Closing Market Summary: Investors Take Some Money off the Table on ThursdayThe major averages took a dip on Thursday as they cooled off from their red hot Wednesday performance. The S&P 500 finished the day 0.6% lower. The Dow (-0.5%) performed slightly better and the Nasdaq (-0.7%) closed a tad behind. The Russell 2000 (-1.3%), meanwhile, suffered the largest loss after leading Wednesday's broad-based rally.
Similarly, the financial sector (-1.4%), which led all S&P 500 sectors on Wednesday, took the biggest hit on Thursday, giving back over half of Wednesday's impressive 2.8% gain. In light of the sector's huge 24.1% post-election advance, however, today's downtick was still relatively modest.
The materials (-1.1%) and industrials (-1.0%) sectors also had a rough showing. The latter sector was weighed down by Caterpillar's (CAT 94.36, -4.22) 4.3% tumble. CAT shares slipped after reports that some of the company's facilities have been searched by federal agents.
The energy sector (-0.9%) also failed to keep pace with the benchmark index as crude oil prices slid 2.3%. The energy component finished Thursday at $52.61/bbl following reports that Russia failed to meet its pledged production cuts in the month of February.
This latest news came on the heels of yesterday's Energy Information Administration report, which showed a crude oil stock build of 1.5 million barrels that pushed U.S. crude oil inventories to a record high.
The consumer discretionary sector (-0.2%) also closed in negative territory, but just barely, as the earnings front provided the sector with a solid backstop. Retailers rallied, evidenced by the 1.1% increase in the SPDR S&P 500 Retail ETF (XRT 43.34, +0.45), after a generally positive reaction to a wave of earnings reports.
The consumer staples sector (unch) also received a bump from the earnings front after Monster Beverage (MNST 47.37, +5.36) spiked 12.8% in reaction to its better than expected revenues and strong sales growth. The sector's countercyclical peers --health care (-0.2%), telecom services (+0.1%), and utilities (+0.7%)-- also outperformed with utilities finishing at the top of today's leaderboard.
Like equities, U.S. Treasuries finished Thursday in negative territory as a March rate hike from the Federal Reserve appears more and more likely. The Treasury market remained weak after Fed Governor Brainard said following Wednesday's close that it will be "appropriate soon" for the U.S. central bank to raise interest rates.
Treasuries extended their losses slightly during the morning session after Fed Governor Powell supported Ms. Brainard's hawkish comments, saying the case for a March rate hike has "come together."
In addition, the latest weekly Initial Claims report came in hotter than expected, showing the lowest reading for initial claims (223,000) since March 31, 1973.
The fed funds futures market is now assigning an implied probability of 79.7% to a March rate hike, up from 66.4% yesterday and from only 26.6% last Friday.
Also of note, Snap (SNAP $24.48, +7.48) launched its much anticipated IPO on Thursday. The social media company had an IPO price of $17.00 per share, but opened for trading late on Thursday morning at $24.00 per share before ending the session at $24.48.
Today's only notable economic report was Initial Jobless Claims:
- The latest weekly initial jobless claims count totaled 223,000 while the consensus expected a reading of 244,000. Today's tally was below the prior week's count of 242,000 (revised from 244,000). As for continuing claims, they rose to 2.066 million from the revised count of 2.063 million (from 2.060 million).
- The key takeaway from the report -- aside from the fact that initial claims are at a 44-year low -- is that it will help underpin the growing belief in the prospect of the Federal Reserve raising the target range for the federal funds rate at its March 14-15 FOMC meeting.
Tomorrow's lone economic report, ISM Services (consensus 56.5%), will cross the wires at 10:00 ET.
Cortefiel PE owners mandate Goldman Sachs to find buyer willing to refinance EUR 1.172bn loan - report (translated)
02 MAR 2017
Cortefiel PE owners CVC, PAI and Permira have mandated Goldman Sachs to sell the Spanish apparel retailer for EUR 1 plus debt, El Confidencial reported. According to the 1 March Spanish-language item, which cited several financial sources, the owners are looking for a buyer to refinance a EUR 1.172bn loan.
Cortefiel lenders, Banco Santander, CaixaBank, JPMorgan, Royal Bank of Scotland and Societe Generale among them, have mandated Houlihan Lokey to defend their positions, the report said. They fear that the company will need a debt write-off to survive, according to the report.
The 1.172bn loan - signed by the PE firms in 2006 to acquire Cortefiel and charged to the company; provisionally renewed in March 2016 and due in 12 months - is listed on the secondary debt markets at 76% of its nominal value, the report went on to say. This means that the market takes for granted that creditors will have to accept debt haircut of between 25% and 35% on the EUR 1.172bn outstanding, losing between EUR 300m and EUR 410m of the cash granted to CVC, PAI and Permira a decade ago, the report said.
Cortefiel closed its 2016-2017 results on Thursday (28 February), El Confidencial added without giving any further details.
R&D NewCo worth approx. CHF1.5bn, CHF10/share
Following publication of the Actelion offer prospectus and ahead of the start of the tender period (3-30 March), we have updated our provisional “R&D NewCo” valuation. We value the identifiable pipeline assets within R&D NewCo at CHF2.7/share and the royalty stream from J&J-acquired assets at CHF0.8/share. These combined with CHF1bn of cash (CHF6.3/share), result in a NewCo valuation of ca CHF9.8/share, allowing for the dilutive effects of the initial J&J 16% equity stake and subsequent 16% convertible note. We include our NPV assessment of R&D NewCo within this note. For access to our new NPV flexor (enabling the user to flex our assumptions by drug), please contact the Exane Pharma team. We increase our Actelion target price to CHF290 (from CHF280) to reflect our NPV assessment of NewCo.
arnes & Noble misses by $0.17, reports revs in-line; lowers FY17 guidance (9.90)
- Reports Q3 (Jan) earnings of $0.96 per share, $0.17 worse than the Capital IQ Consensus of $1.13; revenues fell 8.1% year/year to $1.3 bln vs the $1.29 bln Capital IQ Consensus. Retail sales, which include Barnes & Noble stores and BN.com, declined 7.5% to $1.3 bln for the quarter. Comparable store sales declined 8.3% for the quarter largely due to lower traffic, as well as the decline in coloring books, artist supplies and last year's best-selling album by Adele, which collectively accounted for nearly one third of the sales decline.
- Online sales increased 2.2% for the period. NOOK sales, which include digital content, devices and accessories, declined 25.7% to $38.4 mln for the quarter.
- For the quarter, Retail generated operating income of $135.0 mln, while NOOK incurred an operating loss of $6.2 mln, for a total operating income of $128.8 mln.
- Consolidated third quarter EBITDA was $157.8 mln, as compared to $169.0 mln a year ago. NOOK EBITDA losses of $2.4 mln improved $8.8 mln over the prior year, as the Company continues to reduce NOOK expenses. Retail EBITDA of $160.2 mln declined $19.9 mln on the sales decline.
- Co lowered FY17 guidance on January 5.
- Despite sales improvements post-holiday, trends softened in late January and into the fourth quarter.
- As a result, the Company now expects full year fiscal 2017 comparable store sales to decline ~7% (down from ~6%), and consolidated EBITDA to be in a range of $180 mln to $190 mln (down from $200 mln), excluding the impact of any charges related to its cost reduction initiatives and costs associated with the CEO departure. Fiscal 2017 Retail EBITDA is now expected to be in a range of $200 mln to $210 mln, while NOOK's EBITDA loss has improved and is now expected to be ~$20 mln, which includes previously announced transitional costs.