Supreme Court ruling moves retail stocks

Physical retailers rise, online retailers drop after Supreme Court tax ruling

Supreme Court ruling moves retail stocks, Stockwinners
Supreme Court ruling moves retail stocks, Stockwinners

Shares of brick-and-mortar retailers are rising, while shares of e-commerce firms are slipping, after the Supreme Court ruled that online retailers can be required to collect sales taxes in states where they have no physical presence.

SUPREME COURT RULING

On Thursday, the Supreme Court sided with the state of South Dakota in a fight it brought against Wayfair (W) to require a business that has no physical presence in the state to collect its sales tax.

Supreme Court ruling moves retail stocks, Stockwinners
Supreme Court ruling moves retail stocks, Stockwinners

The Supreme Court ruled in a 5-to-4 vote that a 1992 judgement in Quill Corporation v. North Dakota regarding the physical presence rule was “unsound and incorrect,” according to a judgement posted to the high court’s website.

Justice Anthony Kennedy, in writing for the majority opinion, said the Quill decision had distorted the economy and resulted in states losing annual tax revenues between $8B-$33B.

“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” he wrote.

“Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”

WHAT’S NOTABLE:

Following the ruling, industry trade organization National Retail Federation issued a statement saying,

“Retailers have been waiting for this day for more than two decades. The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well.

This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”

ANALYST COMMENTARY

KeyBanc analyst Edward Yruma called the ruling a negative for Wayfair, arguing that it may reduce some of the price differential that has helped it gain share from traditional peers.

The ruling is also a negative, but to a lesser degree, for eBay (EBAY) and Etsy (ETSY), said Yruma, who views the impact on those two as more related to compliance and implementation.

He adds that the news could be a modest positive for retailers of high-ticket and branded products, such as Best Buy (BBY), Home Depot (HD), Lowe’s (LOW), La-Z-Boy (LZB), Kirkland’s (KIRK), RH (RH) and Williams-Sonoma (WSM).

PRICE ACTION

At Thursday midday, Target (TGT) rose 1.8%, Walmart (WMT) was up 0.7%, Costco (COST) rose roughly 1.1% while Amazon (AMZN) was down 0.4%, Etsy dropped about 2.5%, eBay fell 1.4% and Wayfair (W) was down 1.2%.

In addition, Avalara (AVLR), a software company focused on automated tax compliance that recently held its initial public offering, gained 17.1%.


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Oracle lower after losing business to Amazon, Microsoft

Oracle slides as JPMorgan cuts rating on business lost to Amazon, Microsoft

Oracle slides as JPMorgan cuts rating on business lost to Amazon, Microsoft , Stockwinners
Oracle slides as JPMorgan cuts rating on business lost to Amazon, Microsoft ,

Shares of Oracle (ORCL) are sliding after JPMorgan analyst Mark Murphy downgraded the stock to Neutral, citing negative results from a survey of Chief Information Officers about their spending.

The analyst noted that the survey showed spending contraction ahead as Oracle’s databases are being unplugged in favor of Microsoft (MSFT) and Amazon (AMZN) databases.

SURVEY SAYS

In a research note this morning, JPMorgan’s Murphy downgraded Oracle to Neutral from Overweight as specific metrics in the firm’s large-scale CIO survey have arced over into negative territory.

The analyst told investors that while Oracle’s shares have risen from the $30s into the high $40s in the last 2 years, the company’s fundamental performance has remained inconsistent. Citing his survey of 154 CIOs, Murphy noted that Oracle received the largest number of indications for planned spending contraction this year, materially more than the second-worst company, which was IBM (IBM) with 25 indications of spending contraction.

Further, while ranking the top 8 or 9 mega-vendors in terms of who will be most critical and indispensable to CIOs’ IT environment in the future, Oracle only received 6.5% of votes, down from 11% in previous surveys, the analyst highlighted.

At the same time, Murphy pointed out that Amazon AWS improved from 9.5% of votes last year to 14.9% of votes this year, creating the appearance of a “sucking sound” out of Oracle and into AWS.

The company also ranked number 8 in terms of association with Digital Transformation projects, disappointing relative to its scale and lagging behind the likes of SAP (SAP), IBM, and Cisco (CSCO), he added, noting that despite Oracle’s efforts to build a Cloud presence, it rated no better than SAP in terms of association with Cloud Computing plans, and is nowhere close to the leaders Microsoft, Amazon, and Google (GOOGL; GOOG) in this respect. Oracle was mentioned by only 2% of the CIOs as the platform that will be “most integral” to their cloud computing plans, Murphy said.

Overall, the analyst questions where Oracle’s business and stock are heading in the next couple of years if the largest-scale CIO survey shows Oracle now has negative spending intentions, is lagging in Digital Transformation projects, is trailing in Cloud Computing plans, its databases are being unplugged in favor of Microsoft and Amazon databases, its applications are being unplugged in favor of Salesforce (CRM) and Workday (WDAY) applications, and customers are weary of its unpopular commercial tactics.

Murphy also lowered his price target on Oracle’s shares to $53 from $55.

WHAT’S NOTABLE

In a research note of his own, Nomura Instinet analyst Christopher Eberle lowered his price target for Oracle to $60 from $64 ahead of the company’s fourth quarter results on June 19.

The analyst trimmed his estimates to account for currency and expectations for more modest revenue acceleration in fiscal 2019. He remains optimistic, however, on Oracle’s transition and model growth reacceleration as the year progresses. Eberle reiterated a Buy rating on the shares.

PRICE ACTION

In Wednesday’s trading, shares of Oracle dropped almost 5% to $46.14.


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Esperion falls after drug failure

Esperion falls after Phase 3 study of bempedoic acid met primary endpoint

Esperion announces 'positive' top-line results from bempedoic acid study, Stockwinners.com
There were no clinically relevant differences between the bempedoic acid and placebo groups

Esperion (ESPR) announced top-line results from the second pivotal, Phase 3 study, the long-term safety study of bempedoic acid 180 mg, in this case evaluating the safety, tolerability and efficacy of bempedoic acid versus placebo in high-risk patients with atherosclerotic cardiovascular disease who are inadequately controlled with current lipid-modifying therapies, including maximally tolerated statin therapy.

The study included 2,230 patients and met the primary endpoint of safety and tolerability and the key efficacy endpoint with on-treatment LDL-C lowering of an additional 20% at twelve weeks, the company said.

Patients treated with bempedoic acid also achieved a significant reduction of 22% in high-sensitivity C-reactive protein, an important marker of the underlying inflammation associated with cardiovascular disease, Esperion added.

There were no clinically relevant differences between the bempedoic acid and placebo groups in the occurrence of adverse events with 78.5% and 78.7% respectively; or serious adverse events with 14.5% and 14.0% respectively, it added.

Discontinuations due to AEs were 10.9% and 7.1%, respectively for the bempedoic acid and placebo groups; discontinuations due to muscle-related AEs were 2.2% and 1.9%, respectively, in the bempedoic acid and placebo groups.

“In this study, the largest in our Phase 3 program, bempedoic acid was observed to be safe and well tolerated over a 52-week period, while providing clinically and statistically significant LDL-cholesterol lowering and reductions in hsCRP when added on to maximally tolerated statin therapy,” said Tim Mayleben, CEO of Esperion.

“In the coming months, results from our three remaining pivotal Phase 3 studies are expected to further validate the safety, efficacy and tolerability profile of bempedoic acid and the bempedoic acid / ezetimibe combination pill, definitively establishing these once-daily oral therapies as convenient and complementary to existing treatments for the 13 million people in the U.S. with ASCVD who live with elevated levels of LDL-cholesterol despite taking maximally-tolerated lipid-modifying therapy and remain at high risk for further cardiovascular disease or events, including heart attack and stroke.”

Esperion shares in premarket trading are down 27% to $52.40.


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Generic drug makers tumble on pricing

Generic drug makers under pressure following Aceto, Novartis news

Generic drug makers tumble on pricing, Stockwinners
Generic drug makers tumble on pricing

On Wednesday, Aceto (ACET) withdrew its guidance, citing the continued intense competitive and pricing pressures in the generic industry.

On Thursday, Novartis (NVS) reported that net sales at its generic unit Sandoz dropped 4% in the quarter.

Following both announcements, Wells Fargo analyst Davis #Maris told investors that he is not ready to call the bottom in generics pricing and sees a negative read-through for companies with large U.S. commodity generic exposure, such as Teva (TEVA) and Mylan (MYL).

Generic drug makers tumble on pricing, Stockwinners
Generic drug makers tumble on pricing, Stockwinners

GUIDANCE SUSPENSION, DIVIDEND REDUCTION

Last night, Aceto’s chairman Al Eilender said, “Given continued headwinds in the generics market, the Board has taken decisive action by bolstering the company’s senior leadership, engaging in proactive discussions with its secured lenders, and initiating a thorough evaluation of strategic alternatives.

” Strategic alternatives to be considered may include the sale of a key business segment, a merger or other business combination with another party, continuing as a standalone entity or other potential alternatives.

The company’s Board also anticipates a significant reduction of its dividend going forward and announced the appointment of Rebecca Roof as Interim CFO and the resignation of CFO Edward Borkowski, who has decided to pursue another opportunity.

Additionally, Aceto said that, in light of the persistent adverse conditions in the generics market, it is negotiating with its bank lenders a waiver of its credit agreement with respect to its total net leverage and debt service coverage financial covenants in the fiscal third quarter, and that the financial guidance issued on February 1, should no longer be relied upon.

The company also anticipates recording non-cash intangible asset impairment charges, including goodwill, in the range of $230M-$260M on certain currently marketed and pipeline generic products as a result of continued intense competitive and pricing pressures.

NOVARTIS RESULTS

This morning, Novartis reported first quarter core earnings per share of $1.28 and revenue of $12.69B, with consensus at $1.29 and $12.57B, respectively. The company also announced Sandoz net sales of $2.5B in the first quarter as 6 percentage points of price erosion, mainly in the U.S., were partly offset by volume growth of 2 percentage points. U.S. sales declined 18% mainly due to continued competitive pressure, the company added.

NEGATIVE READ-THROUGH

In a research note this morning, Wells Fargo’s Maris told investors that he thinks Aceto and Sandoz’s news show that the data continues to be negative for U.S. generic industry pricing. He sees a negative read-through for companies with large U.S. commodity generic exposure, such as Teva and Mylan.

Further, the analyst noted that he is not yet ready to call the bottom in generics pricing and believes those that have are “premature.”

WHAT’S NOTABLE

Citing a rapid degradation of the company’s asset-light business model in the wake of continued pressures for commoditized generics, Canaccord analyst Dewey Steadman downgraded Aceto two notches to Sell from Buy.

The company’s core human health business has been under significant pressure and has been unable to swiftly adapt to market conditions, he added. The analyst also lowered his price target on the shares to $2 from $10.

PRICE ACTION

In Thursday’s trading, shares of Aceto have plunged almost 62% to $2.85, while Novartis’ stock has dropped about 3% to $79.25. Also lower, shares of Teva and Mylan have slipped 2.5% and 0.25%, respectively.


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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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Alkermes lower following FDA action

Alkermes announces FDA Refusal to File letter received for ALKS 5461

Alkermes announces FDA Refusal to File letter received for ALKS 5461. Stockwinners
Alkermes announces FDA Refusal to File letter received for ALKS 5461.

Alkermes (ALKS) announced that it received a Refusal to File letter from the U.S. Food and Drug Administration regarding its New Drug Application for ALKS 5461, a once-daily, oral investigational medicine with a novel mechanism of action for the adjunctive treatment of major depressive disorder in patients with an inadequate response to standard antidepressant therapies.

Upon its preliminary review, the FDA has taken the position that it is unable to complete a substantive review of the regulatory package, based on insufficient evidence of overall effectiveness for the proposed indication, and that additional well-controlled clinical trials are needed prior to the resubmission of the NDA for ALKS 5461.

In addition, FDA has requested the conduct of a bioavailability study to generate additional bridging data between ALKS 5461 and the reference listed drug, buprenorphine.

Alkermes said it strongly disagrees with the FDA’s conclusions and plans to appeal the FDA’s decision.

The company intends to seek immediate guidance, including requesting a Type A meeting with the FDA, to determine appropriate next steps and what additional information may be required to resubmit the NDA.

Alkermes is evaluating the impact of this update on its previously-issued financial guidance for 2018; any update will be provided in its first quarter 2018 financial results disclosures.

Alkermes CEO Richard Pops said: “We strongly believe that the clinical development program, including data from more than 1,500 patients with MDD, provides substantial evidence of ALKS 5461’s consistent antidepressant activity and a favorable benefit-risk profile.”

PRICE ACTION

ALKS closed at $57.96, it last traded at $47.00.

Shares of Intra-Cellular Therapies (ITCI) are down 9%, or $1.92, to $19.13 in premarket trading. STAT’s Adam Feuerstein tweeted following the Alkermes news, “Anyone confident in $ITCI now? I wouldn’t be.”

Intra-Cellular on March announced that it had a “positive” pre-New Drug Application meeting with the FDA regarding lumateperone for the treatment of schizophrenia.

At the meeting, the company and the FDA agreed on the proposed content and timing of a rolling NDA submission. The company plans to complete its NDA submission by mid-2018.


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Volkswagen to buy back diesel cars amid German bans

Volkswagen offers to buy back diesel cars amid German bans

Volkswagen offers to buy back diesel cars amid German bans. Stockwinners.com
Volkswagen offers to buy back diesel cars amid German bans.

The Volkswagen (VLKAY) brand is starting a diesel campaign for its customers in Germany in April.

The new Germany Guarantee gives the buyers of new and year-old vehicles with diesel engines purchased from a Volkswagen dealership additional security and will keep them on the road in the event of a driving ban.

The Volkswagen Group’s successful environmental incentive has already taken some 170,000 old diesel vehicles from the road since August 2017 and replaced them with efficient and clean current models.

Approximately 120,000 of these customers have chosen a Volkswagen brand model.

The Volkswagen brand continues its effort to rejuvenate the vehicle population by offering the diesel environmental incentive with the purchase of a new diesel vehicle beginning in April.

Volkswagen’s new Germany Guarantee is free of charge and will apply to the purchase of a new or a year-old car with a diesel engine from a Volkswagen dealership from 1 April throughout 2018.

It is valid for three years from the date of purchase and offers customers who would be affected by possible driving restrictions at their home or working address the opportunity to exchange vehicles.

The affected customer will receive an offer that the participating Volkswagen dealership will buy back the original model for the current value determined by the independent institution, Deutsche Automobil Treuhand, if the customer then buys from the same dealership a new or year-old vehicle which would not be affected by driving restrictions.

The participating Volkswagen dealership will give the customer a model-dependent trade-in premium with a maximum value corresponding to the previous environmental incentive. The vehicle exchange will be dealt with the involved Volkswagen Partner and in addition via Volkswagen’s digital ecosystem at volkswagen-we.de.

The Volkswagen brand has already taken some 120,000 old diesel vehicles with Euro 1 through Euro 4 emissions standards from the road since August 2017 with its successful environmental incentive, thus making a substantial contribution to improving the air quality of German cities.

Therefore, the measure will be continued as a diesel environmental incentive for new diesel vehicles until 30 June 2018.

The previous model-dependent premiums will continue unchanged.

VLKAY closed at $38.63.


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Universal Display, other Apple suppliers fall as company to develop own screens

Universal Display, other Apple suppliers fall as company to develop own screens 

Universal Display, other Apple suppliers fall as company to develop own screens . Stockwinners.com
Universal Display, other Apple suppliers fall as company to develop own screens .

Shares of organic light-emitting diode technology maker Universal Display (OLED) and other suppliers are down in morning trading amid speculation Apple (AAPL) is producing its own device displays for the first time.

APPLE DEVELOPING DISPLAYS

Apple has been quietly designing and producing limited quantities of its own MicroLED device screens for the first time “for testing purposes” using a manufacturing facility near its headquarters, Bloomberg reported Monday, citing people familiar with the matter.

The move by the company, which is significantly investing in the development of the next-generation MicroLED screens that aim to make devices slimmer and less of a drain on power, could potentially hurt a range of suppliers in the long-term, from screen makers like Samsung (SSNLF), Japan Display, Sharp (SHCAY) and LG Display (LPL) to companies like Synaptics (SYNA) and Universal Display, according to the report.

The MicroLED screens are much more difficult to produce than organic light-emitting diode screens and customers will likely have to wait a few years before the technology is released.

Apple is planning to make the new displays available first in future Apple Watch devices, but it is unlikely the screens will reach an iPhone for at least three to five years.

An Apple spokeswoman declined to comment when contacted by Bloomberg.

WHAT’S NOTABLE

LG Display is expected to start supplying some of the OLED displays for Apple’s iPhone X, shipping as many as 60M displays for the smartphone starting in June, CNBC reported in December.

At the time of the report, discussions between Apple and LG Display were ongoing and LG said, “Regarding the OLED supply deal for Apple’s iPhone X, nothing has been set in detail.

When anything is confirmed in detail, we will announce it.” Apple has previously used Samsung as its exclusive supplier of OLED panels for iPhones.

PRICE ACTION

In Monday’s trading, shares of Universal Display dropped 10.1% to $111.52. Meanwhile, shares of LG Display trading in New York were down 1.2% to $12.92, Sharp fell 2.2% to $8.05 and Synaptics dropped 1% to $47.35.


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Stitch Fix shares could unravel at the seam

Stitch Fix drops after earnings,  analyst sees lock-up bringing pressure

Stitch Fix drops after earnings. Stockwinners.com
Stitch Fix drops after earnings

Shares of Stitch Fix (SFIX) dropped in Tuesday morning trading following the company’s quarterly earnings report.

The personal shopping and clothing provider saw revenue come in above the Wall Street consensus and posted a 31% year-over-year increase in active clients.

Following the earnings report, an analyst at JPMorgan estimated that about 31M shares will be released from lock-up on Wednesday, which could create near-term weakness.

EARNINGS AND GUIDANCE

After the market close on Monday, Stitch Fix reported second quarter adjusted earnings per share of 7c, slightly exceeding analysts’ 6c consensus, though its EPS including items was 2c. Revenue for the quarter of $295.5M beat the $291.24M consensus and Stitch Fix said it grew active clients to 2.5M, an increase of 588,000 and 31% year-over-year.

Looking ahead, Stitch Fix forecast third quarter revenue of $300M-$310M, at the high end of analysts’ $300.29M consensus, and fiscal 2018 revenue of $1.19B-$1.22B, against the Street consensus of $1.2B.

On its quarterly earnings conference call, Stitch Fix said its net revenue per active client for the 12 months ended January 27 was $437, a decrease of 3.9% vs. last year.

The company commented, “This decline was primarily driven by our continued and growing strategic expansion into Men’s and lower price point merchandise. Although our male clients on average have a lower purchase frequency, which dilutes our overall net revenue per active client, we continue to be pleased with the revenue contribution and profitable unit economics of the Men’s category.

Similarly, we’ve been encouraged by our ability to serve lower price point clients effectively and plan to further penetrate this market.”

WHAT’S NOTABLE

Stitch Fix’s quarterly earnings report was its second as a public company.

The company’s IPO in November was overshadowed by the disappointing IPO of another subscription service, Blue Apron (APRN), as well as a threat from Amazon’s (AMZN) Prime Wardrobe and Nordstrom’s (JWN) Trunk Club.

Stitch Fix, which debuted at $15 per share, has seen its shares gain over 50% since November.

ANALYST COMMENTARY

In a research note to investors, JPMorgan analyst Doug Anmuth estimated that about 31M Stitch Fix shares will be released from lock-up before the market open on Wednesday, March 14, which could create near-term weakness.

#Anmuth explained that Stitch Fix’s IPO held a price-triggered lock-up agreement where 35% of the locked-up shares become eligible for release beginning 90 days after the IPO if certain criteria are met, including shares closing 25% or more above the IPO price on 10 out of 15 consecutive trading days and if the company is not in its trading black-out period.

The analyst noted that Stitch Fix qualified for the price and reporting threshold last month, but since this occurred during its black-out period, shares do not qualify for release until one day post-earnings.

While Anmuth remains confident in Stitch Fix’s market opportunity and ability to stabilize growth, he thinks growth will become more challenging as the company has passed the period of heavy viral growth and margin compression is likely through fiscal 2019.

The analyst has a Neutral rating and $26 price target.

PRICE ACTION

Shares of Stitch Fix are down 2% to $24 in Tuesday’s trading.


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CHMP recommends against use of Pfizer’s SUTENT

Pfizer says CHMP recommends against expanding use of SUTENT

CHMP recommends against use of Pfizer’s SUTENT

Pfizer (PFE) announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency has recommended against expanding use of SUTENT to include the adjuvant treatment of adult patients at a high risk of recurrent renal cell carcinoma following nephrectomy.

The #CHMP’s recommendation is not binding but will now be taken into consideration by the European Commission.

There is currently no approved adjuvant treatment option available for patients with non-metastatic RCC at high risk for recurrence in the European Union.

In the U.S., #SUTENT is approved for the adjuvant treatment of adult patients at high risk of recurrent RCC following nephrectomy. On November 16, 2017, the U.S. Food and Drug Administration approved an expanded indication for SUTENT as the first treatment for adult patients at high risk of recurrence following nephrectomy.

The FDA expanded indication was based on results from the S-TRAC trial, a multicenter, international, randomized, double-blind, placebo-controlled Phase 3 trial of SUTENT versus placebo in 615 patients with clear cell histology and high risk of recurrence following nephrectomy.

The results were published by The New England Journal of Medicine in October 2016.

PFE closed at $35.74.


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Lionsgate slides on downgrade

Lionsgate slides as analyst cuts rating on competitive, cost concerns

Lionsgate falls on downgrade. Stockwinners.com
Lionsgate falls on downgrade.

Bernstein analyst Todd Juenger downgraded Lionsgate (LGF.B) to Market Perform this morning, putting some pressure on the shares.

The analyst argued that competitive investment from rival premium and Subscription Video On Demand, or SVOD, services has gotten much more intense, while also pointing to increased programming investment at Starz.

MOVING TO THE SIDELINES

In a research note this morning, Bernstein’s Juenger downgraded Lionsgate to Market Perform from Outperform and lowered his price target on Class B shares to $30 from $35.

The analyst told investors that he believes competitive investment from rival premium and SVOD services has gotten much more intense, and noted that increased programming investment at Starz is a necessary but recurring cost of doing business, which means the normalized growth rate for Starz has to be lower.

#Juenger added that while Lionsgate likes to tell investors they offer higher-than-average growth at lower-than-average risk, he sees, at best, average growth, with higher-than-average risk.

Further, M&A is always possible, but if discussions were on-going or imminent, the company would not choose to increase investment, lower guidance, and reinstate a dividend, the analyst contended.

NEAR-TERM UPSIDE MUTED

Last week, Barrington analyst James Goss lowered his price target for Lionsgate to $34 from $40, while reiterating an Outperform rating on the stock.

The analyst noted that with the company’s repositioning its film slate under new leadership, and increasing its investment in programming for Starz, Lionsgate sees more muted growth in 2019, with a significant ramp in 2020. While Goss expects near-term upside to be muted, he believes the Starz service will be a more attractive offering in the “shifting media landscape,” which should provide further opportunities for long-term growth.

INDUSTRY CONSOLIDATION

According to a report by CNBC earlier this month, Comcast (CMCSA) could consider topping Disney’s (DIS) bid for 21st Century Fox (FOXA) if regulators approve AT&T’s (T) acquisition of Time Warner (TWX).

While no decision has been made by Comcast, Disney is already considering responses in case Comcast makes a run at Fox, the report added.

On December 14, Disney and 21st Century Fox announced they had entered into a definitive pact under which Disney will acquire 21st Century Fox, including the company’s Film and Television studios, along with cable and international TV businesses, for approximately $52.4B in stock.

As part of the deal, Fox will spin off Fox Broadcasting network and stations, Fox News, Fox Business, FS1, FS2, and Big Ten Network to its shareholders.

PRICE ACTION

In Wednesday’s trading, Class B shares of Lionsgate had dropped over 1% to $26.90.


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CBOE Global Markets falls due to VIX

CBOE Global Markets falls on concerns over VIX Futures

CBOE Global Markets falls amid VIX swings - Stockwinners.com
CBOE Global Markets falls amid VIX swings – Stockwinners.com

Shares of CBOE Global Markets (CBOE) are falling after a Tuesday sell-off amid swings in market volatility which saw the CBOE volatility index rise over 50.

CBOE RESPONDS

CBOE defended its VIX volatility index after investors and analysts blamed exchange-traded products that aim to track the measure for worsening the wild trading in the stock market, the Financial Times reported Tuesday.

“The markets were resilient…We were generally pleased with how [the VIX] acted in a very volatile and stressful time,” said William Speth, CBOE VP of research and product development. “I think there are a lot of things going on here,” he said.

“Certainly the VIX ETPs are part of the mix, but the 800-pound gorilla has been these volatility control funds.”

MARKET “CLEARLY WORRIED”

On Tuesday, Wells Fargo analyst Christopher Harris said that spikes in volatility would normally be seen as good for CBOE.

However, given that the losses in the overcrowded trade of “short volatility” have been so severe, the market is “clearly worried” about the negative implications for future VIX volumes, which he believes is weighing on CBOE shares.

While he cannot say how much of CBOE’s volumes are tied to short volatility strategies, Harris said that if VIX related volumes were to go back to 2015 levels that would be 15% dilutive to his 2018 EPS estimate, adding that the recent selloff appears to be factoring in “quite a lot of downside.”

Harris has an Outperform rating on CBOE shares.

On Wednesday, JPMorgan analyst Kenneth Worthington downgraded CBOE to Neutral from Overweight and cut his price target for the shares to $110 from $131.

The liquidation and fall of various exchange traded notes represents a risk to VIX Futures volumes, likely bringing a reduction in VIX Futures trading activity looking over the next few months, Worthington wrote.

He also sees some risk to volumes in VIX options and potential for a deterioration in CBOE’s valuation as VIX has been a key growth driver for the company.

Meanwhile, Goldman downgraded CBOE to Neutral from Buy and cut its price target to $115 from $140. Analyst Alexander Blostein said the unwind in the CBOE’s VIX ETF products will likely weigh on the company’s VIX futures franchise, creating headwinds to the firm’s top-line growth and potentially the stock’s valuation.

The analyst added he continues to see longer-term growth prospects in the CBOE/BATS combination, but believes the shares may lag.

CME UPGRADE

Goldman’s Blostein also upgraded CME Group (CME) to Buy from Neutral and raised his price target to $180 from $160.

Blostein expects CME’s revenue growth to accelerate in 2018/19 amid significant growth in open interest and the increasing likelihood of normalization of volatility.

The analyst expects the prospects of rising inflation expectations and normalization of volatility to drive product velocity higher over the next two years, adding to already to the healthy build-up in open interest.

PRICE ACTION

CBOE Global Markets  is down 3.2%, or $3.73, to $113.21, in Wednesday’s trading. Meanwhile, CME Group is up 2.1% to $160.95.


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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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Corcept sinks after Teva submits application to sell Korlym

Corcept sinks after Teva submits application to sell Korlym in U.S. 

Corcept sinks after Teva submits application to sell Korlym. Stockwinners.com
Corcept sinks after Teva submits application to sell Korlym

Corcept Therapeutics (CORT) announced in a regulatory filing that it received a Paragraph IV Notice Letter advising that Teva Pharmaceuticals (TEVA) submitted an Abbreviated New Drug Application to the FDA seeking authorization to manufacture, use or sell a generic version of Korlym in the United States.

KORLYM is a prescription medicine used to treat high blood sugar (hyperglycemia) caused by high cortisol levels in the blood (hypercortisolism) in adults with endogenous Cushing’s syndrome who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or cannot have surgery.

Korlym is a glucocorticoid receptor antagonist that is indicated to control hyperglycemia associated with Cushing’s syndrome, a rare, debilitating endocrine disorder. Cushing’s syndrome is caused by prolonged exposure to elevated levels of glucocorticoids (hypercortisolism). The potent metabolic effects of excess cortisol influence many tissues and body systems, and patients often have many problems, including diabetes, obesity, muscle wasting, depression, cognitive difficulties, and psychosis.

The Notice Letter contains Paragraph IV certifications against certain of Corcept’s patents related to Korlym, the company points out. The Notice Letter also alleges that the Korlym patents, the ‘348 patent with an expiration date in August 2028 and the ‘495 patent with an expiration date in August 2036, will not be infringed by Teva’s proposed product, are invalid and/or are unenforceable.

“The Company intends to vigorously defend its extensive intellectual property rights related to Korlym,” Corcept stated.


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