>>> US Closing Market Summary: Flat Finish to Volatile Session Ahead o


Closing Market Summary: Flat Finish to Volatile Session Ahead of Jobs Report

Stocks got off to a bad start on Thursday, but rebounded sharply in the afternoon to end the session little changed. The S&P 500 and the Nasdaq Composite settled a tick lower, losing 0.2% apiece, the Dow Jones Industrial Average finished flat, and the Russell 2000 underperformed, losing 0.5%.

It looked like things might get ugly shortly after the opening bell, as the S&P 500 quickly dropped below its 200-day moving average, losing as much as 1.6%. The financial sector led that initial slide, with AIG (AIG 51.94, -2.90) showing particular weakness after missing earnings estimates for the first quarter; AIG shares ended the session lower by 5.3%.

Stocks drifted near their lows of the day for a couple of hours before the technology and materials sectors led a sharp move higher. The tech group was helped by chipmakers, especially NVIDIA (NVDA 232.99, +6.68), which climbed 3.0% after being upgraded to 'Overweight' from 'Equal Weight' at Barclays. Meanwhile, the materials group did relatively well even though its top component by market cap -- DowDuPont (DWDP 63.47, -0.02) -- struggled to advance after releasing its first quarter earnings -- which came in better-than-expected. DWDP shares ended flat.

The S&P 500 did touch positive territory at the top of that intraday rally, but slipped into the close -- possibly due to the uncertainty surrounding Friday's release of the Employment Situation Report for April. The report always has market-moving potential, but it may carry some extra weight this time around considering Treasury yields aren't far off from multi-year highs. The benchmark 10-yr yield, for instance, finished at 2.95% on Thursday -- which is about eight basis points below the more than four-year high it hit last week.

Tesla (TSLA 284.45, -16.70) received a lot of attention in the media on Thursday after its CEO, Elon Musk, unconventionally dismissed analysts' questions in the company's earnings call, calling them "boring"; shares of Tesla ended lower by 5.6%. On the upside, shares of Kellogg (K 58.15, +1.50) and Kraft Heinz (KHC 54.95, +0.75) rallied 2.7% and 1.4%, respectively, after both companies reported better-than-expected earnings for the first quarter.

In the end, three S&P sectors finished Thursday in the green -- industrials (+0.2%), materials (+0.3%), and technology (+0.3%) -- while eight finished in the red. The heavily-weighted financials and health care groups were the weakest performers, losing 0.9% apiece, but no other laggard lost more than 0.4%.

Investors received a big batch of economic data on Thursday that included the preliminary readings for first quarter Productivity and Unit Labor Costs, the March Trade Balance report, weekly Initial Claims, March Factory Orders, and the ISM Services Index for April:

  • The preliminary unit labor costs rose 2.7% during the first quarter, while the consensus expected an increase of 3.0%. The preliminary productivity reading showed an increase of 0.7%, while the Briefing.com consensus expected an increase of 0.8%.
    • The key takeaway from the report is that productivity is improving, yet it is still running at relatively weak levels. On a year-over-year basis, productivity was up 1.3% versus the 0.7% annual average for 2007 to 2017. The long-term average from 1947 to 2017 is 2.1%.
  • The latest weekly initial jobless claims count totaled 211,000, while the consensus expected a reading of 220,000. Today's tally was above the unrevised prior week count of 209,000. As for continuing claims, they declined to 1.756 million from a revised count of 1.833 million (from 1.837 million).
    • The key takeaway from the report is that it continues to underscore a condition of tightening supply in the labor market.
  • The March trade balance showed a deficit of $49.0 billion (consensus -$49.8 billion). The February deficit was revised to $57.7 billion from $57.6 billion.
    • The key takeaway from the report is that it will continue to feed the Trump Administration's trade fire as goods deficits were recorded with China, the EU, Mexico, Japan, Germany, OPEC, and Canada.
  • The ISM Services Index for April slipped to 56.8 (consensus 58.3) from an unrevised reading of 58.8. in March.
    • The key takeaway from the report is that it will feed into the slowdown narrative that has been building with the flattening yield curve, even though there is still broad-based strength in the components that drive the overall index reading. Separately, all 18 non-manufacturing industries reported growth in April.
  • The Factory Orders report for March showed an increase of 1.6% (consensus +1.2%). The February reading was revised to +1.6% from +1.2%.
    • The key takeaway from the report is that it showed a dip in business spending in March, evidenced by the 0.4% decrease in orders for nondefense capital goods excluding aircraft.

Friday's lone economic report -- the Employment Situation report for April -- will be released at 8:30 AM ET.

  • Nasdaq Composite: +2.7% YTD
  • Russell 2000: +0.7% YTD
  • S&P 500: -1.6% YTD
  • Dow Jones Industrial Average: -3.2% YTD

>>> US After Hours Summary: SHAK +9%, CRC / P / WTW / SMCI +7%, CBS +3%


After Hours Summary: SHAK +9%, CRC / P / WTW / SMCI +7%, CBS +3% are higher, while FLR -13%, ANET -7% are lower following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CVGI +15.6%, VIAV +9.1%, MED +8.9% (light volume), SHAK +9.2%, P +7%, WTW +7.2%, SMCI +7.2%, CRC +6.6%, CTRL +6.3%, WIFI +6.1%, BGS +5.8%, PE +5.5%, CC +5.1%, WING +3.6%, CYBR +3.5%, CBS +2.9%, STMP +2.5%, APPN +2.4% (light volume), EDIT +2.4%, TXMD +1.4%, ACIA +1.4% (light volume)

Companies trading higher in after hours in reaction to news: SSRM +1% (ticking higher -- COO Alan Pangbourne to retire May 31; Kevin O'Kane will succeed Pangbourne as COO effective June 4), MDR +0.9% (light volume; to join S&P MidCap 400)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: FLR -12.8%, AKCA -9.1% (light volume), ANET -7.4%, BTE -5.1%, TACO -5% (light volume), ALRM -3.3%, TSRO -2.9%, ZAYO -2.7% (to advance evaluation of REIT conversion), SRPT -2.1%, OLED -1%

Companies trading lower in after hours in reaction to news: ADVM -1.6% (to commence search for new president and CEO following departure of Amber Salzman PhD), SNN -1.1% (downgraded to Sell from Hold at Deutsche Bank), MNK -0.6% (continued weakness after confirming FDA Gastrointestinal Drugs and Pediatric Advisory Committee recommended in vote of 21 to 3 that risk-benefit profile of stannsoporfin does not support approval for treatment of newborns at risk of developing severe jaundice)

FT : Richard Branson makes his first move into private equity

Richard Branson, the billionaire British entrepreneur, will become a private equity executive for the first time as he seeks to raise €500m from global institutional investors to strike deals for consumer businesses worth up to €2bn.

The founder of Virgin Group is set to become a partner in a new fund co-managed by Metric Capital, a London-based investment firm with about $2bn assets under management. Two people familiar with the plans confirmed details of the fundraising.

John Sinik, founder of Metric Capital, has known Sir Richard for more than two decades from his days at UBS. Since its inception, Metric has generated a realised internal rate of return of roughly 30 per cent, according to figures seen by the Financial Times.

“I have been impressed by the development and growth of Metric Capital,” Sir Richard said. “Their experience in the rapidly changing consumer and digital markets is particularly attractive and I look forward to helping John and his team with this new fund.”

Sir Richard’s business empire grew from a humble mail-order record house, set up in the late 1960s, into a multimillion-dollar music business while Virgin Group now owns stakes in more than 100 companies.

The fundraising comes as buyout funds raise record amounts of capital at the fastest pace in their history, with yield-starved investors desperately looking for a place to park their cash.

When investing in companies, the fund — the first of three to be launched in the next few years — will look at companies where it is believed that Sir Richard’s affiliation with the firm will give the company the potential to grow faster than it would do with anyone else, these people said.

It will look at luxury goods, leisure, food and beverage, and other consumer-related businesses, they added.

“The idea is that the fund will see more deal flow and companies will be more likely to take its money because of its links with Sir Richard,” one person involved in the fundraising said.


However, some industry insiders said the fund could simply be looking to leverage Sir Richard’s personal brand and connections, with no meaningful involvement.

But unlike other high-profile individuals who act as advisers to private equity funds, Sir Richard will be a partner in the fund with a minority stake. Sir Richard, who has experience investing in private equity funds including TPG’s Rise fund, will help evaluate deals and use his network to seek opportunities.

The fund, which will aim for the 20 per cent returns that private equity groups typically target, will give 10 per cent of the profits that it generates to women’s and children’s charities.

It will look to tap large institutional investors such as Canada’s CPPIB and Saudi Arabia’s PIF, and will invest in Europe and the US.

Metric Capital declined to comment.

>>> Spotify: Color on Quarter

Spotify: Color on Quarter
  • Stifel ntoes Spotify reported subscribers / revenue near the high-end of guidance and outperformed gross margin / operating loss expectations in 1Q. Guidance for 2Q reflected healthy trends across the business, with the high-end of Spotify's listener / revenue outlook generally in line with their prior forecasts. Spotify left its full year guidance intact, though higher engagement with the updated ad-supported tier and better-than-expected traction in newly launched / upcoming markets could lead to potential subscriber / MAU upside later in the year. They think the pullback is overdone and simply the sound of investors' own wheels making them crazy, Buy $180 tgt.
  • B. Riley FBR notes Spotify's (SPOT; Neutral, $156 PT) first public co earnings report was squarely in line with guidance and, in that way, marked a refreshing embrace of the pro-transparency stance the co took into its direct-listing IPO. Spotify didn't sandbag into the first print, like so many other traditional IPOs and, for that, they applaud them. What they observed, however, was a continuation of premium subscription ARPU pressure that was one of the main caution points in their launch report. ARPU declined 14% Y/Y, 6% ex-currency, mainly on a rise of lower priced family and student plans, and lesser developed countries, in the mix. They continue to see these plans growing in the mix, and ARPU pressured, for as long as the eye can see. Even though their launch model has this pressure decelerating, consistent with commentary in the earnings report, they still see it acting as a constraint on the absolute value of subs and putting Spotify in a different universe of differentiation and consumer appeal than Netflix, and suggestive of competitive constraints.
  • Morgan Stanley and BAML defended the stock
  • SPOT down 9% premarket.

>>> AKRX-FRE GE -- OG Risk Arb spoke with AKRX IR 5-3-2018

AKRX/FRE GR – OG Risk Arb spoke with AKRX IR.
AKRX/FRE GR – OG Risk Arb spoke with AKRX IR. Among other things, AKRX conveyed the following: (1) AKRX did not see anything in FRE GR papers that surprised them; AKRX categorically denies all of FRE GR’s fraud allegations; (2) AKRX is keeping the FDA fully informed and that included informing the FDA of the Cerulean report; AKRX denies FRE GR allegations that it did not appropriately follow up on the findings in the Cerulean report; (3) the FDA visit to the AKRX Decatur facility in early April 2018 (see Verified Counterclaim, para. 141) was in the ordinary course and was not part of a FDA investigation of the data integrity issues AKRX is investigating; (4) AKRX would not rule out the possibility of settlement in the form of a price cut; AKRX will do what is best for the shareholders; and (5) AKRX has an agreement with FRE GR for FRE GR to continue pursuing antitrust approval; if AKRX believes FRE GR is not using RBE and/or is breaching this agreement, it will ask the Court for assistance.
OG Risk Arb continues to use a 75% probability that the deal will either close on terms or with a price cut.


 

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>>> US Gapping down


Gapping down
In reaction to disappointing earnings/guidance:

  • PACB -17.5%, HOLX -10.3%, SPOT -9.4%, EPC -7.7%, IO -7.4%, CRUS -7.4%, FIT -6.9%, CAH -6.5%, WPX -6%, SQ -5.8%, AIG -5.8%, FEYE -5.7%, SNN -5.7%, NXPI -5.5%, WIN -5.5%, HOS -5%, TSLA -4.8%, FND -4.6%, TUSK -4.5%, LGCY -3.8%, CERN -3.6%, HABT -3%, AI -2.5%, TYL -2.3%, DDD -2.3%, (also Apergy will replace 3D Systems in the S&P MidCap 400, who will replace Impax Laboratories in the S&P SmallCap 600), BERY -2.3%, CLR -1.8%, PAH -1.7%, AFG -1.6%, ESRX -1.5%, SBGL -1.4%, XPO -1.2%, AWK -1.1%, ZNGA -1.1%, HZN -1.1%, DWDP -1%

Other news:

  • AKAO -25.7% (FDA 'in favor of plazomicin for complicated' UTI )
  • MEDP -8.2% (Medpace commences 3 mln common stock offering by selling shareholder Cinvven Capital)
  • QURE -4.5% (prices offering of 4.5 mln ordinary shares at $28.50 per share)
  • KPTI -3.8% (prices offering of 9,152,543 shares of its common stock at $14.75 per share)
  • SIEN -2.2% (prices 7,407,408 shares (upsized from $75 mln) of its common stock at a public offering price of $13.50 per share)
  • PANW -0.9% (following FEYE results)

Analyst comments:

  • CAT -1.2% (downgraded to Neutral from Buy at BofA/Merrill)
  • MBUU -1.7% (downgraded to Market Perform from Outperform at Wells Fargo)
  • ESPR -0.5% (downgraded to Underweight from Neutral at JP Morgan)

>>> US Gapping up


Gapping up
In reaction to strong earnings/guidance:

  • NSIT +20.2%, KKR +9.3%, APRN +9%, LOGI +8.9%, TEVA +8.3%, AAC +6.2%, DATA +6.2%, EXEL +6.2%, OMF +6%, DXCM +5%, CZR +4.8%, CRIS +4.5%, FMC +4.2%, MIC +3.9%, GIL +3.8%, BAND +3.4%, LADR +3.3%, HCC +3.3%, KHC +3.3%, MTOR +3.3%, SYNL +3.2%, OCLR +3.1%, EXK +3%, CHD +2.8%, QGEN +2.7%, MET +2.7%, FMI +2.5%, BZH +2%, REGN +2%, EZPW +1.8%, CXW +1.3%, CFX +1.3%, GPN +1.3%, FMSA +1.2%, MSGN +1.2%, NYLD +1.1%, TEP +1.1%, S +1%, APO +1%, WLK +0.9%

M&A news:

  • MTGE +7.2% (to be acquired by Annaly Capital (NLY) for $19.65/sharein cash and shares of Annaly common stock)

Other news:

  • MRK +2.4% (Phase 3 KEYNOTE-407 trial investigating KEYTRUDA meets secondary endpoint )
  • CLLS +2.2% (submits an IND application to the FDA requesting approval to initiate a Phase 1 clinical trial for UCART22 for the treatment of B-cell acute lymphoblastic leukemia )
  • ACIA +1.4% (authorized the repurchase of up to $60 mln of common stock through December 31, 2018)
  • FIVN +1.3% (commences $200 mln offering of convertible senior notes due 2023)
  • SPPI +1.3% (announces licensing agreement with The University of Texas MD Anderson Cancer Center for intellectual property related to certain methods of use of poziotinib)

Analyst comments:

  • NVDA +1% (upgraded to Overweight from Equal Weight at Barclays)
  • DE +0.7% (upgraded to Buy from Neutral at BofA/Merrill)
  • MPC +0.5% (upgraded to Buy from Hold at Jefferies)

>>> Pinnacle Foods beats by $0.01, beats on revs; reaffirms FY18 EPS guidance

Pinnacle Foods beats by $0.01, beats on revs; reaffirms FY18 EPS guidance
  • Reports Q1 (Mar) earnings of $0.57 per share, excluding non-recurring items, $0.01 better than the Capital IQ Consensus of $0.56; revenues rose 1.7% year/year to $778.83 mln vs the $767.94 mln Capital IQ Consensus.
    • Gross profit in the first quarter of 2018 decreased 2.0% versus year-ago to $206.4 million, or 26.5% of net sales, compared to gross profit of $210.6 million, or 27.5% of net sales, in the prior year period.
  • Co reaffirms guidance for FY18, sees EPS of $2.85-2.95, excluding non-recurring items, vs. $2.89 Capital IQ Consensus Estimate.
    • 'Looking forward, we expect gross margin growth starting in Q2 and continuing over the balance of the year and we continue to have conviction in our EPS guidance for the year