After Hours Summary: HUYA +6%, YY +4%, EB -7% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: HUYA +5.6%, YY +4.0%
Companies trading higher in after hours in reaction to news: PCG +1.2% (modestly rebounding; provided update after the close -- is beginning to assess the fire damage to electric and natural gas infrastructure), EIX +0.8% (light volume; also modestly rebounding)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: EVER -11.6% (ticking lower), EB -6.7%, YRD -4.7% (ticking lower)
Companies trading lower in after hours in reaction to news: SAGE -3.2% (light volume; initiated with Underperform rating and $80 tgt at Leerink Partners), MHLD -2.5% (lower on reports that shareholder Catalina is not planning to make a bid), AAPL -0.5% (continued weakness; also AlphaOne Capital's Dan Niles discussed his AAPL short)
Shire/Takeda expected to obtain close to 90% approval at extraordinary shareholders meeting - report (translated)
12 NOV 2018
Takeda Pharmaceutical [TYO:4502] will likely obtain close to a 90% approval at the extraordinary shareholders meeting for the planned acquisition of Shire [LON:SPH], the Nihon Keizai Shimbun reported.
The Japanese-language report disclosed, without citing any source, that despite a group of shareholders who are opposed to the transaction, institutional investors and others favor the deal, with Takeda expected to obtain close to 90% of the votes required to get the plan approved. Takeda needs to get a two-thirds majority of votes for the acquisition to go forward, the report said.
Takeda announced on 12 November that it will hold an extraordinary shareholders meeting on 5 December to gain approval for the acquisition of Shire, the report said, noting that Takeda will ask shareholders to vote on the issue of new shares having a value of about JPY 4trn (USD 35bn). If all goes smoothly, Takeda is aiming to complete the deal by 8 January 2019, the report added.
Closing Market Summary: Apple, Chip Stocks Lead Market Sell-OffThe S&P 500 fell 2.0% on Monday, as Apple (AAPL 194.17, -10.30, -5.0%) and semiconductor companies dragged on the broader market. The rout in the information technology sector (-3.5%) underpinned the benchmark index's retreat below its 200-day moving average (2762.39) and wiped out monthly gains for the tech-sensitive Nasdaq Composite, which lost 2.8% on Monday.
Also, the Dow Jones Industrial Average lost 2.3%, and the Russell 2000 lost 2.0%.
The market decline was triggered by Apple supplier Lumentum (LITE 37.50, -18.45, -33.0%) cutting its guidance due to a large, unnamed customer requesting to reduce shipments of laser diodes for 3D sensing. It is widely assumed that Apple is the customer in question, as it accounted for 30% of LITE's fiscal 2018 net revenue and uses laser diodes for its iPhone Face ID technology. This marks the second Apple supplier in as many weeks to have issued guidance warnings.
Chip stocks, subsequently, posted heavy losses, as the Philadelphia Semiconductor Index dropped 4.4%. Unsurprisingly, Apple chip suppliers Qorvo (QRVO 63.80, -4.35, -6.4%), Skyworks Solutions (SWKS 72.84, -3.82, -5.0%), and Cirrus Logic (CRUS 35.64, -5.74, -13.9%) underperformed. Meanwhile, notable chipmaker NVIDIA (NVDA 189.54, -16.13) erased yearly gains with a loss of 7.8%, and Advanced Micro (AMD 19.03, -2.00) lost 9.5%, though still sports a sizable yearly gain of 85.1%.
The lack of investor confidence in growth stocks also manifested itself in the other FANG names. Facebook (FB 141.55, -3.41, -2.4%), Alphabet (GOOG 1038.63, -27.52, -2.6%), and Netflix (NFLX 294.07, -9.40, -3.1%) weighed on the communication services (-1.5%) sector, and Amazon (AMZN 1636.85, -75.58, -4.1%) led the consumer discretionary sector (-2.3%) lower.
Conversely, real estate (+0.2%) was the only sector to finish with gains on Monday. The utilities (unch) and consumer staples (-0.7%) sectors also showed relative strength.
Of note, former Dow component General Electric's (GE 7.99, -0.59) struggles continued with a loss of 6.9%. CEO Larry Culp said the company's biggest priority is to bring down leverage levels and has plenty of opportunity to do that through asset sales. Also, Dow component Goldman Sachs (GS 206.05, -16.60) fell 7.5%. The investment management company is reportedly being pressed by Malaysia for a full refund of around $600 million over alleged fraudulent activity regarding the 1MDB investment fund Goldman Sachs set up for it.
In energy, Saudi Arabia announced it will reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand. The world's largest oil exporter also thinks a 1 million barrel per day cut by oil producers from October production levels might be necessary. United States President Donald Trump, in turn, tweeted his opposition to OPEC's desire to cut oil production, saying that oil prices should be lower based on supply. President Trump's tweet dampened an early WTI crude rebound, which backpedaled 0.5% to settle at $59.84/bbl.
Separately, the bond market was closed on Monday in observance of Veterans Day, and investors did not receive any notable economic data.
Elsewhere, Asian markets added slim gains with China's Shanghai Index showing relative strength (+1.2%). China-based e-commerce giant Alibaba (BABA 142.82, -2.03) recorded the biggest online shopping day in history on Sunday after it tallied $30.8 billion in sales. Shares slipped 1.4% on Monday, though. In Europe, the major indices closed on a lower note with Germany's DAX (-1.9%) leading the retreat.
Looking ahead, investors will receive the NFIB Small Business Optimism Index for October and the Treasury Budget for October on Tuesday.
- Nasdaq Composite +4.3% YTD
- Dow Jones Industrial Average +2.7% YTD
- S&P 500 +2.0% YTD
- Russell 2000 -1.1% YTD
Fox's Gasparino: GE is working with advisers on possible asset sales and spinoffs; Blackstone may be considering acquiring some assets
- Gasparion tweet: "Sources say @generalelectric working w @GoldmanSachs @jpmorgan on banking scenarios ie asset sales spin offs. Sources @blackstone say giant PE firm eyes possible purchase of GE assets; CEO Larry Culp has discussed co issues w Blackstones Dave Calhoun; more now @FoxBusiness"
Takeda/Japan activism: importunate imports
Unhappy shareholders are right to resist the purchase of Shire
Japanese companies sometimes use imports as performance enhancers. One of these, Takeda boss Christophe Weber, now finds himself at odds with another — investor activism. The Frenchman must believe he has contained opposition to a takeover of Irish rival Shire. The Japanese pharmaceuticals group has brought forward a meeting to approve financing. A stiff censure vote is merited, all the same.
The reason is that the purchase of Shire represents a less palatable import: a blockbuster leveraged takeover. Here, debt and scale amplify the perils created by overpayment or a bungled integration. The deal, which has an enterprise value of more than $70bn, would leave Takeda with borrowings equivalent to five times cash earnings.
In June, Takeda fended off a move to make big takeovers dependent on investor approval. The level of dissent — 10 per cent of stock voted — was small by US standards. However, Japanese investors are new to interventionism. The government has endorsed this as a stimulus to better governance.
At one time, the only dissenting voices heard in Japan’s investors meetings were those of “sokaiya”. These crooks misbehaved unless paid off. Dissent has since gone mainstream. Criticism of anti-takeover measures prompted around 100 big companies to start dismantling them this year.
Unhappy shareholders are right to resist the purchase of Shire. Not least, it will help establish what a censure vote looks like. In the UK, a board knows it has a problem when votes equivalent to a quarter of shares are against a policy or an appointment.
Takeda shares have dropped 18 per cent since the bid was first reported. Part-payment in shares means the price has fallen too, from $68 to around $63 per share. Low Japanese interest rates mean the group can shoulder heavy debts. And there is the rub. Japan’s governance push targets returns on equity of 10 per cent, or above. Leveraged takeovers are an easy way to hit these — until rates spike up.
Kuo cuts iPhone XR shipment estimates from 100 million to 70 million, forecasts YOY decline in iPhone sales for first quarter of 2019
TF Industries’ Ming-Chi Kuo has cut his estimates for iPhone XR shipments significantly, from 100 million to 70 million, through September 2019. Kuo blames negative consumer confidence due to ongoing trade war, competition from Huawei Mate 20 particularly in emerging markets, and customers coveting features like dual-camera.
Kuo has not lowered his total fourth quarter iPhone estimates of around 80 million units, as he believes the fall in XR shipments will be offset by higher sales of the XS series and legacy models like iPhone 8 and iPhone 7. However, he forecasts a decline looking into 2019.
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For the first quarter of 2019, January to March, Kuo believes that Apple will see a year-over-year decline in iPhone shipments. He predicts shipments in the 47-52 million range, compared to 52 million sold in the first quarter of 2018. Kuo’s new predictions fly in the face of his pre-launch expectations, where he believed the XR would outsell the iPhone 8 series in the same period.
Apple has stopped reporting unit sales for its products, so the company quarterly earnings reports will no longer be able to support or refute analyst predictions concretely, although ASP analysis may shed some light on product mix.
Kuo’s concerns echo a report from Nikkei earlier this month that said a ramp up of iPhone XR production had been cancelled.
Kuo seems to believe that the XR is too expensive and customers are awaiting a more affordable version of the XR in the future, or a XR with upgraded features like narrower bezels and dual-camera modules. Whilst Apple’s financial performance is not impacted in Kuo’s model for the holiday quarter, he warns that primary iPhone XR component suppliers will be exposed as they cannot benefit from the expected increase in XS and legacy iPhone sales.
It’s also worth pointing out that Apple can report increased bottom line revenue and profits on lower shipments if average selling price of those units continues to rise. We saw in the last earnings report that iPhone sales were flat but revenue rose 26%, with the launch of more expensive high-end models like the iPhone XS Max. Even the entry-level iPhone XR is $50 more than the cheapest flagship iPhone 8 last year.