After Hours Summary: AAP -10.4% down sharply after hours on earnings miss; CCL -12.6% lower on $1 bln convertible note offeringAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: VREX +2%, ALC +0.1%
Companies trading higher in after hours in reaction to news: NTRA +3.9% (commences $350 mln common stock offering), IIIN +1.2% (declares special cash dividend of $2.00/sh), TWOU +1% (announces a new collaboration with Emeritus), WMB +0.5% (SRE enters into deal with WMB for the offtake of LNG), TER +0.3% (names new CEO)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: AAP -10.4%, SMWB -9.1%, GSM -7.5%, NVGS -4.1%
Companies trading lower in after hours in reaction to news: LVLU -14.6% (names new CEO, also reports earnings), CCL -12.6% (commences a private offering of $1 bln of convertible notes), DNA -6.2% (to offer and sell $100 mln of its common stock), PRVA -5.8% (files mixed securities shelf offering), ASLE -4.2% (stock offering), STRC -3.6% (files $150 mln mixed securities shelf offering), AMKR -3.1% (increases dividend), AZO -3.1% (in sympathy with AAP earnings miss), ORLY -1.7% (to increase share repurchase program by $1.5 bln; also in sympathy with AAP earnings miss), DIS -0.4% (will hike ticket prices to its four parks next month, according to NY Post), BB -0.3% (expands BlackBerry SecuSUITE partners in Asia Pacific), NKE -0.2% (increases dividend), EL -0.2% (will buy Tom Ford in a deal valued at roughly $2.8 bln, according to WSJ), WBD -0.1% (lays off about 70 employees, according to Sports Business Journal), CPA -0.1% (October traffic), AAPL -0.1% (to source chips for its devices from a plant under construction in Arizona, according to Bloomberg)
Estée Lauder to Buy Tom Ford in $2.8 Billion Deal
The beauty conglomerate is expected to tap multiple partners to handle the fashion and accessories side of the business, according to a source.
New York-based Estée Lauder Cos. has agreed to buy Tom Ford for $2.8 billion, according to a source close to the beauty conglomerate.
The completion of the deal, which was first reported by the Wall Street Journal, is slated to be announced on Tuesday. While Estée Lauder is the main buyer, there may be multiple partners involved, as the beauty conglomerate is unlikely to attempt to enter the ultra-competitive luxury fashion space on its own. Early reports valued the Tom Ford brand at $3 billion.
Representatives for both companies did not immediately respond to requests for comment.
Estée Lauder was reportedly in competition with Ford’s former employer, the European fashion group Kering — which owns Gucci, Yves Saint Laurent and Balenciaga — to purchase the Los Angeles-based luxury brand. (In the 1990s, Ford rose to fame transforming Gucci from a worn-out Italian heritage label into the hottest fashion line of the decade.) Kering, with which Ford and his business partner, Domenico De Sole, parted ways in 2004, is said to be interested in developing its own beauty business, and owning a brand like Tom Ford — known for its suiting and glitzy womenswear, but that primarily makes money on cosmetics and fragrance — may have been an interesting prospect.
For Estée Lauder, which launched the Tom Ford brand in 2005 as its official beauty partner, severing ties — and losing the profits it makes on its skin care, makeup and perfume — would be detrimental, according to one of the beauty conglomerate’s former executives. Owning Tom Ford outright will generate more profits for the group, which has shifted its business away from less lucrative licensing agreements in recent years. Tom Ford also sits squarely in the prestige makeup and fragrance categories, which grew 18 percent and 13 percent, respectively, during the second quarter of 2022, according to NPD.
However, the fashion and accessories business has never been more difficult to break into now that a handful of European heavyweights control the supply chain, and it’s unlikely that Estée Lauder is interested in entering that market on its own.
Ermenegildo Zegna Group, which has built a robust menswear business through its namesake line, but also through the acquisition of American label Thom Browne, has held the license to Tom Ford men’s apparel and footwear for the past 16 years. Eyewear group Marcolin has produced and distributed Tom Ford optical frames and sunglasses since 2005.
They may very well continue to do so after this deal, although it’s unclear what is going to happen with Ford’s womenswear collection.
Research Calls
- Upgrades:
- Activision Blizzard (ATVI) upgraded to Buy from Neutral at MKM Partners; tgt $95
- Chubb (CB) upgraded to Overweight from Neutral at Atlantic Equities; tgt $240
- Equifax (EFX) upgraded to Overweight from Neutral at Atlantic Equities; tgt $230
- FMC Corp (FMC) upgraded to Buy from Hold at Loop Capital; tgt raised to $149
- Itau Unibanco Holding SA (ITUB) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $7
- LexinFintech (LX) upgraded to Accumulate from Reduce at CLSA
- Lufax (LU) upgraded to Buy from Reduce at CLSA
- National Grid (NGG) upgraded to Buy from Hold at Societe Generale
- Resources Connection (RGP) upgraded to Neutral from Underperform at BofA Securities; tgt raised to $58
- Tandem Diabetes Care (TNDM) upgraded to Equal Weight from Underweight at Wells Fargo; tgt $43
- Teleperformance (TLPFY) upgraded to Buy from Neutral at Citigroup
- Downgrades:
- Banco Bradesco (BBD) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $3.50
- Banco Santander Brasil (BSBR) downgraded to Underweight from Equal Weight at Barclays; tgt lowered to $5
- C.H. Robinson (CHRW) downgraded to Underperform from Mkt Perform at Raymond James
- Cambium Networks (CMBM) downgraded to Outperform from Strong Buy at Raymond James; tgt lowered to $26
- Carvana (CVNA) downgraded to Perform from Outperform at Oppenheimer
- Corteva (CTVA) downgraded to Hold from Buy at Loop Capital; tgt raised to $71
- Grainger (GWW) downgraded to Neutral from Overweight at Atlantic Equities; tgt $630
- Haynes Intl (HAYN) downgraded to Sector Weight from Overweight at KeyBanc Capital Markets
- Inventiva (IVA) downgraded to Sell from Buy at Societe Generale
- Leslie's (LESL) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $16
- LyondellBasell (LYB) downgraded to Neutral from Buy at Mizuho; tgt $88
- MSG Entertainment (MSGE) downgraded to Hold from Buy at Jefferies; tgt lowered to $49
- MorphoSys (MOR) downgraded to Hold from Buy at Stifel
- MorphoSys (MOR) downgraded to Sell from Neutral at Citigroup
- Roche Hldg (RHHBY) downgraded to Hold from Buy at Stifel
- Roche Hldg (RHHBY) downgraded to Market Perform from Outperform at Cowen
- Sotera Health (SHC) downgraded to Underweight from Equal Weight at Barclays; tgt $
- Viasat (VSAT) downgraded to Mkt Perform from Outperform at Raymond James
- Volta (VLTA) downgraded to Mkt Perform from Outperform at Raymond James
- Westlake Corporation (WLK) downgraded to Neutral from Overweight at JP Morgan; tgt lowered to $109
- Others:
- Amazon (AMZN) initiated with an Outperform at MoffettNathanson; tgt $118
- Chewy (CHWY) initiated with a Market Perform at MoffettNathanson; tgt $33
- Crescent Energy Company (CRGY) initiated with a Neutral at BofA Securities; tgt $15
- DICE Therapeutics (DICE) initiated with a Buy at Guggenheim; tgt $65
- Enphase Energy (ENPH) initiated with a Buy at Deutsche Bank; tgt $330
- eBay (EBAY) initiated with a Market Perform at MoffettNathanson; tgt $44
- Etsy (ETSY) initiated with a Market Perform at MoffettNathanson; tgt $116
- First Solar (FSLR) initiated with a Buy at Deutsche Bank; tgt $180
- Fulcrum Therapeutics (FULC) initiated with a Buy at Goldman; tgt $11
- Harley-Davidson (HOG) initiated with an Underperform at Jefferies; tgt $39
- Inspired Entertainment (INSE) initiated with a Mkt Outperform at JMP Securities; tgt $18
- Mobileye Global (MBLY) initiated with an Outperform at Robert W. Baird; tgt $36
- Netflix (NFLX) resumed with a Buy at BofA Securities; tgt $370
- Shopify (SHOP) initiated with a Market Perform at MoffettNathanson; tgt $30
- Stagwell (STGW) initiated with a Buy at B. Riley Securities; tgt $13
- SolarEdge Technologies (SEDG) initiated with a Hold at Deutsche Bank; tgt $260
- Sunnova Energy (NOVA) initiated with a Buy at Deutsche Bank; tgt $36
- SunPower (SPWR) initiated with a Hold at Deutsche Bank; tgt $16
- Sunrun (RUN) initiated with a Buy at Deutsche Bank; tgt $36
- Unity Software (U) resumed with a Neutral at Goldman; tgt $36
- Wayfair (W) initiated with an Underperform at MoffettNathanson; tgt $20
Gapping down
In reaction to earnings/guidance:
- GETY -13.6%, IONQ -5.5%, VOD -4.8%, JJSF -4.3%, DNA -3%, HNRG -2.4%, HPK -1.9%, IHS -1.5%, HD -1.1%
Other news:
- SKYT -15% (prices common stock offering)
- AGS -13.2% (commences public offering of 8208076 shares by selling stockholder)
- PTLO -9.5% (pricing of offering of class a common stock in "synthetic secondary" transaction)
- ECVT -9.3% (prices secondary offering of 17.5 mln shares of common stock at $8.25 per share)
- CRSR -6.2% (prices offering of 4545455 shares of common stock at $16.50 per share)
- WBX -3.7% (files $500 mln mixed securities shelf offering)
Analyst comments:
- VSAT -0.9% (downgraded to Mkt Perform from Outperform at Raymond James)
- WLK -0.8% (downgraded to Neutral from Overweight at JP Morgan)
Gapping up
In reaction to earnings/guidance:
- AZTA +33% (also authorizes $1.5 bln share repurchase program), SHLS +20.8%, SE +15.9%, NU +13.8%, HUYA +11.3%, ENR +9.8%, TME +9%, DAVA +8.1%, WMT +6.7%, HLLY +5.4% (also names interim COO), ARMK +4.3%, AQUA +3.4%, RUM +2.1%, DLO +2%, VVV +1.1%, VVV +1.1%, .
Other news:
- RUE +11.8% (AutoNation (AN) acquired ~6.1% minority ownership stake in TrueCar)
- TSM +10.7% (Berkshire Hathaway (Warren Buffett) discloses as new position)
- LPX +10.3% (Berkshire Hathaway (Warren Buffett) discloses as new position)
- IMGN +9% (FDA accelerates approval of ELAHERE)
- CLVT +8.9% (Elliott Mgmt (Paul Singer) discloses new position in 13F filing)
- PATH +7.9% (approved further restructuring actions and reported prelim qtrly results with upside sales )
- JEF +5.4% (Berkshire Hathaway (Warren Buffett) discloses as new position)
- HCM +4.5% (Announces Strategy to Focus on Late-Stage Pipeline Regulatory Approvals)
- CDLX +4.2% (terminates 51 employees)
- RKLB +3.7% (USA CAPSTONE spacecraft reaches its lunar destination)
- MGNI +3.4% (signs multi-year deal with Horizon Media)
- ALIT +1.9% (prices secondary offering of 20.0 mln shares of common stock at $7.75 per share)
- DPZ +1.8% (Pershing Square (Bill Ackman) discloses updated portfolio in 13F filing: Exited DPZ)
- WIX +1.2% (Starboard Value confirms new WIX position in 13F filing)
- AAPL +1.2% (offers MacBook deal to businesses to boost DecQ sales according to Bloomberg)
- DDD +1.2% (announces strategic partnership with Wematter)
- YOU +1% (partners with Aerostar Airport to launch service in first airport outside continental US)
Analyst comments:
- ITUB +1.4% (upgraded to Overweight from Equal Weight at Barclays)
- FMC +0.7% (upgraded to Buy from Hold at Loop Capital)
FTX Debacle Could Drag Down Decentralized Crypto Too
Decentralized finance doesn’t provide a solution to many of crypto’s deeply-rooted problems, nor will it be left alone by regulators
For many proponents of digital currencies, the demise of crypto exchange FTX shows the line between “bad” centralized crypto and its “good” decentralized counterpart. Unfortunately, the two are more intertwined than fans may care to admit.
The FTX debacle has spread, prompting investors to dump digital currencies and quit other centralized crypto venues. Trading house Alameda Research, an affiliate of FTX that blew a hole in its balance sheet, used to have a big role in market making, and its absence is worsening price swings, according to analytics firm Kaiko. The latest ructions follow a round of failures among crypto lenders that started in May, also triggered by excessive risk and opaque practices.
It looks like a final indictment of crypto’s efforts to ape Wall Street with its own answers to Goldman Sachs and JPMorgan. If this is a game of trust, nobody should put their faith in a crypto king rather than a banker with a direct line to myriad liquidity providers—including the central bank—and the protection of deposit insurance
Yet some in the crypto sphere see a silver lining, believing the crisis will refocus the ecosystem on its original purpose of cutting out the middleman—its motto being “verify, don’t trust.” Decentralized finance or DeFi protocols like MakerDAO, Aave and Curve offer services such as lending and trading through liquidity pools, where nobody acts as an intermediary liable to bank runs. “Smart contracts” automatically unlock transactions between parties once conditions are met. Despite this year’s crypto implosion, these protocols worked as intended.
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“The ‘back to DeFi’ argument will be the dominating narrative,” said Clara Medalie, Kaiko’s director of research. “In decentralized finance you can see everything on the chain, so you can never have a situation like FTX’s.”
However, as Joshua Peck, founder of TrueCode Capital, points out, “DeFi just moves the risk around: Counterparty risk shifts over to technology risk, and to trust in the management of the DeFi token.” On top of coding bugs, DeFi comes with the danger of hacks, which are worryingly commonplace.
Another big problem in the current environment is that DeFi’s growth since 2017 has happened in symbiosis with centralized crypto, not as an alternative to it.
Now-defunct crypto bank Celsius Network, for example, showed how centralized crypto is a big borrower in DeFi pools, muddying their transparency benefits. To be sure, these loans are often overcollateralized, which is why Celsius ended up paying back its DeFi debts even before going bust in July. Still, using crypto as a guarantee raises the risk of vicious selling spirals. Also, overcollateralization generally happens when the money is used for speculation, not productive investments.
Furthermore, growth in decentralized lending has been closely linked to “stablecoins,” which are overwhelmingly pegged to the U.S. dollar to overcome crypto’s massive volatility problem. Any peg to the greenback is ultimately dependent on the U.S. government, and is kept alive by some intermediary holding dollar assets or arbitrage and collateral-based mechanisms that can fail. This happened to the TerraUSD stablecoin in May, just as it did in conventional finance to money-market funds in 2008.
While the most popular stablecoin, Tether, hasn’t yet broken down, it has suffered $3.5 billion worth of redemptions this month and persistently trades under $1. Kaiko data suggests Alameda was borrowing Tether on Aave and selling it on Curve, putting it under heavy pressure in DeFi markets.
Ultimately, neither regulators nor investors are likely to differentiate much between centralized and decentralized crypto finance. As a result, DeFi protocols will probably struggle to raise additional venture-capital money, and pools could dry up. The total value locked in DeFi tokens is now $43 billion, already 74% less than at the end of March. On top of falling crypto token prices, there have likely been withdrawals: Measured in ether, a popular digital currency, the loss is 30%.
The lesson to learn from FTX isn’t just that opacity is bad, but that all of crypto is a deeply interconnected ecosystem in which assets are created without relation to real-world wealth and then used as collateral to further inflate what boils down to a single, enormous credit risk—crypto itself.
ASML Plays the Very Long Chip Game
A plan to boost manufacturing capacity for cutting-edge tools comes just as chip makers are slamming the brakes on spending
ASML ASML 0.24% has one of the best spots in a temperamental industry. A lousy year or even two is no reason for the Dutch maker of chip-manufacturing equipment to shelve some ambitious expansion plans.
Business isn’t great for semiconductor manufacturing gear right now—or at least it isn’t going to be. Chip makers are pulling back on their capital-spending plans quickly as their own businesses get hit by slumping demand in key markets such as PCs and smartphones. There is even some cooling in the once hot data-center market. Semi, the chip-tool industry’s main association, projected in late September that spending on fab equipment would total $99 billion this year—a record, but 16% below the forecast it had issued less than three months prior. For 2023, the association projects a 2% decline.
This might seem an odd time for a company like ASML to rev up its production plans. At an analyst meeting on Friday, the company projected its own annual capital expenditures would hit €1.5 billion, equivalent to $1.55 billion, by 2025—a 50% jump from the target it gave a year ago. The spending is intended to fund a significant increase in production capacity. ASML now plans to produce about 90 units of its high-end EUV lithography tools in 2025, 50% more than it expects to produce next year.
That EUV projection is particularly noteworthy given how difficult the machines are to make. EUV refers to the extreme ultraviolet light used to power the lasers that etch circuitry into chips. The circuitry produced by EUV machines allows chip makers to produce smaller processors that consume less energy—a key to allowing semiconductor companies to continue to advance their designs as principles such as Moore’s Law hit physical limitations. But ASML has natural limitations of its own: The lenses alone for its EUV machines come from a single supplier and can take 12 months to produce.
A radical boost in production capacity, therefore, doesn’t come easily or without risk in the highly cyclical market for chipmaking gear. But ASML has some big advantages. It is the world’s only producer of EUV lithography tools, and those tools are vital for chip makers such as Taiwan Semiconductor Manufacturing, Intel and Samsung to remain competitive at the so-called leading edge of manufacturing. Even chip makers that are reducing capital expenditures elsewhere are unlikely to cancel their ASML orders for fear of being sent to the back of the line: The company’s backlog now totals €38 billion, or nearly two years of revenue at its current run rate.
ASML also told analysts on its earnings call last month that new export restrictions that limit the sale of advanced chip-making gear to China will have minimal impact, as the company has “more than sufficient demand for these systems elsewhere globally as demand continues to exceed supply.” In fact, the growing politicization of the chip business could even help the company as the U.S. and Europe invest in building up domestic chip-making capacity, creating a need for more EUV tools.
Wall Street therefore sees ASML’s leap of faith as low-risk. In a report Monday, Pierre Ferragu of New Street Research said ASML is one of the few companies “with the visibility and competitive position required to be able to confidently issue such an outlook.” Mehdi Hosseini of Susquehanna upgraded the stock to a positive rating on Monday, saying that ASML’s long lead times can “overcome the looming ’23 recession.” Through Monday, ASML’s Dutch-listed shares had jumped 17% since the company first issued its updated long-term outlook on Thursday, breaking the stock out of a pattern that up to that point had mirrored the 37% decline of the broader PHLX Semiconductor Index.
This is one chip stock worth seeing the light on.