and 14 percent are scheduled for 2019 and 2020, respectively.

Operators continue to focus on larger-cabin aircraft classes, ranging from the super mid-size through ultralong range, which are expected to account for more than 85 percent of all expenditures on new business jets in the next five years.

The longer-range forecast through 2027 projects a 3-4 percent average annual growth rate despite the lower short-term outlook as new models and projected improved economic performance will contribute to industry growth.

Declines in five-year operator purchase plans are offset in the long-term forecast by new programs entering service, improved economic performance and higher commodity prices, resulting in only a small decline in the overall outlook.


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