“Home Health Stocks” higher on CMS decision

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

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

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

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

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

PAYMENT RATES, HHGM UPDATE

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

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

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

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

BUY AMEDISYS, HEALTHSOUTH

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

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

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

HOME HEALTH STOCKS RALLY

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

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

PRICE ACTION

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


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Under Armour Slumps on Management Changes, Earnings

Under Armour drops amid management shake up, lowered expectations

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

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

SENIOR DEPARTURES

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

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

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

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

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

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

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

WEAK REVENUE, LOWERED GUIDANCE

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

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

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

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

ANALYSTS LOWER EXPECTATIONS POST-EARNINGS

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

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

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

PRICE ACTION

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


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Juno reports positive non-Hodgkin lymphoma data

Juno Therapeutics to highlight CD19- and BCMA-targeted CAR T therapy at ASH 2017

Juno Therapeutics to highlight CD19- and BCMA-targeted CAR T therapy. See Stockwinners.com for details

Juno Therapeutics (JUNO) announced that 15 abstracts detailing updated clinical and preclinical results from the company and its collaborators will be presented at the 59th American Society of Hematology Annual Meeting.

Senior executives will also review results and provide an update on Juno’s clinical development program at an analyst and investor event, which will also be available via webcast.

Updated data from the TRANSCEND study of JCAR017 in patients with relapsed or refractory aggressive B-cell non-Hodgkin lymphoma will be presented by Principal Investigator Jeremy Abramson, M.D., of the Massachusetts General Hospital, on December 11.

The presentation will include new information on enrollment, safety, response rates, duration of response, and overall survival.

The primary TRANSCEND abstract released today includes data from the core analysis group, which includes patients that represent the population that Juno is studying in the ongoing pivotal cohort. The core group includes patients with DLBCL who are ECOG Performance Status 0-1.

These patients represent a highly refractory population based on some key factors that are associated with a poor prognosis including an older age, having a double or triple hit, and being chemorefractory. Topline data from the abstract for both dose levels for the core group as of a data cutoff date of July 7, 2017 included: Dose level 2, the dose in the pivotal cohort for the TRANSCEND study, showed a 3 month overall response rate of 80% and a 3 month complete response rate of 73% in the core group.

Data support a dose response relationship. Dose level 1 showed 3 month ORR of 52% and a 3 month CR rate of 33%. Across both doses in the core group, the best overall response was 84% and the best overall CR rate was 61%.

There was no increase in cytokine release syndrome and neurotoxicity rates associated with the higher dose or between the full and core groups. Across doses in the full group, 1% experienced severe CRS and 14% experienced severe NT. 30% had any grade CRS and 20% had any grade NT. 64% had no CRS or NT.

The most common treatment-emergent adverse events other than CRS and NT that occurred at greater than or equal to25% in the full group included neutropenia, fatigue, thrombocytopenia, and anemia.

JUNO closed at $44.91.


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Southcross Energy Partners sold for $815 million

American Midstream Partners to acquire Southcross Energy Partners

Southcross Energy Partners sold for $815M. See Stockwinners.com for details

American Midstream Partners (AMID) announced that it has signed an agreement to acquire certain assets of Southcross Holdings, and has proposed to merge Southcross Energy Partners (SXE) into a wholly owned subsidiary of AMID in two separate transactions valued at approximately $815 million, including the repayment of net debt.

As a result of the transactions, the pro forma partnership with an enterprise value of $3 billion is expected to generate annualized 2018 Adjusted EBITDA in excess of $300 million.

AMID has agreed to acquire equity interests in certain Southcross Holdings’ subsidiaries that directly or indirectly own 100% of the limited liability company interests of the general partner of SXE and approximately 55% of the SXE common units by issuing 3.4 million AMID common units, 4.5 million new Series E convertible preferred units, options to acquire 4.5 million AMID common units and the repayment of $139 million of estimated net debt.

The Preferred Units will be issued at a price of $15.00 per unit and may be paid-in-kind at the AMID common unit distribution rate at AMID’s option for two years. AMID will have the right to convert the Preferred Units to AMID common units if the AMID 20-day volume weighted average price exceeds $22.50.

The Options are American-style call options with an $18.50 strike price that expire in 2022.

Public unitholders of SXE will receive 0.160 AMID common units for each SXE common unit in a unit-for-unit merger, which is anticipated to have minimal, if any, tax recognition for such unitholders and which represents a 5% premium to the 20-day volume weighted average exchange ratio of AMID and SXE common units as of October 30, 2017.

The SXE transaction is conditioned on the Southcross Holdings transaction, and until both transactions have closed AMID, Southcross Holdings and SXE will continue to operate as separate companies.

AMID expects the proposal to be attractive to public holders of SXE common units as it will permit them to participate in the future anticipated growth of AMID’s businesses, including the benefit of AMID’s cash distributions on common units, currently paying $1.65 per common unit annually.

SXE closed at $2.10. AMID closed at $13.55.


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Shares of Shopify Spooked by Short Sellers

Shopify seeks to defend against short-seller after earnings beat

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Shares of Shopify (SHOP) dropped in Tuesday’s trading despite the company posting quarterly results that beat analysts’ expectations.

The company continued to defend itself against criticism of short-seller Andrew Left, who has accused the company of being the “hottest new get rich quick scheme on the internet” and “a business dirtier than Herbalife (HLF).”

EARNINGS BEAT

Shopify, a Canadian retail software company, Tuesday morning reported third quarter adjusted earnings per share of 5c on revenue of $171.5M, exceeding analysts’ estimates calling for a loss per share of (1c) on revenue of $165.6M.

Subscription Solutions revenue was up 65% to $82.4M, Shopify said.

Shopify raised its fiscal year 2017 revenue view to $656M-$658M from $642M-$648M, above analysts’ estimates of $648.3M, and forecast fourth quarter revenue to be $206M-$208M, also above the $203.7M consensus.

SHOPIFY AND ANDREW LEFT

Andrew Left, a short-seller who founded Citron Research, published a report on Shopify earlier this month claiming shares “should be down 45% immediately….and that is before the company is caught by the FTC.”

According to Left’s report, Shopify “hides under the shroud of a cloud based e-commerce solution for Small and Medium sized Business,” but is actually the “promoter of the hottest new get rich quick scheme on the internet,” and he believes the FTC “will take notice.”

Additionally, Citron called Shopify “a business dirtier than $HLF [Herbalife],” which has been the target of FTC scrutiny and a well-publicized short held by Bill Ackman.

Left told Reuters a week later that he will “most likely” issue a follow-up report and that he is “looking at many parts” of Shopify’s business.

On its quarterly earnings conference call this morning, Shopify defended itself against Left’s claims, with CEO Tobias Lutke, who has previously called Left a “short-selling troll,” denying his “preposterous,” “unsubstantiated” claims.

“We don’t sell business opportunities — we sell a commerce platform,” Lutke told analysts and investors, adding that Shopify fully complies with FTC rules. Lutke also said the company has not been contacted by the FTC regarding Left’s criticisms.

RESPONSE to EARNINGS

Citron Research posted a response to Shopify’s conference call comments, stating in part: “We have no interest in going back and forth with Shopify, we are releasing this commentary as a response to the numerous media requests we have received. Citron understands Shopify’s platform is effective for small and medium sized businesses to launch e-commerce platforms. We never doubted they have good software for accomplishing this task. That being said, we were unimpressed by the company’s response to Citron’s conclusion that Shopify sells business opportunities through affiliate marketers, and they depend on affiliate marketing to drive their growth metrics. It is impossible to understand the real strength of Shopify’s core business without getting specifics of their true customer acquisition cost. To accomplish that, churn needs to be analyzed, so investors can discount or strip out the dirty/illegal part of their business that will inevitably be curbed by regulators. Immaturity and hubris of management prevents them from addressing these issues…Citron has assembled a comprehensive folder, which we have forwarded to the FTC, and we are certain that the company will face an investigation for selling business opportunities.”

PRICE ACTION

Shopify shares trading in New York are down over 11% to $97.22. SHOP has a 52-weeks trading range of $37.74 – $123.94.


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Rhythm Pharmaceuticals reports positive data

Rhythm Pharmaceuticals announces preliminary setmelanotide Phase 2 study data

Rhythm Pharmaceuticals announces preliminary setmelanotide Phase 2 study data. See Stockwinners.com for details

Rhythm Pharmaceuticals (RYTM) announced the presentation of preliminary data from an ongoing Phase 2 proof-of-concept study evaluating the safety and efficacy of setmelanotide, the company’s novel melanocortin-4 receptor, or MC4R, agonist, for the treatment of Bardet-Biedl syndrome, or BBS.

BardetBiedl syndrome (BBS) is a ciliopathic human genetic disorder that produces many effects and affects many body systems. It is characterized principally by obesity, retinitis pigmentosa, polydactyly, hypogonadism, and renal failure in some cases.

Results are being presented at the ObesityWeek 2017 meeting held October 29 – November 2, 2017, at the Gaylord National Resort & Convention Center in Washington, D.C.

Rhythm is advancing clinical research programs evaluating setmelanotide as a first-in-class treatment for a number of rare genetic forms of obesity caused by deficiencies in the MC4 pathway, a key biological pathway in humans that regulates weight by increasing energy expenditure and reducing appetite.

Mutations affecting the MC4 pathway are a potential cause of early onset obesity and hyperphagia often associated with BBS, a rare genetic disorder that is also characterized by vision loss, polydactyly, kidney abnormalities, and other symptoms.

BBS is estimated to have a prevalence of approximately one in 100,000 in North America.

The Phase 2 study includes five BBS patients who presented with morbid obesity and hyperphagia at initiation.

Setmelanotide is being administered daily by subcutaneous injection for 52 weeks.

Within 6-19 weeks of initiation, four patients experienced cumulative weight loss of 12.1%, 7.9%, 9.7%, and 9.7% respectively. One patient showed no weight loss; however, achieved apparent weight stabilization.

Hunger scores improved in all patients. Treatment has been well tolerated with adverse effects including mild injection site reactions and increased skin pigmentation.

The preliminary data provide support for continued evaluation of setmelanotide in BBS patients.

Rhythm has also demonstrated proof-of-concept in Phase 2 clinical trials that evaluated setmelanotide for the treatment of two additional MC4 pathway deficiencies: pro-opiomelanocortin, or POMC, deficiency obesity and leptin receptor deficiency obesity.

The FDA granted setmelanotide Breakthrough Therapy Designation for the treatment of POMC deficiency obesity and LepR deficiency obesity, and setmelanotide is currently in Phase 3 development for both conditions.

RYTM closed at $24.42.


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Bioverativ reports positive data from its hemophilia drug

Bioverativ says ELOCTATE shows improvements in joint health in hemophilia

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Bioverativ (BIVV) and Swedish Orphan Biovitrum announced the publication of interim results from a longitudinal study of joint health in patients treated prophylactically with ELOCTATE marketed as Elocta in Europe and the Middle East, for treatment of hemophilia A.

Hemophilia A, also called factor VIII (FVIII) deficiency or classic hemophilia, is a genetic disorder caused by missing or defective factor VIII, a clotting protein. Although it is passed down from parents to children, about 1/3 of cases are caused by a spontaneous mutation, a change in a gene.

According to the US Centers for Disease Control and Prevention, hemophilia occurs in approximately 1 in 5,000 live births. There are about 20,000 people with hemophilia in the US. All races and ethnic groups are affected. Hemophilia A is four times as common as hemophilia B while more than half of patients with hemophilia A have the severe form of hemophilia.

Interim data show participants enrolled in the ASPIRE extension study demonstrated continuous improvement in joint health over a nearly three-year period with prophylactic dosing of ELOCTATE, regardless of prior treatment regimen, severity of joint damage or target joints.

Joint health improvements were most notable in hemophilia A patients with poor joint health.

These results were published online October 30 in Haemophilia.

This interim post hoc analysis evaluated joint health in adult and adolescent participants in the A-LONG and ASPIRE studies using a modified version of the Hemophilia Joint Health Score, a first-line assessment tool that grades joints by specific domains, including swelling, muscle atrophy, alignment, range of motion, joint pain, strength and global gait.

The study examined mHJHS measurements taken at A-LONG baseline and ASPIRE baseline and annually thereafter for nearly three years of treatment.

In the study, adults and adolescents treated prophylactically with ELOCTATE experienced a mean improvement in joint health score of -4.1 at ASPIRE Year 2, compared with A-LONG baseline.

Regardless of pre-study treatment regimen, subjects showed continuous improvement in mHJHS from A-LONG baseline through ASPIRE Year 2 and benefits were seen in subjects with target joints as well as those with severe joint destruction.

The mHJHS components with the greatest improvement at ASPIRE Year 2 were swelling, range of motion and strength.

BIVV closed at $55.84. It has a 52-weeks trading range of $41.88 – $64.41.


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Apple to say goodbye to Qualcomm

Apple develops iPhones, iPads that would drop Qualcomm components 

 

Apple (AAPL) is developing iPhones and iPads for next year that would drop Qualcomm’s (QCOM) components amid a legal fight with the chipmaker, the Wall Street Journal reports, citing people familiar with the matter.

Apple, which is considering using only chips from Intel (INTC) and possibly MediaTek for the device, filed a federal lawsuit against Qualcomm claiming it used its market dominance to block rivals and charge costly patent royalties after the chipmaker withheld software necessary to test chips in iPhone and iPad prototypes.

Qualcomm, which has worked with Apple for a decade, stopped sharing the software after Apple filed a federal lawsuit in January accusing Qualcomm of using its market dominance unfairly to block competitors and to charge exorbitant patent royalties, this person said. Qualcomm has said Apple is mischaracterizing its practices.

Qualcomm said its “modem that could be used in the next generation iPhone has already been fully tested and released to Apple.” The chip company said it is “committed to supporting Apple’s new devices” as it does for others in the industry.

Apple in the past used only Qualcomm modem chips for iPhones, but started also procuring the chips from Intel for its iPhone 7 and 7 Plus models last year. It again used a mix of the two in the iPhone 8 and 8 Plus that started selling in September.

Apple’s plans to exclude Qualcomm chips from next year’s model could still change. People familiar with Apple’s manufacturing process said the company could change modem-chip suppliers as late as June, three months before the next iPhone is expected to ship. Still, some of the people said Apple hasn’t previously designed iPhones and iPads to exclude Qualcomm chips at a similar stage of the process.

The Apple plans indicate the battle with Qualcomm could spill beyond the courtroom feud over patents into another important Qualcomm business where it has the potential to send ripples through the smartphone supply chain. Qualcomm last year sold around $3.2 billion of modem chips a year to Apple, or 20% of its total chip sales, according to an estimate by Macquarie Capital. This year, Qualcomm’s chip sales to Apple are likely to come to $2.1 billion, or 13% of total chip revenue, reflecting more fully the iPhone 7’s mix of Qualcomm and Intel modems.

Selling chips is generally less profitable for Qualcomm than its patent business. Apple paid $2.8 billion last year in Qualcomm royalties, which accounted for nearly 30% of the chip maker’s per-share earnings, according to Macquarie Capital. In the last year, Apple has stopped reimbursing those fees to iPhone and iPad manufacturers, which in turn have stopped paying Qualcomm.


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Neos Therapeutics says No Thank You

Neos Therapeutics board unanimously ejects PDL BioPharma proposal

Neos Therapeutics says No Thank You. See Stockwinners.com for details

Neos Therapeutics (NEOS) announced that its Board of Directors has unanimously rejected the October 26 unsolicited proposal from PDL BioPharma (PDLI) to acquire all of the outstanding shares of Neos for $10.25 per share in cash.

Neos noted that PDL’s October proposal is identical in all material respects to proposals received in June, July and September from PDL, which were also reviewed and unanimously rejected by the Neos Board.

After a comprehensive review, conducted in consultation with its financial and legal advisors, the Neos Board affirmed its previous determinations that PDL’s proposal undervalues Neos, does not reflect Neos’ strategic value and future prospects for continued growth and value creation, and is not in the best interests of the Company or Neos shareholders.

Vipin K. Garg, Ph.D., President and CEO of Neos Therapeutics, said, “We are successfully executing the Company’s strategy and believe we are well positioned to deliver enhanced value to Neos shareholders in both the near- and long-term. PDL’s proposal is opportunistic and its interest underscores Neos’ growth and value creation prospects as an independent company. We believe many of Neos’ largest shareholders support this view.

While the Board is confident in Neos’ strategic direction, we are committed to serving the best interest of all Neos shareholders and remain open to considering all options to deliver on the Board and management’s value creation objectives.”

NEOS closed at $10.05. It last traded at $9.50.


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Advanced Accelerator sold for $3.9 billion

Novartis to acquire Advanced Accelerator for $82 per American Depositary Share

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Novartis (NVS) announced that it has entered a memorandum of understanding with Advanced Accelerator Applications (AAAP), or AAA, under which Novartis intends to commence a tender offer for 100% of the share capital of AAA subject to certain conditions.

Under the terms of the memorandum of understanding, which has been approved by AAA’s board, Novartis will make a cash offer of $41 per ordinary share of AAA and $82 per American Depositary Share, each representing 2 ordinary shares, subject to certain conditions. This offer values AAA’s equity at $3.9B.

The transaction to acquire AAA is planned to be fully funded through external short- and long-term debt.

Novartis will commence a tender offer upon completion of works council consultation and AAA’s board recommending the tender offer to AAA shareholders.

The senior management and Directors of AAA have, in their capacity as shareholders of AAA, undertaken to tender their shares into the proposed tender offer.

The transaction is additionally subject to the valid tender pursuant to the tender offer of ordinary shares of AAA representing at least 80% of the outstanding ordinary shares on a fully diluted basis and receipt of customary transactional regulatory approvals and other customary closing conditions.

“The transaction would strengthen Novartis’ oncology presence with both near-term product launches as well as a new technology platform with potential applications across a number of oncology early development programs,” the company stated.


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Enzymotec sold for $290 million

Enzymotec enters definitive agreement to be acquired by Frutarom

Enzymotec sold for $290 million. See Stockwinners.com for details

 

Enzymotec (ENZY) has announced that it has signed a definitive agreement under which Frutarom will acquire Enzymotec for $11.90 per share in cash.

The transaction will be completed by way of a merger under the Israeli Companies Law.

The transaction has received unanimous approval by Enzymotec’s Board of Directors and implies an equity value of approximately $290M.

The offer of $11.90 per share in cash represents a premium of 39.8% over the price of Enzymotec’s ordinary shares on the Nasdaq Stock Market on July 31, 2017, the date on which Frutarom first disclosed an ownership position in Enzymotec.

A shareholder meeting to approve the transaction is expected to be held in December 2017.

Assuming typical timeframes, Enzymotec currently anticipates the transaction will close in the first quarter of 2018.

ENZY closed at $11.25. The issue has a 52-weeks trading range of $5.20 – $12.35.


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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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JC Penney’s woes continue

J.C. Penney plunges after slashing 2017 earnings view

JC Penney's woes continue. See Stockwinners.com for details

Shares of J.C. Penney (JCP) are down 21%, a new multi-year low, after the retailer slashed its forecast for fiscal 2017 as it accelerated actions to liquidate inventory and overhauled its women’s apparel department. Following the implementation of the “reset,” the retailer said it has already seen an improvement in performance.

THIRD QUARTER UPDATE

J.C. Penney said it expected to report an adjusted loss per share of (45c)-(40c) for the current quarter, well below the current analysts’ consensus of a loss of (18c), and comparable store sales up 0.6%-0.8%.

Cost of goods sold for the quarter are expected to increase 300 to 320 basis points compared to the same period last year, impacted primarily by a greater sales penetration in major appliances and e-commerce and the decision to accelerate the liquidation of inventory.

Chairman and Chief Executive Officer Marvin Ellison stated that “based on the encouraging results from a third quarter reset in women’s apparel, which expanded our casual and contemporary offering, we made the strategic decision to accelerate a wider transformation of the entire women’s department by clearing slow-moving inventory primarily in women’s and other apparel categories.”

He noted that “following this comprehensive reset, we saw an improvement in performance, particularly in our women’s division.”

The retailer also said that Jeffrey Davis, its new Chief Financial Officer, will oversee the company’s pricing and planning policies to improve its predictive analytics capabilities and get a better view of current sales trends.

The retailer said the inventory liquidation favorably impacted sales during September and October, and that “although these actions will create a short-term negative impact to cost of goods sold and earnings, long term, we firmly believe it was the right decision for the company as we transition into the fourth quarter and fiscal 2018.”

J.C. Penney will report third quarter results on November 10.

SLASHED FISCAL 2017 OUTLOOK

However, the “improvement” Ellison noted following the reset was not enough for the retailer to maintain its forecast, and J.C. Penney significantly cut its fiscal 2017 adjusted EPS view to 2c-8c from 40c-65c and comp sales down 1% to flat vs. its prior view of down 1% to up 1%.

Prior to the report, analysts expected J.C. Penney would report FY17 EPS of 43c. Cost of goods sold for the year are now seen up 100-200 basis points vs. 2016 and free cash flow is now seen at $200M-$300M.

WHAT’S NOTABLE

Retailers tend to clear out leftover inventory ahead of the critical holiday season to stock up on fresh merchandise. J.C. Penney and other mall-based retailers and department stores have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21, and H&M, as well as an increase in online shopping on sites such as Amazon (AMZN).


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Model 3 production issues send Tesla lower

Tesla slips amid signs of Model 3 production troubles 

Model 3 production bottlenecks send  Tesla lower. See Stockwinners.com

Shares of Tesla (TSLA) dropped in Friday’s premarket trading after the company was downgraded by an analyst due to a more cautious view on Model 3 production.

Following reports that Tesla is planning to cut Model 3 parts orders from a Taiwanese parts supplier, another analyst trimmed his estimates on Tesla.

CUTTING MODEL 3 PARTS ORDERS

Tesla is planning to cut its orders for parts for the Model 3 sedan from Hota Industrial, a Taiwanese auto component maker and long-time Tesla supplier, by 40% due to a “bottleneck” in Model 3 production, Reuters reported this morning, citing a report from the Economic Daily News.

According to Hota Chairman Seh Kuo-jung, Tesla told Hota that orders would be cut to 3,000 sets per week from 5,000 sets beginning in December.

Additionally, Tesla may also delay scheduled weekly shipments of 10,000 parts in March by a few weeks until May or June. Hota makes gears and axles for vehicles.

BOTTLENECK BACKGROUND

Tesla has said bottlenecks had left the company behind its planned ramp up for the Model 3, which began production in July.

After reporting third quarter production and deliveries, Tesla said that there are “no fundamental issues with the Model 3 production or supply chain,” adding that it “understands what needs to be fixed and is confident of addressing the manufacturing bottleneck” in the near-term.

Elements of Tesla’s Model 3 body line are “still in development” at Thai Summit America, a Michigan-based supplier, but were not yet installed at Tesla’s plant in Fremont, a source told Daily Kanban on October 5.

In July, Tesla CEO Elon Musk told employees that “Frankly, we’re going to be in production hell” for the Model 3 “for at least 6 months, maybe longer.”

Musk previously tweeted that he sees the company producing 20,000 Model 3 cars per month in December.

As a result of the Model 3 bottlenecks, Tesla has delayed the unveiling of its all-electric semi truck to November 16 from October 26.

ANALYST COMMENTARY

Evercore ISI analyst George Galliers this morning downgraded Tesla to In Line from Outperform and cut his price target on shares to $312 from $330.

In a note to clients, Galliers explained the downgrade, saying he believes the Model 3 is the “most important piece” of the Tesla investment story in the coming quarters.

At this point, he has “little insight” into how production is running. Galliers added that “clearly” Q3 production was weaker than the company expected. Galliers cut his Model 3 delivery forecasts for this year, 2018, 2019 and 2020 and lowered his automotive revenue forecasts.

Jefferies analyst Philippe Houchois cut his estimates for Tesla by 3%-4% for 2017 and 2018 to reflect the delayed Model 3 ramp up.

The analyst, who kept an Underperform rating on Tesla with a $240 price target, told clients in a note called “Q3 – Street Cred Stress Test” that he believes Tesla’s cash numbers could surprise positively given the benefit of de-stocking Models S and X, but acknowledged that the $10B drop in value over the past six weeks could be pricing in near-term risk.

TSLA closed at $326.17. They last traded at $321.00


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CVS offers to buy Aetna

CVS offers $200 per share for Aetna

CVS offers $200 per share for Aetna. See Stockwinners.com for details

CVS Health Corp (CVS) has made an offer to acquire No. 3 U.S. health insurer Aetna Inc. (AET) for more than $200 per share, or over $66 billion, according to the Wall Street Journal.

Pharmacy benefit managers (PBMs) such as CVS negotiate drug benefits for health insurance plans and employers, and have in recent years taken an increasingly aggressive stance in price negotiations with drugmakers.

They often extract discounts and after-market rebates from drugmakers in exchange for including their medicines in PBM formularies with low co-payments.

A tie-up with Aetna could give CVS more leverage in its price negotiations with drug makers. But it would also subject it to more antitrust scrutiny.

ANALYST  COMMENTS

Citi sees possible CVS, Aetna deal as both ‘evolutionary and revolutionary’ – Citi analyst Alvin Concepcion says that based on CVS Health’s (CVS) acquisitions of Caremark and Omnicare, a takeover of Aetna (AET) “could be in bounds.” The potential deal is both “evolutionary and revolutionary” given the push toward consumerism in healthcare, challenged retail backdrop, and need to combat looming competition from Amazon.com (AMZN), Concepcion tells investors in a research note after the Wall Street Journal reported the two companies are in talks. The analyst estimates the deal could be 24c accretive to CVS in year one with greater upside over time. He has a Neutral rating on CVS shares with an $87 price target.

JPMorgan views potential Aetna deal as strategic positive for CVS – An acquisition of Aetna (AET) would be positive for CVS Health (CVS) from a strategic standpoint, JPMorgan analyst Lisa Gill tells investors in a research note after the Wall Street Journal’s report of the deal talks. A scaled integrated health insurer/pharmacy benefits manager model already exists in the marketplace today and has proven to be a strong competitor, which lowers potential risk, Gill writes. Further, she does not expect a competing bidder to emerge for Aetna given the size of both companies. The analyst has an Overweight rating on CVS with a $97 price target.

Piper says valuation and timing make sense for CVS, Aetna deal – The motivation, timing, and valuation make sense for a CVS Health (CVS) acquisition of Aetna (AET), Piper Jaffray analyst Sarah James tells investors in a research note. Aetna was likely not pleased with sharing its “best in class” pharmacy pricing with one of its biggest competitors, and reported talks of CVS potentially acquiring Aetna could be part of a retention strategy, James contends. She notes the Wall Street Journal’s report of the deal talks follow Anthem (ANTM), Express Scripts’ (ESRX) largest customer, opting to leave the pharmacy benefits manager in 2019 for CVS, whose largest customer is Aetna. James puts a potential acquisition valuation for Aetna in the $65B-$69B range.

CVS Health potential deal with Aetna not compelling in short term, says Loop – Loop Capital analyst Andrew Wolf maintained a Hold rating on CVS Health (CVS), saying the potential acquisition of Aetna (AET) by CVS that was reported by the Wall Street Journal would not be compelling in the near term, as it would be neutral to CVS’s 2018 earnings per share. The deal would require more debt financing or greater synergies than Wolf assumed to be meaningfully accretive, which Wolf does view as likely over a longer time frame.

CVS-Aetna deal makes sense, but risk/reward a concern, says Cowen – Cowen analyst Charles Rhyee said he sees the merits to a CVS Health (CVS) deal to buy Aetna (AET), which is reported to be discussed by the companies, but he is concerned by the possibly high risk/reward. He sees near-term synergies but the grander long-term vision of coordinated care is many years out, creating risk to the shares in the near to medium-term. Ryhee maintained his Outperform rating and $86 price target on CVS Health shares.

CVS Health potential deal to buy Aetna makes sense, says Needham – Needham analyst Kevin Caliendo, who has a Hold rating on CVS Health shares, said the potential acquisition of Aetna (AET) by CVS Health (CVS) that was reported Thursday by the Wall Street Journal makes sense, and Caliendo does not see any other possible bidders. Caliendo would view the acquisition as strategic instead of financial, as it would create a healthcare “powerhouse” that could lower costs through negotiating leverage with manufacturers.

Aetna downgraded to Neutral from Overweight at Cantor Fitzgerald.

OTHERS TO WATCH

Shares of Anthem (ANTM), Cigna (CI), Humana (HUM), and UnitedHealth (UNH) should see some interest today.

PRICE ACTION

AET jumped 11% following the news. It last traded at $178.60. It has a 52-weeks trading range of $104.59 – $184.98. CVS closed at $73.31. It has a 52-weeks trading range of $69.30 – $85.49.


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