After Hours Summary: TCS +14% / TLRY +5% are higher, while A -9% is lower following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: TCS +14.4%, TLRY +4.7%, PAGS +2.0%
Companies trading higher in after hours in reaction to news: LM +2.3% (indicated higher on WSJ report suggesting potential Trian Fund proxy battle), DDD +1.8% (Pres/CEO disclosed the purchase of nearly 30K shares), NMRK +1.3% (CEO bought ~560K shares worth ~$4.3 mln), MEET +1.2% (ticking higher; initiated with a Buy at Aegis Capital)
Cannabis related stocks higher following Tilray (TLRY) earnings: HEXO +3.3%, ACB +3% (earnings expected tonight), CGC +1%, CRON +1%After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: A -8.7%, FSM -8% (light volume), NEWR -4.6%, EGHT -4.1%
Companies trading lower in after hours in reaction to news: JKS -6.4% (announces proposed follow-on offering of 3.75 mln ADSs and concurrent private placement of up to US$85 mln of convertible senior notes due 2024), VIRT -6.3% (announces secondary offering of 7.0 mln shares of Class A common stock), WMC -4.7% (announces public offering of 5.0 mln shares of common stock), TWNK -1.7% (announces secondary public offering of ~8 mln shares of Class A common stock by holders), XLNX -1.5% (attributed to analyst day update), UBER -1.2% (modestly pulling back after closing near highs of the day), AMRN -1.1% (still checking; Canadian cardiovascular-focused pharma company HLS Therapeutics announced bought deal offering)
Closing Stock Market SummaryThe S&P 500 advanced as much as 1.5% on Tuesday on positive U.S.-China trade rhetoric. The broad-based rebound effort, however, lost stream into the close, leaving the S&P 500 up 0.8% for the session.
The Dow Jones Industrial Average gained 0.8%, the Nasdaq Composite gained 1.1%, and the Russell 2000 gained 1.3%.
The stock market began the day modestly higher, propped up by friendly trade chatter between the U.S. and China. The market liked that both sides expressed intentions to continue to work on a trade deal, which helped foster a belief that the recent dip in stocks was a good buying opportunity.
The market also liked President Trump's comments on the matter, although they weren't particularly new or substantive. President Trump touted his relationship with President Xi as "extraordinary" and described the current trade dispute as a "little squabble." According to Mr. Trump, he will meet with President Xi at G-20 next month.
The lighter tone on trade led investors to pick up some of the more beaten-up stocks within the S&P 500 information technology (+1.6%), energy (+1.1%), industrials (+1.1%), and consumer discretionary (+0.9%) sectors. The utilities sector (-0.9%) was the lone sector with a loss after it was the only group to finish higher yesterday.
In corporate news, Comcast (CMCSA 42.91, +0.63, +1.5%) agreed to give Walt Disney (DIS 133.20, +1.86, +1.4%) immediate and full operational control of Hulu. Disney will also be able to buy Comcast's stake in Hulu in 2024 at a valuation of at least $27.5 billion. Uber (UBER 39.96, +2.86) was a notable standout, increasing 7.7% after a rough start as a public company.
The U.S. Treasury market was more reserved on Tuesday, registering modest declines amid the rebound in equities. The 2-yr yield increased two basis points to 2.20%, and the 10-yr yield increased one basis point to 2.42%. The U.S. Dollar Index increased 0.2% to 97.53. WTI crude rose 1.2% to $61.84/bbl, bolstered by increased concerns about supply disruption in the Middle East.
Reviewing Tuesday's economic data, which included Import and Export Prices for April and the NFIB Small Business Optimism Index for April:
- Import prices increased 0.2% month-over-month and declined 0.1% excluding fuel. Export prices rose 0.2% and were up 0.4% excluding agricultural exports. On a yr/yr basis, overall import prices declined 0.2%. Excluding fuel, they were down 0.9%. Export prices were up just 0.3%, versus 3.7% for the 12-months ending in April 2018, and up only 0.7% excluding agricultural products, versus 3.9% for the 12 months ending in April 2018.
- The key takeaway is that import prices declined, creating another data point that shows a lack of worrisome inflation pressure.
- The NFIB Small Business Optimism Index for April increased to 103.5 from 101.8 in March.
Looking ahead, investors will receive the following economic reports on Wednesday: Retail Sales for April, the weekly MBA Mortgage Applications Index, the Empire State Manufacturing Survey for May, Industrial Production and Capacity Utilization for April, Business Inventories for March, and Net Long-Term TIC Flows for March.
- Nasdaq Composite +16.6% YTD
- Russell 2000 +14.4% YTD
- S&P 500 +13.1% YTD
- Dow Jones Industrial Average +9.5% YTD
Premier Foods shows promise as activists jostle
Premier Foods [LON:PFD] has an unfortunate tendency to shoot itself in the foot, and today’s full-year numbers are no exception. GBP 87m of exceptional charges on pensions, asset impairments and restructuring charges took the shine off an otherwise reasonable set of numbers.
Activist interest in the stock, reports of a break-up, long-running takeover speculation and a lowly valuation are all factors which mean it could be worth looking through the noise and focusing on Premier’s underlying progress.
Revenue grew 0.6% in the year to 31 March with an acceleration in the fourth quarter to 3.1%. Trading profit - management’s preferred measure of performance - gained 4.5%, driving an 11.5% improvement in earnings per share, meaning that Premier trades at 4.2x underlying earnings.
Premier's lowly valuation is borne out of concern about its capital structure. Net debt to EBITDA at 3.2x is expected to improve in the year ahead, according to management expectations, after declining from 3.6x a year earlier. Pensions are Premier’s main problem: it has a net pension surplus of GBP 310m, but one of its schemes carries a substantial GBP 386m deficit, net of tax. Investors rightly worry about this, though over the longer term, it may be less of an issue: Premier has the right to refund any excess in its RHM scheme, according to its last annual report, which has a surplus of GBP 695m.
As a result, there is an argument that pensions should not represent a poison pill so insurmountable as to kill either the investment case for Premier Foods or its prospects as a takeover target. Pensions proved no barrier to takeovers of other UK assets with solid brands like chocolatier Thorntons and household appliances specialist AGA, each of which were bought out by larger peers better able to manage their sizeable pension obligations.
Breaking up the business, which is under consideration, according to media reports, represents a lower quality solution for Premier compared to a buyout of the whole company, the Flash has previously argued. Premier has historically paid too much for assets and sold them too cheaply. Also, shrinking the business further makes little sense in the context of Premier’s current capital structure.
Activist investors Paulson and Oasis both now have board seats after a February reshuffle and the launch of a strategic review. Creative solutions to improve Premier’s pension situation and operating performance should be top of the board’s priorities after another set of results which demonstrate promise rather than significant progress.