Altria to buy stake in Juul Labs

Altria, under pressure from FDA, said in talks to buy stake in Juul Labs

 

Altria to buy stake in Juul Labs, Stockwinners
Altria to buy stake in Juul Labs, Stockwinners

Following a report that Altria Group (MO) is in talks to take a “significant” stake in Juul Labs, an analyst said that an agreement could make strategic sense for the tobacco giant to gain exposure to a fast-growing product that poses a threat to its cigarette business.

The Wall Street Journal said Altria is in talks to take a “significant” minority interest in Juul Labs, a controversial e-cigarette startup.

According to people familiar with the matter, any deal is likely several weeks away. Juul was last valued at $16B in a private fundraising round this summer.

Altria has an agreement with Philip Morris (PM) to market IQOS, subject to regulatory approval. Philip Morris is already selling it in 43 countries and has said it could get approved for the U.S. by the end of the year.

Juul has drawn criticism over its products’ popularity with teens.

Juul, whose products are sold online and in convenience stores, gas stations and vape shops, accounted for about three-quarters of the U.S. e-cigarette market in the four-week period ended November 17, according to the Wells Fargo analysis of Nielsen data.

Earlier this month, the U.S. Food and Drug Administration announced plans to place restrictions on sales of flavored e-cigarettes.

Juul also said it would restrict sales of nearly all its flavored pods to the internet, and stop most social media promotion to combat youth vaping.

“More than 99% of all social media content related to JUUL Labs is generated through third-party users and accounts with no affiliation to our company. Nevertheless, we understand that many young people get their information from social media. To remove ourselves entirely from participation in the social conversation, we have decided to shut down our U.S.-based social media accounts on Facebook (FB) and Instagram. We have never used Snapchat (SNAP),” the company stated.

WHAT’S NOTABLE

Following the FDA statement on the agency’s proposed steps against underage smoking, Altria General Counsel Murray Garnick said it “welcomed” the FDA’s efforts to address the underage use of e-vapor products and said it believes Congress should raise the legal age of purchase for all tobacco products to 21.

Last month, Altria said it would pull its pod-based e-vapor products from the market until approved by FDA.

The company said Nu Mark will remove MarkTen Elite and Apex by MarkTen pod-based products from the market “until these products receive a market order from the FDA or the youth issue is otherwise addressed,” and that for the remaining MarkTen and Green Smoke cig-a-like products, Nu Mark will sell only tobacco, menthol and mint varieties.

Nu Mark will discontinue the sale of all other flavor variants of our cig-a-like products until these products receive a market order from the FDA.

The FDA is also pursuing a ban on menthol cigarettes, which could remove nearly a third of the roughly 250B cigarettes sold annually in the U.S., The Wall Street Journal said.

A rule could take a year or more to finalize, the FDA said. The FDA concluded in 2013 that menthols are harder to quit and likely pose a greater health risk than regular cigarettes.

ANALYST COMMENTARY

Morgan Stanley analyst Pamela Kaufman said she has no knowledge of a potential deal between Altria and Juul but that taking such a stake could make strategic sense for Altria to gain exposure to a fast growing product that poses a threat to its cigarette business.

Altria does not have a robust reduced risk product portfolio and Juul’s e-cigs could significantly enhance its competitive position, stated Kaufman, who also believes Altria would likely be buying in at a lower valuation than the previously reported $15B given the FDA recently prohibited flavored pods sales in convenience stores.

 OTHERS TO WATCH

Publicly traded companies in the tobacco products space also include Philip Morris and British American Tobacco (BTI).


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Investment Technology Group sold for $1 billion

ITG to be acquired by Virtu Financial for $30.30 per share in cash

Investment Technology Group sold for $1 billion, Stockwinners
Investment Technology Group sold for $1 billion, Stockwinners

Investment Technology Group (ITG) announced that it has reached a definitive agreement for Virtu Financial (VIRT) to acquire all outstanding shares of ITG’s Common Stock for $30.30 per share in cash.

Investment Technology Group, Inc. operates as a financial technology company in the United States, Canada, Europe, and the Asia Pacific.

Virtu Financial, Inc.  provides market making and liquidity services through its proprietary, multi-asset, and multi-currency technology platform to the financial markets worldwide.

The price represents a premium of more than 40% over ITG’s average closing share price of $21.55 in the 30 days prior to news reports of a potential sale on October 4, 2018.

Minder Cheng, Chairman of the Board of Directors, said, “ITG has made tremendous progress in executing on its Strategic Operating Plan over the past two years, and the agreement with Virtu is a result of the dedicated efforts of our management team and employees.

After careful consideration, ITG’s Board of Directors determined that the proposal from Virtu, which provides an immediate and significant cash premium, offers the most value for ITG stockholders. The combination of Virtu and ITG will create an industry-leading financial technology franchise with true global capabilities and scale.” J.P. Morgan is serving as the financial advisor and Wachtell, Lipton, Rosen & Katz is providing legal counsel to ITG.


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GE fires CEO, Shares rise

GE shares jump after CEO Flannery ousted amid Power unit challenges

GE introduces new company AiRXOS, Stockwinners
GE fires CEO, Shares rise

Shares of GE (GE) are rising in pre-market trading after the shrinking conglomerate announced that H. Lawrence Culp, Jr. has been named Chairman and CEO, replacing John Flannery, effective immediately.

POWER WRITE-OFF

The company stated that while its businesses other than Power are “generally performing consistently with previous guidance,” the company will fall short of previously indicated guidance for free cash flow and EPS for 2018 due to weaker performance in the GE Power business.

GE expects to take a non-cash goodwill impairment charge related to the GE Power business that will likely be as much as the approximately $23B current goodwill balance for the business, GE added.

GE previously forecast FY18 EPS at the low end of its $1.00-$1.07 range. The current EPS consensus is 95c.

RECENT ANALYST CONCERNS

In a recent note to investors, RBC Capital analyst Deane Dray lowered his price target on GE shares to $13 from $15, stating that the company had yet to reach a point where bad news does not make the stock decline and arguing that the bottom had not yet been reached.

Last month, JPMorgan analyst Stephen Tusa lowered his price target for General Electric to $10 from $11 and kept an Underweight rating on the shares.

The analyst’s channel checks, which were confirmed by GE Power’s CEO, GE investor relations, suggested GE had experienced a failure in a first stage blade on an H-frame in one of its two initial marquee installations in the U.S., Colorado Bend. Further, Tusa said the problem was material enough for Exelon (EXC) to have shut the plant down, along with the “award winning” Wolf Hollow plant for precautionary measures.

There should no longer be any doubt that GE Power has company-specific issues, Tusa contended at the time, stating that his new price target assumed weaker results at GE Power and some franchise value impact.

PRICE ACTION

In Monday’s pre-market trading, GE shares are up $1.53, or 13.5%, to $12.82.


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The Philly Fed rises to 25.7 in July

The Philly Fed bounce to 25.7

 

The Philly Fed rises to 25.7 in July , Stockwinners
The Philly Fed rises to 25.7 in July , Stockwinners

The Philly Fed bounce to 25.7 from a 19-month low of 19.9 in June and a 1-year high of 34.4 in May was accompanied by an ISM-adjusted Philly Fed rise to 59.7 from 59.4 in June and a 45-year high of 62.5 in May, versus the same 59.7 in April.

The Federal Reserve Bank of Philadelphia reports that regional manufacturing activity continued to expand in July. All the broad indicators remained positive, with the general activity and new orders indexes improving this month. The survey’s price indexes suggest widespread increases for purchased inputs, and more firms reported price increases for their own manufactured goods. Expectations for the next six months continued to moderate but remain positive overall.

Monday’s Empire State headline slipped to 22.6 in July from an 8-month high of 25.0 in June but a lower 20.1 in May, while the ISM-adjusted measure fell more sharply, to 54.6 from a 12-year high of 57.9 in June and 56.9 in May.

The U.S. state of New York has been known by many nicknames, most notably as the Empire State, adopted as late as the 19th century. This nickname has been incorporated into the names of several state buildings and events, and is commonly believed to refer to the state’s wealth and resources.

For later July surveys, analysts expect a Richmond Fed drop to 17.0 from 20.0, a Dallas Fed drop to 30.0 from 36.5, a Chicago PMI decline to 60.0 from 64.1 in June, an ISM drop to 59.0 from 60.2, and an ISM-NMI drop to 58.0 from 59.1

The mix should allow the ISM-adjusted average of the major surveys to slip back to 58 from the 59 cycle-high set in May and June, versus the same 58 readings in six of eight months through April.

Producer sentiment is enjoying a lift from fiscal stimulus, the mining and factory resurgence, and a stronger global economy that has translated to strength in trade in the face of limited capacity constraints and little near-term inflation risk.


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ModSpace sold for $1.1 billion

Williams Scotsman to acquire ModSpace for approx. $1.1B

ModSpace sold for $1.1 billion, Stockwinners
ModSpace sold for $1.1 billion, Stockwinners

WillScot Corporation (WSC) announced that it has entered into a definitive agreement to acquire Modular Space Holdings, the parent holding company of Modular Space Corporation, for an enterprise value of approximately $1.1B. Williams Scotsman will indirectly acquire MS Holdings for a purchase price comprising $1,063,750,000 of cash consideration, 6,458,500 shares of WSC Class A common stock and warrants to purchase 10,000,000 shares of WSC Class A common stock at an exercise price of $15.50 per share, subject to customary adjustments.

The transaction, which is subject to customary closing conditions, is expected to close in 3Q18.

ModSpace, a privately-owned provider of office trailers, portable storage units and modular buildings, had approximately $1.1B of total assets as of March 31, 2018.

ModSpace generated $453M of total revenue, $18M of net income and $106M of Adjusted EBITDA for the twelve months ended March 31, 2018. Once combined, Williams Scotsman will have over 160,000 modular space and portable storage units serving a diverse customer base from approximately 120 locations across the United States, Canada and Mexico.

Williams Scotsman expects to capture $60M in annual cost synergies after integration, with approximately 80% of the forecast synergies expected to be realized on a full run-rate basis by the end of 2019.

Williams Scotsman also expects to benefit from the net operating tax loss carryforwards to be acquired in the transaction, and for the transaction to be accretive to earnings in 2019.

Williams Scotsman expects to expand its “Ready to Work” value proposition across the ModSpace fleet and customer base, a strategy that has driven double-digit organic Adjusted EBITDA growth in Williams Scotsman’s U.S. Modular segment in recent years and proven successful in Williams Scotsman’s acquisitions of Acton Mobile and Tyson Onsite.

Until the transaction closes, both companies will operate independently and execute on their respective strategic priorities. Williams Scotsman has secured committed financing to fund the transaction, which includes an amendment and expansion of its existing revolving ABL credit facility to $1.35B with an accordion feature allowing up to $1.8B of total capacity, a $280M secured bridge credit facility, and $320M unsecured bridge credit facility.

Williams Scotsman expects the permanent financing plan to include a combination of long-term debt and equity or equity-linked securities.

WSC closed at $12.15, it last traded at $14.10.


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Wabtec higher on potential GE Transportation deal

Wabtec rises as analyst says buy on potential GE Transportation deal

Wabtec higher on potential GE Transportation deal, Stockwinners
Wabtec higher on potential GE Transportation deal, Stockwinners

Shares of Wabtec (WAB) are on the rise after Stifel analyst Michael Baudendistel upgraded the stock to Buy following a media report saying the company was in discussions to acquire GE Transportation from General Electric (GE).

Also commenting on the deal, Stephens analyst Justin Long told investors the transaction could be a significant catalyst for Wabtec.

POTENTIAL GE TRANSPORTATION SALE

On Friday, Bloomberg reported that General Electric was in talks to sell its century-old locomotive business to rail-equipment maker Wabtec.

The transportation unit could be worth as much as $6.8B in a sale, the report noted, adding that a deal has not been reached and talks may still fall apart. GE may also pursue an initial public offering or other strategic option for the business, sources said.

BUY WABTEC

In a research note to investors, Stifel’s Baudendistel upgraded Wabtec to Buy from Hold, while raising his price target on the stock to $99 from $75, citing Bloomberg’s report on a potential acquisition of GE Transportation.

While acknowledging that a standalone IPO or an acquisition by a machinery company are also possibilities, the analyst argued that a deal would be transformative for Wabtec.

Further, Baudendistel pointed out that he believes there is strategic rationale for the deal and the possibility improves his perspective on the reward-to-risk ratio for the shares. Wabtec would be buying the business at a cyclical low point, he contended.

Additionally, the analyst noted that Wabtec’s recent results have improved on growth in the aftermarket revenue, an area that held back 2017 results.

‘SIGNIFICANT’ CATALYST FOR WABTEC

Meanwhile, Stephens’ Long told investors in a research of his own this morning that he is “a bit surprised” by the news given the potential size of the transaction, which he estimates to be around $8B.

That said, the analyst noted he thinks it would be a “great strategic fit” primarily due to GE Transportation’s services business that features technologically advanced rail-related products.

Additionally, Long believes the deal could be “highly accretive” to Wabtec earnings per share, with his “best guess” putting the deal probability at over 50%. The analyst reiterated an Overweight rating on Wabtec’s shares.

PRICE ACTION

In Monday’s trading, shares of Wabtec have gained almost 2% to $88.98, while General Electric’s stock has advanced about 1% to $14.62.


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Goldman says sell Pepsi, buy Coca Cola

Goldman swaps sell call on Coca-Cola to PepsiCo on growth outlook

Goldman says sell Pepsi, buy Coca Cola, Stockwinners
Goldman says sell Pepsi, buy Coca Cola

In a research note to investors on the beverage space, Goldman Sachs analyst Judy #Hong upgraded Coca-Cola (KO) to Neutral and downgraded PepsiCo (PEP) to Sell.

While the analyst sees an improving organic sales growth outlook for Coca-Cola, Hong sees potential for continued softer North American Beverage volumes to weigh on PepsiCo’s organic sales growth.

BEVERAGE SPACE

Within the Staples sector, beverage valuations look most elevated, while food stocks appear oversold on consensus estimates, Goldman Sachs’ Hong told investors in a research note.

The analyst sees the beverage group’s premium valuation as mostly justified given industry characteristics that are more attractive versus secularly challenged U.S. center store food companies.

Goldman says sell Pepsi, buy Coca Cola, Stockwinners.com
Goldman says sell Pepsi, buy Coca Cola,

Beverages have more channel diversification and are less reliant on food grocers, beverage categories tend to have low level of private label penetration and a greater level of market/brand concentration also allows for higher pricing power, she contended.

Hong believes all these dynamics should drive higher top-line growth and more insulated margin structure for beverage companies compared to food companies in the U.S. over the next 12 months.

Additionally, the analyst pointed out that she sees “a few relevant trends” across the beverage theme playing out thus far in 2018, namely relative convenience store underperformance, comparative alcohol slowdown, and improvement in emerging markets benefiting multinationals, particularly in Latin America.

SWAPPING COCA-COLA, PEPSICO

Goldman Sachs’ Judy Hong upgraded Coca-Cola to Neutral from Sell, while trimming her price target on the shares to $46 from $47.

The analyst told investors that she sees an improving organic sales growth outlook, a “cleaner base” post-refranchising, and better visibility on its margin and earnings targets.

Hong believes Coca-Cola is “one of the rare” over 4% organic growth mega-cap stories, and now has increased confidence in its organic sales growth outlook.

Additionally, Hong noted that she now views fundamentals as warranting a relative premium given Coca-Cola’s positioning as a beneficiary of moderating foreign exchange impact, improving emerging markets growth, and higher margins post-refranchising.

Meanwhile, the analyst downgraded PepsiCo to Sell from Neutral and lowered her price target on the shares to $110 from $118, citing the potential for continued softer North American Beverage volumes to weigh on organic sales growth and present modest downside risk to gross margins.

While the analyst does not expect Pepsi shares to be “a material absolute underperformer,” she does see scope for it to underperform other beverage names over the next 12 months given muted fundamentals and lack of clear catalysts. Both top-line and margin gains are likely to be harder to come by for PepsiCo’s North America beverage business as multi-year tailwinds to volume are no longer driving growth while c-store underperformance is creating a drag, she contended.

OTHERS TO WATCH

Goldman’s Hong also upgraded Coca-Cola European Partners (CCE) to Buy, as she believes muted sentiment in the context of sugar tax implementation in the UK and France provides a compelling opportunity, and downgraded Molson Coors (TAP) to Neutral, predicting that weaker than expected beer volumes will drive cuts to consensus estimates. The analyst reiterated a Buy rating on Monster Beverage (MNST).

PRICE ACTION

In Tuesday’s trading, shares of Coca-Cola are fractionally up to $44.79, while PepsiCo’s stock dropped over 1% to $108.41.


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Bed Bath & Beyond tumbles after guidance

Raymond James  says sell Bed Bath & Beyond after guidance

Bed Bath & Beyond tumbles after guidance, Stockwinners
Bed Bath & Beyond tumbles after guidance,

Shares of Bed Bath & Beyond (BBBY) are sliding after the company announced better than expected fourth quarter results but issued a weaker 2018 forecast.

Following the news, several Wall Street analysts cut their price targets on the stock, while Raymond James analyst Beryl Bugatch downgraded Bed Bath & Beyond to Underperform, a sell-equivalent rating.

RESULTS

Last night, Bed Bath & Beyond reported fourth quarter earnings per share of $1.48 and revenue of approximately $3.7B, both above consensus of $1.39 and $3.68B, respectively.

However, the company also said that it sees FY18 EPS in a low-to-mid $2 range, with consensus at $2.76.

Additionally, Bed Bath & Beyond outlined its “roadmap for continuing the evolution of its foundational structure” with the goals of: growing its comparable sales, which it expects to begin in fiscal 2018; moderating the declines in its operating profit and net earnings per diluted share, in fiscal 2018 and fiscal 2019; and growing its net earnings per diluted share by fiscal 2020.

SELL, SAYS RAYMOND JAMES

In a post-earnings note, Raymond James’ Bugatch downgraded Bed Bath & Beyond to Underperform from Market Perform.

The analyst noted that the company’s management announced multiple initiatives ranging from new store concepts to new organizational structures, to new investments in technology that will come at a cost, as underscored by management’s view for continuing operating profit declines in FY18 and FY19.

Despite the array of initiatives announced, a key issue for the analyst is that the fleet of over 1,000 legacy Bed Bath & Beyond stores continue to deliver in-store mid-single-digit comparable sales declines.

Bugatch argued that it is “Beyond” him that management did not cite a remodeling of its flagship store base that he finds “increasingly unattractive” due to being dated, cluttered and crowded.

Without some underlying growth in management generated earnings over the next two years, shareholder value is likely to erode further, he added. Nonetheless, Bugatch pointed out that at its current valuation, Bed Bath may attract activist interest.

TARGETS CUT

Meanwhile, Morgan Stanley analyst Simeon Gutman lowered his price target for Bed Bath & Beyond to $16 from $20 as he is not convinced its revenue will respond to the company’s initiatives.

The analyst told investors that beyond a lift from the Babies R’ Us bankruptcy, it is hard for him to see how the company can drive positive same-store sales without the aid of promotions.

Gutman reiterated an Underweight rating on the shares.

His peer at JPMorgan also lowered his price target for Bed Bath & Beyond to $16 from $18.

Analyst Christopher Horvers noted that the company’s negative comparable sales in Q4 and over the past two quarters are “particularly disappointing” as is the acceleration in gross margin declines. The analyst also kept an Underweight rating on the shares.

Additionally, Wedbush analyst Seth Basham, Credit Suisse’s Seth Sigman, and Loop Capital’s Anthony Chukumba all lowered their price targets on the name to $18, $20 and $18, respectively, while reiterating neutral-equivalent ratings.

PRICE ACTION

In Thursday’s trading, shares of Bed Bath & Beyond dropped over 19% to $17.39.


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Tesla Model 3 named Popular Mechanics’ Car of the Year

Tesla Model 3 named Popular Mechanics’ Car of the Year

Tesla Model 3 named Popular Mechanics' Car of the Year
Tesla Model 3 named Popular Mechanics’ Car of the Year

Popular Mechanics has named Tesla’s Model 3 as its Car of the Year.

Automotive editor Ezra Dyer said, “The demand makes sense. I try to reserve judgment on any car until I drive it, but the Model 3 sure looks good on paper.

Tesla (TSLA) claims zero-to-60 miles in the five-second range-unofficially, the first owners  are getting into the fours…

The autonomy is reliable and pleasantly novel, but I learn that it’s more fun to do the driving myself, sandbagging in the middle lane and then mashing the throttle to revel in that gush of acceleration.

With 271 horsepower, the Model 3 doesn’t quite rearrange your internal organs like a Model S, but it’s still ferocious… It’s thrilling, but the Model 3 isn’t perfect. I’d like a heads-up display, some way to put the speedometer in my line of sight.

And there are some places where you can see the cost-cutting, like in the rear trunk, where there’s no trim panel up top, just bare metal and cutouts for the speakers that would be there if you had ordered the premium sound system. But I think I could live with such compromises.

In fact, I know I can, because when I get home, I do something that I’ve never done with any of the other thousands of cars I’ve tested: I put down a deposit.”

TSLA closed at $257.78


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Barron’s is bullish on Facebook, La-Z-Boy

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

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

BULLISH   MENTIONS:

Barron’s lists potential takeover targets in cloud software – Shares of young cloud software companies like MongoDB (MDB) and SendGrid (SEND) have soared since the Nasdaq’s bottom on February 8, in part on speculation of a takeover, Barron’s Tiernan Ray contends. Takeover targets form a long list in addition to the aforementioned, and include Friday’s initial public offering Dropbox (DBX), Appian (APPN), Veeva Systems (VEEV), Atlassian (TEAM) and ServiceNow (NOW), Ray writes.

La-Z-Boy shares could rally 20% within a year or two – La-Z-Boy (LZB) shares currently trade at 13.8 times forecast earnings for the next 12 months, which is well below the small-cap Russell 2000 Index’s price/earnings ratio of 25, the Standard & Poor’s 500 index’s 17, and its own five-year average of 16.3 times forward earnings, writes Barron’s Brett Arend. He believes the stock, which closed Friday at $28.75, could merit a valuation of $36 per share, or roughly 20% higher, within a year or two “by simply getting back to its average five-year multiple.” Higher consumer spending, a new relationship to sell on Amazon.com (AMZN), and successful efforts to reach millennials could propel the shares even higher, Arend contends.

Time Warner shares look appealing with antitrust trial under way – Time Warner (TWX) investors face a “win-win” scenario with the antitrust trial for AT&T’s (T) proposed takeover now under way in Washington, Andrew Bary of Barron’s writes. Time Warner shares “look appealing, based on their underlying value and AT&T’s strong chances of winning,” Bary contends. He notes the stock closed Friday roughly $11 below the current value of AT&T’s cash and stock bid, worth $103.60 per share. The 12% deal spread is appealing with “many observers” believing AT&T and Time Warner will prevail over the U.S. government, according to Bary. He adds that while Time Warner shares could fall $5 if the government wins, some analysts think the stock will quickly recover to its current price of $92.57.

Interactive Brokers tops Barron’s list of best online brokers – Interactive Brokers (IBKR) sits atop Barron’s 23rd annual ranking of The Best Online Brokers. Interactive scored highly in trading experience, range of offerings, and portfolio analysis, Theresa Carey writes in a feature story for this weekend’s magazine. Interactive Brokers is followed by Fidelity, TD Ameritrade (AMTD), Charles Schwab (SCHW), TradeStation, Merrill Edge (BAC), E-Trade (ETFC) and tastyworks in Barron’s annual ranking.

Facebook may now be more tempting to investors – In its cover story titled “Facebook Comes Under Siege,” Barron’s says Facebook  (FB) shares may be more tempting to investors following last week’s 14% decline. With more than 2B users, however, Facebook is “almost certain” to not walk away unscathed as the top target for privacy concerns, Jon Swartz writes. Nonetheless, with nearly $42B in cash and investments, Facebook has the flexibility to diversify into other business lines, as it did with Instagram and WhatsApp, Swartz adds.


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Tesla in focus ahead of shareholder vote on CEO compensation

Tesla in focus ahead of shareholder vote on compensation

https://stockwinners.com/blog/
Tesla in focus ahead of shareholder vote on compensation

Shares of Tesla (TSLA) are in focus amid the upcoming shareholder vote on a proposed $2.6B compensation package for chief executive officer Elon Musk.

SHAREHOLDER VOTE

Tesla shareholders will vote on the package for Musk at a special shareholder meeting on Wednesday, Bloomberg reported.

The package, which would give Musk an unprecedented ten-figure award of stock options, is linked to Tesla meeting a number of goals and needs support from investors holding a majority of the share.

Shareholders Baillie Gifford & Co. and T. Rowe Price (TROW) have signaled they’re likely to support the plan.

PAY PLAN DETAILS

On January 23, Tesla announced a new ten-year performance award for Musk with vesting entirely contingent on achieving market cap and operational milestones.

In order to fully vest, Tesla’s market cap would have to grow to $650B, an increase of almost $600B, and important revenue and profitability goals would also have to be achieved.

Musk will receive no guaranteed compensation of any kind — no salary, no cash bonuses and no equity that vests simply by the passage of time. Instead, his only compensation will be a 100% at-risk performance award. The performance award consists of a ten-year grant of stock options that vests in 12 tranches.

Each of the 12 tranches vest only if a pair of milestones is met. To meet the first market cap milestone, Tesla’s current market cap must increase to $100B.

For each of the remaining 11 milestones, Tesla’s market cap must continue to increase in additional $50B increments.

For Musk to fully vest in the award, Tesla’s market cap must increase to $650B.

To meet the operational milestones, Tesla must meet a set of escalating revenue and adjusted EBITDA targets designed to ensure that as Tesla’s market cap grows, the company is also executing well on both a top-line and bottom-line basis.

For each of the 12 tranches that is achieved, Musk will vest in stock options that correspond to 1% of Tesla’s current total outstanding shares. If none of the 12 tranches is achieved, Musk will not receive compensation.

For vesting to occur when the milestones are met, Musk must remain as Tesla’s CEO or serve as both executive chairman and chief product officer with all leadership reporting to him.

PROXY FIRM RECOMMENDATIONS

Proxy advisory firm Glass Lewis has recommended Tesla stakeholders vote against the proposal, saying if Musk were to receive the full grant, he would own 28.3% of the car maker, Reuters reported in March.

“The cost of the grant is staggering relative to executive compensation levels among public companies worldwide,” Glass Lewis said. In addition, proxy firm ISS recommended shareholders reject the pay package, saying the “unprecedented” stock award is too rich, Reuters reported.

The award “locks in unprecedented high pay opportunities for the next decade, and seemingly limits the board’s ability to meaningfully adjust future pay levels in the event of unforeseen events or changes in either performance or strategic focus,” ISS said.

TESLA UNDER PRESSURE

Tesla has also seen executives depart the company in the last month with Susan Repo, corporate treasurer and VP of finance, leaving to take on a chief financial officer position at another firm and chief accounting officer Eric Branderiz departing for “personal reasons”.

Additionally, the company lost Jon McNeill, president of global sales and service, in February and former CFO Jason Wheeler in 2017. Tesla is also expected to report production and deliveries results for its Model 3 Sedan, which has faced challenges including quality issues and a production halt. Musk has delayed manufacturing goals several times for Model 3.

PRICE ACTION

Tesla rose 2.6% to $318.54 in Wednesday’s trading.


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Micron Breaks Out!

Micron shares in ‘early stages of another major breakout

Micron Breaks Out. Stockwinners.com
Micron Breaks Out!

Shares of Micron (MU) are rising after two analysts raised their price targets on the stock, citing memory market changes and potential capital returns.

‘BUY THE BREAKOUT’

On Monday, Nomura Instinet analyst Romit Shah raised his price target for Micron Technology to $100 from $55 citing multiple expansion.

After consolidating over the last four months, Micron shares are in the “early stages of another major breakout,” Shah tells investors in a research note.

The analyst said he sees key catalysts for #Micron, including a resumption of an upward trend in dynamic random-access memory pricing in the second quarter, a first-time dividend and share buyback announcement in May, continued margin expansion in NAND and increased merger and acquisition discussions. #Shah expects another 10% increase in DRAM pricing over the next six months and an announcement by the company for a comprehensive capital return program that will show the management’s confidence in future cash flows.

In addition, Shah expects additional margin expansion in NAND in 2018 and 2019 as weaker prices are offset by a stronger mix and cheaper cost per bit.

The analyst also believes Micron stands out as a potential acquisition target as it is one of the few remaining U.S. chip companies that has scale, it is expanding its presence in NAND and its valuation looks attractive. The analyst kept a Buy rating on the name.

MEMORY MARKET CHANGES

In addition, Evercore ISI analyst C.J. Muse raised his price target on Micron to $80 from $60, stating that he thinks the memory market is “absolutely” different now with the DRAM industry consolidated to three players, all of whom are acting rational, and memory has become increasingly critical while the rising complexity has limited the magnitude of new supply.

His sense is that Micron will move forward with capital returns “regardless of what we hear from the rating agencies” and predicts the company’s analyst day on May 21 should bring more news about planned capital returns starting in fiscal year 2019. #Muse, who thinks Micron can earn $13 or more in earnings per share in calendar 2019, kept an Outperform rating on Micron shares.

PRICE ACTION

Micron rose 7.14%, or $3.90, to $58.49 in Monday morning trading.


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Fogo De Chao sold for $560 million

Fogo De Chao to be acquired by Rhone for $15.75 per share in cash

Fogo De Chao to be acquired by Rhone for $15.75 per share in cash. Stockwinners.com
Fogo De Chao to be acquired by Rhone for $15.75 per share in cash.

Fogo de Chao (FOGO) announced an agreement to be acquired by investment entities affiliated with Rhone Capital.

Under the terms of the agreement, Rhone will acquire the Company in an all cash transaction valued at $560M.

The Company’s stockholders will receive $15.75 per share, representing a 25.5% premium to the closing share price of the Company’s shares on February 16, 2018.

The transaction is the result of a comprehensive strategic alternatives review process taken by the Company’s Board of Directors.

The transaction has been unanimously approved by Fogo’s Board of Directors. Funds affiliated with Thomas H. Lee Partners, L.P. and certain of Fogo’s directors and executive officers, which collectively hold more than 60 percent of Fogo’s shares, have approved the transaction by written consent.

The acquisition is expected to be completed during the second calendar quarter of 2018, subject to regulatory approvals and other customary closing conditions.


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Lululemon CEO resigns over misconduct accusations

lululemon CEO Potdevin resigns over misconduct accusations 

Lululemon CEO resigns over misconduct accusations. Stockwinners.com
Lululemon CEO resigns over misconduct accusations

Shares of lululemon athletica (LULU) are in focus after the company announced the resignation of chief executive officer Laurent Potdevin for “conduct” issues.

CEO RESIGNATION

lululemon announced yesterday that Laurent Potdevin has resigned as CEO and member of the board of directors, effective immediately. Potdevin had served as CEO since January 2014.

lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Potdevin “fell short of these standards of conduct,” the company said, adding that the board has begun a search for a new CEO.

“While this was a difficult and considered decision, the Board thanks Laurent for his work in strengthening the company and positioning it for the future,” said Glenn Murphy, executive chairman.

“Culture is at the core of lululemon, and it is the responsibility of leaders to set the right tone in our organization. Protecting the organization’s culture is one of the Board’s most important duties.”

Lululemon has promoted three members of its management team — Celeste Burgoyne, Stuart Haselden and Sun Choe — to oversee more day-to-day operations, marketing, e-commerce growth, product innovation and supply chain enhancements.

According to a Bloomberg report, Potdevin’s resignation was over misconduct that spanned a range of incidents involving multiple individuals. The misconduct was not related to finances or operations, the report noted.

GUIDANCE REAFFIRMED

In the wake of Potdevin’s resignation, lululemon looked to reassure investors by backing its fourth quarter guidance of earnings per share between $1.25-$1.27 and revenue of $905M-$915M, which compares to analysts’ estimates of $1.27 and $911.67M, respectively.

In addition, the company’s growth strategies remain on track to achieve $4B in revenue in 2020.

ANALYST COMMENTARY

Following the announcement, Jefferies analyst Randal Konik said the level of management turnover at lululemon during “this critical juncture in the company’s growth trajectory gives us some pause.”

The analyst sees better opportunities elsewhere given lululemon’s “high” valuation and “less plentiful” margin opportunity. He maintained a Hold rating on lululemon with a $72 price target.

Meanwhile, Deutsche Bank analyst Paul Trussell said that while he finds the circumstances of Potdevin’s resignation unfortunate, he has confidence in the remainder of lululemon’s management team, particularly Glenn Murphy.

The analyst recommended using any pullback in the shares as a buying opportunity and reiterated a Buy rating with a $95 price target. Citi analyst Paul Lejuez said he views the resignation as more of a positive for lululemon.

It presents the company with an opportunity to bring in a seasoned executive to take lululemon “to the next level,” the analyst said.

Lejeuz kept a Neutral rating on the shares with an $88 price target.

Additionally, KeyBanc analyst Edward Yruma said he views the departure negatively, and notes it comes after creative director Lee Holman’s departed in November.

The analyst believes Potdevin has been an integral part of the company’s stabilized performance in recent quarters.

Canaccord analyst Camilo Lyon said he does not see the departure as a major setback, but notes there is a level of uncertainty until the position is filled. Lyon reiterated his Hold rating and $75 price target.

Furthermore, Morgan Stanley analyst Kimberly Greenberger said it is likely that investors will speculate the top two contenders for the job are Murphy, executive chairman and ex-CEO of The Gap (GPS), and Stefan Larsson, the ex-CEO Ralph Lauren (RL). If lululemon picks either, Greenberger would expect the stock to react positively.

The analyst kept an Equal Weight rating and $73 price target on lululemon.

PRICE ACTION

lululemon is down 0.75% to $76.85.


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Amazon, Berkshire Hathaway, JPMorgan to partner on employee healthcare

Amazon, Berkshire Hathaway, JPMorgan to partner on employee healthcare

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Amazon, Berkshire Hathaway, JPMorgan to partner on employee healthcare

Amazon (AMZN), Berkshire Hathaway (BRK.A, BRK.B) and JPMorgan Chase & Co. (JPM) announced that they are partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs.

Amazon, Berkshire Hathaway, JPMorgan to partner on employee healthcare
Amazon, Berkshire Hathaway, JPMorgan to partner on employee healthcare. Stockwinners.com
Amazon, Berkshire Hathaway, JPMorgan to partner on employee healthcare

The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints.

The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.

The effort announced today is in its early planning stages, with the initial formation of the company jointly spearheaded by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, a Managing Director of JPMorgan Chase; and Beth Galetti, a Senior Vice President at Amazon.

The longer-term management team, headquarters location and key operational details will be communicated in due course.

Health insurance companies are lower in pre-market trading on the news.

Shares of the owners of pharmacy benefit managers, including Express Scripts (ESRX), CVS Health (CVS) and UnitedHealth (UNH), are sliding after Amazon (AMZN), Berkshire Hathaway (BRK.A, BRK.B) and JPMorgan Chase (JPM) announced that they are partnering on “ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs.” The three companies will pursue this objective through an independent company that is “free from profit-making incentives and constraints,” they announced earlier this morning.


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