Gapping up
In reaction to strong earnings/guidance:
- HELE +13.8%, UMC +2.9%, (reports June net sales)
M&A news:
- GRPN +9.4% (Re Code details that Groupon (GRPN) is considering finding a buyer)
Select metals/mining stocks trading higher:
- AU +2.8%, HMY +2.3%, PAAS +1.9%, ABX +1.6%, BHP +1.3%
Other news:
- BNTC +121.7% (Axovant Sciences (AXON) announce global licensing agreement for AXO-AAV-OPMD Program with Benitec Biopharma (BNTC))
- AXON +13.7%
- BVX +10.4% (to divest and sell the Core business segment and the Bovie brand to Symmetry for gross proceeds of $97 mln in cash; issued guidance)
- SPRO +9.5% (positive interim Phase 1 clinical data on SPR994)
- PVG +7.4% (reports second quarter gold production results for Brucejack Mine)
- KMPH +5.9% (announces top line results from KP415 efficacy and safety trial in children with ADHD; KP415 successfully met the primary efficacy endpoint)
- PLAB +1.1% (announces $20 mln share repurchase program)
Analyst comments:
- GME +4.3% (initiated with a Buy at Jefferies)
- FEYE +4.1% (upgraded to Overweight from Neutral at Piper Jaffray)
- USX +3% (initiated with a Buy at BofA/Merrill)
- BIDU +2.4% (upgraded to Overweight from Sector Weight at KeyBanc Capital Mkts)
- DLPH +2.2% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- ANET +2% (upgraded to Overweight from Neutral at Piper Jaffray)
- KORS +1.8% (initiated with a Buy at HSBC Securities)
- OLLI +1.7% (coverage assumed/upgraded to Neutral from Sell at Citigroup)
- TSCO +1.7% (upgraded to Overweight from Equal-Weight at Stephens)
- RIG +1.4% (upgraded to Positive from Neutral at Susquehanna)
- ADM +0.7% (upgraded to Neutral from Underweight at JP Morgan)
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Groupon is looking for a buyer
The daily-deal pioneer’s run as an independent company could be nearing an end.
Groupon’s 10-year run as an independent company could be coming to an end.
Groupon executives — as well as bankers who represent the company — have contacted several public companies in the past month to try to drum up interest in acquiring the Chicago-based company that pioneered the local commerce category known as daily deals, two people briefed on these approaches told Recode.
Groupon has made it known for some time to potential acquirers that the company is open to the idea of a sale, but representatives for the company were especially aggressive last month in attempting to create interest among potential suitors, one of these people said. It’s not clear if Groupon has been successful in stirring up a suitor or what’s behind the current push to sell.
A Groupon spokesperson declined to comment.
In the first few years following its launch in 2008, Groupon was one of the darlings of the startup world after introducing the concept of daily deals to online consumers, igniting a frenzy among deal seekers and local businesses alike. By its IPO day in 2011 — the second-largest ever for a tech company at the time — Groupon was worth more than $16 billion, making its decision to turn down a $6 billion acquisition offer from Google a year earlier look smart.
But that may have been the company’s peak. Today, Groupon is valued at just $2.4 billion after a years-long decline in the daily deals category; Groupon acquired its principal competitor LivingSocial for $0 in 2016. Amazon once owned a third of LivingSocial in addition to operating its own local deals business, which it shut down in 2015.
In the past year, Groupon decided to focus less on its Goods category — where it sells discounted physical products — and more on its core digital voucher business, in an effort to boost profit margins.
As a result, overall company revenue fell 5.6 percent in 2017 to $2.84 billion — its lowest total since 2013. Groupon, however, turned an operating profit in 2017 for the first time since 2014.
Since November 2015, Groupon has been run by CEO Rich Williams, who had previously held other senior roles at the company since arriving from Amazon in 2011. For years, he has said that the company’s goal is to make Groupon a “daily habit” in the life of consumers. That surely hasn’t happened yet, but no other online company focused on the local commerce sector has accomplished it either.
Who would buy Groupon? Alibaba and IAC have been floated as potential acquirers in the past — Alibaba because it bought a nearly 6 percent stake in the company in 2016, and IAC because its CEO Joey Levin sits on Groupon’s board.
Canada’s Barrick Gold, the world’s largest gold miner, said it will consider joint acquisition opportunities with its partner Shandong Gold Group.
Barrick said it had signed an “enhanced strategic cooperation” agreement with the Chinese miner on Monday following its acquisition of half of Barrick’s Veladero mine in Argentina last year.
“The Parties have agreed to consider opportunities to work together on acquisition opportunities or potential asset sales, if both parties agree it is in their collective best interests, and would enhance the value of such an opportunity,” Barrick said.
The tie-up is the latest initiative of Barrick’s Chairman John Thornton, a former Goldman Sachs banker who has close links to China. In 2015 Barrick also signed a cooperation agreement with China’s Zijin Mining.
“This agreement will allow us to take our partnership to the next level, as we jointly explore opportunities to enhance long-term value for our respective owners, as well as our government and community partners,” Mr Thornton said.
Barrick has previously said that it is considering a partnership with Shandong Gold to develop its troubled Pascua-Lama project on the border of Argentina and Chile. Barrick said in February it took a $429m impairment on the project.
Early premarket gappersGapping up:
- BBOX +25.6%, HTBX +17.9%, GRPN +12.4%, LPL +5.5%, TKC +4.8%, SOGO +3.7%, BRFS +3.7%, PAAS +3.6%, FEYE +3.5%, TS +2.7%, BIDU +2.4%, HMY +2.3%, BHP +2.2%, AU +2.2%, MLCO +2.1%, PAGS +1.9%, TSCO +1.9%, ABX +1.9%, TSRO +1.8%, AMD +1.8%, WUBA +1.7%, OLLI +1.7%, SQ +1.6%, CELG +1.4%, MU +1.3%
Gapping down:
- ESV -2.2%, SEAS -0.8%, IBN -0.7%, LUV -0.7%, DB -0.7%, FISV -0.6%
Palo Alto Networks to offer $1.5 bln aggregate principal amount of convertible senior notes due in 2023 in a private placement (211.16)
In connection with the offering of the notes, Palo Alto Networks expects to enter into privately negotiated convertible note hedge transactions with certain financial institutions, which may include certain of the initial purchasers and/or their respective affiliates. Palo Alto Networks expects to use a portion of the net proceeds of the offering of the notes to pay the cost of the convertible note hedge transactions (after such cost is partially offset by the proceeds to Palo Alto Networks of the warrant transactions described above), and to use the remaining proceeds of the offering for general corporate purposes, which may include working capital, capital expenditures, potential acquisitions, strategic transactions, the payment of amounts due upon conversion, at maturity or upon repurchase of Palo Alto Networks' outstanding 0% Convertible Senior Notes due 2019 and repurchases of Common Stock pursuant to Palo Alto Networks' stock repurchase program.
Central Banks Try to Bolster Their Currencies. It’s Not Always Working
Some emerging-market central banks started dipping into roughly $6 trillion reserve stash in June reversal
Emerging-market central banks are tapping a roughly $6 trillion stash of foreign reserves as they struggle to contain deepening currency declines.
Policy makers across the developing world built up foreign-exchange reserve buffers over the past year, capitalizing on investor interest in higher-yielding emerging market assets as global growth remained sanguine. In the first five months of 2018, the central banks added $114 billion to their reserves, the fastest pace of accumulation since 2014, according to data released this past week by the Institute of International Finance.
That has reversed over the past month as emerging markets face a stronger U.S. dollar and escalating trade tensions that have pummeled their currencies, stocks and bonds. Emerging-market central banks used roughly $54 billion in foreign reserves in June, according to preliminary forecasts from research firm Exante Data.
Reserves are just one tool central banks use to influence exchange rates, and analysts say it isn’t always the most effective one. Policymakers can also adjust government borrowing costs--tightening or loosening the flow of money throughout the financial system--and enact regulations that keep money from leaving the country.
Still, the reserve stockpile--which remains near the highest level since 2015--suggests that emerging markets are better positioned to handle the market volatility that has accompanied the rising dollar since mid-April. In the past, emerging market economies short on foreign reserves have struggled to service dollar-denominated debts and contain inflation with a weakened currency.
A basket of emerging-market currencies tracked by MSCI Inc. has fallen 3% this year, pressured by the resurgent dollar, higher U.S. interest rates and trade tensions. The currencies of Argentina, Turkey and China have been hit especially hard, spurring those countries’ policy makers into action.
After one of the yuan’s worst months on record in June, China’s central bank is facing pressure to revive the kind of interventions that helped it stem a decline in the yuan in 2015 and 2016.
In recent weeks, the People’s Bank of China has pledged to keep the exchange rate stable while at least one state-owned bank has bought yuan to help support the currency, The Wall Street Journal reported. Those moves helped stabilize the yuan; it slipped 0.3% last week against the dollar after a 3.2% loss in June.
China’s reserve stash played a key part in arresting a decline in the yuan after the central bank devalued the currency in 2015, economists say. Beijing blew through nearly $1 trillion in reserves while it also tightened capital controls to keep citizens and companies from taking money out of the country.
It still has more than $3 trillion in official reserves it can use to help prop up the yuan.
“China has more reserves than anyone in the world,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. “The question is, what do they want? If they want to stop this, they can stop this.”
Other central banks have also been using foreign exchange reserves to help stabilize markets. Brazil has spent nearly $44 billion on market intervention this year, with most of that conducted in derivatives markets, according to data from Exante. India has spent around $17 billion attempting to prop up its currency.
Benn Steil, a senior fellow at Council on Foreign Relations, said that the impact of those sales is often short-lived.
“Each central bank could sell dollars for local currency to push their currencies up, but only to the extent that they have sufficient dollar reserves, said Mr. Steil. He added: “Such action is often ineffective if not followed by interest-rate rises.”
Brazil’s currency, the real, was down nearly 14% on the year through Friday, while the Indian rupee was down 7.1%.
Argentina has proved an extreme example in the limits of currency reserves, which can also be used to cover the costs of things like debt repayment and imports. Argentina blew through more than $10 billion in reserves in April and May, according to IIF, in a largely unsuccessful attempt to stop a plunge in the peso. Facing dwindling reserves and upcoming payments on dollar debt, the country in June secured a $50 billion credit line from the International Monetary Fund. The peso has recovered nearly 4% this month but remains down 34% for the year.
Whether central banks will continue to deplete their currency reserves depends in part on the path of the U.S. dollar. The greenback rose 5% against a basket of peers tracked by The Wall Street Journal in the second quarter, its first gain in more than a year.
But some analysts believe the dollar’s rally could soon unravel if U.S. growth slows and trade uncertainties deter some investors from U.S. markets.
“A lot of this will depend on how emerging-market central banks view the trajectory for the dollar,” said Sonja Gibbs, a senior director of global capital markets at IIF. “If you believe the dollar’s recent strength is temporary, you may try to ride it out.”
Stock Buybacks Are Booming, but Share Prices Aren’t Budging
Some analysts worry companies are buying their shares at excessive valuations, while others say cash could have gone toward capital improvements
U.S. companies are buying back record amounts of stock this year, but their shares aren’t getting the boost they bargained for.
S&P 500 companies are on track to repurchase as much as $800 billion in stock this year, a record that would eclipse 2007’s buyback bonanza. Among the biggest buyers are companies like Oracle Corp. , Bank of America Corp. and JPMorgan Chase & Co.
But 57% of the more than 350 companies in the S&P 500 that bought back shares so far this year are trailing the index’s 3.2% increase. That is the highest percentage of companies to fall short of the benchmark’s gain since the onset of the financial crisis in 2008, according to a Wall Street Journal analysis of share buyback and performance data from FactSet .
And the historic spending spree on share buybacks has some analysts worried companies are buying their shares at excessive valuations during the peak of the economic cycle and at a time when the market rally is nine years old. Others warn the billions of dollars spent to buy back shares could have gone toward capital improvements like new factories or technology that could lead to stronger long-term growth.
“There has been less of a reward for companies engaging in new buybacks over the last 18 months,” said Kate Moore, chief equity strategist and a managing director at asset-management firm BlackRock Inc. “It’s fair for investors to ask whether companies are buying at the right point.”
The S&P 500 Buyback index, which tracks the share performance of the 100 biggest stock repurchasers, has gained just 1.3% this year, well underperforming the S&P 500.
Share buybacks have become corporate America’s go-to strategy for boosting stock prices and earnings over the past 30 years. The point of buybacks is to try to make a company’s stock more valuable. By mopping up shares, a company shrinks the stock pie, which boosts earnings per share. That, in turn, should push the share price higher.
The potential problem: Executives directing buybacks are essentially timing the market, and often they end up buying high.
Buyback activity reached a frenzy in the early 2000s; the previous record for share repurchases was $589.1 billion in 2007. But that was just a year before the stock market tumbled into the worst financial crisis since the Great Depression. The result: companies like Exxon Mobil Corp. XOM 0.02% , Microsoft Corp. MSFT 1.40% and International Business Machine Corp. IBM 0.74% each paid more than $18 billion to repurchase stock at a peak, only to see their share prices slump a year later.
Stock buybacks appear just as ill-timed now, some analysts and investors say, especially as companies ramp up spending after last year’s $1.5 trillion tax overhaul put extra cash in their coffers.
Oracle has been one of the biggest buyers of its own stock in recent years and spent $11.8 billion on stock repurchases last year, when shares gained nearly 23%. But that gamble hasn’t looked smart this year as the networking-device maker has struggled alongside the broader market, pulling its shares down 6%.
Still, Oracle’s board approved a fresh round of share buybacks totaling $12 billion in February, and executives appear to have spent nearly half that sum already. A representative from Oracle declined to comment on its share buyback program, but the company said in a recent Securities and Exchange Commission filing that it “cannot guarantee” its share repurchase “will enhance long-term stockholder value.”
Others like McDonald’s Corp. , Bank of America and JPMorgan Chase have spent billions on share repurchases this year, but haven’t seen a short-term bounce in share prices. McDonald’s bought back $1.6 billion of shares in the first quarter, but the fast-food chain’s stock is down 7.4% this year. Bank of America and JPMorgan Chase have both spent more than $4.5 billion to buy back their shares, which are down 5% and 2.7%, respectively.
All three companies also spent multibillion-dollar sums on buybacks in 2017 as the stock market hit repeated highs.
Companies in the S&P 500 that have repurchased shares are expected to see a return on investment of about 6.4% this year, a percentage that falls below the past six rolling five-year periods as measured by Fortuna Advisors, a financial consulting firm that has examined buyback trends going back to 2007.
Returns on investment for buybacks peaked in 2013, according to Fortuna’s analysis, as companies used share repurchases to boost earnings and dig themselves out of the depths of the financial crisis. With stock prices relatively low at the time and economic activity tepid, share buybacks were one of companies’ key sources of earnings growth.
But even as the stock market steadied in the subsequent years and economic growth around the world picked up to help boost profits, corporate executives continued to spend wildly on share repurchases—often at the expense of other types of spending, including dividends and capital improvements. Spending on capital expenditures rose to $166 billion in the first quarter, up 24% from a year earlier, according to Credit Suisse , but still well below the $189 billion spent on buybacks.
“The majority of capital deployed is going right back to shareholders and not reinvestment in businesses,” said Gregory Milano, chief executive at Fortuna. “If that’s the only thing you’re relying on, it’s going to end badly.”
Some share buybacks do pay off, but that tends to be among companies that show a high level of sales and earnings growth on their own, analysts say. Apple Inc., AAPL 1.39% for example, has bought back $22.8 billion worth of stock so far this year. Its shares have risen 11%, with much of the boost coming after it reported strong gains in second-fiscal-quarter revenue and profit—as well as a record $100 billion plan to buy back more stock.
“Corporate America has such an obsession with bottom-line growth,” said Jay Bowen, president of Bowen Hanes & Co., manager of the $2 billion Tampa Firefighters and Police Officers Pension Fund. “Long term, I don’t like it.”
U.S. Exporters Will Be a Surprise Loser From Tariff Fight
Economics and trade history show that as a country shuts out its partners’ products, it also deprives those partners of money to buy its exports
Who’s the biggest loser when tariffs are imposed on imports? The surprising answer: exporters.
Though completely counterintuitive, theory and evidence show that taxes on imports act just like a tax on exports.
Though it’s early, the Trump administration’s recent round of tariffs is already rippling out to exporters: Soybean farmers face plunging prices as China raises tariffs, Harley-Davidson will move production of motorcycles destined for the European Union out of the U.S., and BMW says foreign retaliation may hit exports from its South Carolina plant.
Economists credit Abba Lerner, then a graduate student at the London School of Economics, for proving theoretically in 1936 that an import tariff was equivalent to a tax on exports.
The practical link was obvious to protectionists and free traders alike as far back as the 1600s, says Douglas A. Irwin, an economist and trade historian at Dartmouth College. They understood that a country that shuts out imports deprives its trading partners of money to buy exports.
This, Mr. Irwin notes in his book “Clashing Over Commerce: A History of U.S. Trade Policy,” is why Americans were so divided over tariff policy in the 1800s. When northern states succeeded in raising tariffs to protect their manufacturers, they angered southern states who paid more for manufactured goods and suffered falling prices for their exports such as cotton and tobacco. Mr. Irwin’s data show that while exports and imports have varied between 3% and 25% of gross domestic product since 1790, the two tend to move together.
The link was especially strong under the gold standard because trade imbalances were financed by gold flows. If the U.S. ran a trade surplus, gold would flow in, depriving foreigners of the means to purchase U.S. goods. Now that exchange rates float, the effect is less direct, and a country can pay for imports by borrowing in the capital markets, as the U.S. has since the late 1970s.
Yet even now, exports and imports tend to rise and fall together, proof that the underlying relationship still holds. If the U.S., for any reason, cuts its imports from a trading partner, that country’s economy and currency both weaken, so it buys less from U.S. companies.
If a tariff generated significant new demand for the protected American sector, the resulting boost to prices and jobs would put upward pressure on inflation, interest rates and the dollar, further hurting exports.
In a recent National Bureau of Economic Research study, Alessandro Barattieri, Matteo Cacciatore and Fabio Ghironi examined the effect of changes in tariffs in 21 countries (though not the U.S.) and found they tended to reduce both imports and exports. On net, imports fell more, so the trade balance improved, but overall growth suffered because higher prices reduced consumers’ purchasing power, and the higher cost of imported capital goods undermined investment.
Over time, tariffs also reshape the economy. Newly protected industries draw workers and investment away from exporting industries whose inputs are now more expensive. That effect is compounded when exports are also targeted by foreign retaliatory tariffs. Heavily protected industries, like U.S. sugar farmers, don’t export much because prices abroad are much lower than at home. Protectionist countries like India and Brazil have lower imports and lower exports relative to GDP than open economies like South Korea and Chile, Mr. Irwin notes.
Since the U.S. began to raise tariffs only a few months ago, it’s too early to evaluate the impact. Exports grew relatively strongly in April and May, mostly due to aircraft and soybeans, according to Ian Shepherdson of Pantheon Macroeconomics. The rise in soybean exports may have been temporary, as foreign buyers rushed to beat the imposition of Chinese tariffs.
There are other signs of trouble for exporters. The dollar has risen sharply this year, mostly because of rising U.S. interest rates but also because U.S. tariffs have weighed on the currencies of Canada, Mexico, and China. That will tend to damp their purchases of U.S. products, even those unaffected by tariffs. The Texas Alliance of Energy Producers says higher costs and shortages of tubular steel due to the tariffs will hurt drilling and production of oil, the biggest U.S. export success story of recent years.
Like Harley-Davidson, many manufacturers who export from the U.S. may have to shift that activity abroad. “We export to more than 100 countries,” one manufacturer in the food, beverage and tobacco industry told the Institute for Supply Management in its latest monthly survey. “We are preparing to shift some customer responsibilities among manufacturing plants and business units due to trade issues (for example, we’ll shift production for China market from the U.S. to our Canadian plant to avoid higher tariffs).”
The end result of Mr. Trump’s efforts to make Americans spend more on American made products is that foreigners will spend less.