After Hours Summary: SQ +9%, CTRP +5%, OCN +4%, HPQ +2%, TSLA +1.5% following earnings/guidance... TSRA -13.5%, LB -13% following earnings/guidance, ORIG -36.1% on earnings/financing updateAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: CBMX +19.5%, UCTT +13.8%, TGB +10.7%, SQ +8.6%, DOOR +6.6% (light volume), TRNC +5.8%, CTRP +5%, OCN +3.7%, COTV +3.3%, GDOT +2.7%, OAS +2.6%, HPQ +2.4%, RGR +2.3%, SXL +2.2%, ETP +1.8%, TSLA +1.5% (also CFO stepping down to pursue position in public policy), FIT +1.2%, RRC +1.2%
Companies trading higher in after hours in reaction to news: NAK +30.9% (modestly rebounding; comments on US House Committee on Science, Space and Technology letter to EPA to withdraw Pebble Project veto), PTX +27.7% (attributed to favorable court ruling), URRE +11% (reports 'favorable' lithium concentrations at the Columbus Basin Project), ASPS +8% (continued strength after the CEO disclosed purchase of 5,250 shares), DNR +4.8% (still checking), SHPG +2.2% (higher in extended trade as media outlets recirculate release from the European Haemophilia Consortium regarding a patient death in Roche's [RHHBY] HAVEN 1 clinical trial evaluating Emicizumab), TIF +1% (JANA Partners filed a 13D confirming its 4.9% active stake)
Companies trading lower in after hours in reaction to earnings/guidance: ORIG -36.1% (continues to explore alternatives-will consider all options including restructuring plan through schemes of arrangement or under Chapter 11), TSRA -13.5%, LB -13.1%, HBM -12%, ARRS -10.4% (also to acquire Brocade Communication Systems Ruckus Wireless and ICX Switch business for cash consideration of $800 mln), JACK -9.7%, SAM -7.7%, ELGX -5.8%, CSGP -5.5%, FMI -5.3%, SBLK -4.1%, LGCY -2.4%, CHSP -1.2%, WB -1.2%
Companies trading lower in after hours in reaction to news: NGD -7.2% (announces bought deal financing for 53.6 mln common shares at $2.80/share), CLD -6.7% (prices offering of 13,500,000 shares of common stock at $5.10 per share), MYSZ -5.2% (discloses entry into Securities Purchase Agreement with an accredited investor), NVDA -2.4% (attributed to analyst downgrade), APAM -1.6% (commences 5,626,517 common stock offering)
Apple scouting for acquisitions to fill portfolio gaps, accelerate product roadmaps — CFO
- Original media content driving conversion rates, store transactions
- Repatriation would provide more flexibility, allow company 'to move more quickly'
Apple [NASDAQ:AAPL] looks to obtain technologies that fill gaps in its portfolio or that accelerate its product roadmaps, CFO Luca Maestri said.
Even though the technology juggernaut has historically purchased smaller private companies, it would acquire a large public company if the target was the right strategic fit, Maestri said on the sidelines of the Goldman Sachs Technology and Internet Conference in San Francisco, California last week.
The issue is not whether a target is public or private, he said, but whether it can be acquired at the right price to create value for shareholders.
The only public company Apple has ever bought is Melbourne, Florida-based fingerprint sensor technology developer AuthenTec for USD 356m in 2012, according to Mergermarket’s database and research team.
Apple typically buys between 15 and 20 businesses a year, Maestri said.
The company reported USD 246bn in cash holdings as of 31 January.
During the investor presentation, Maestri noted that music is one of the most important use cases for Apple devices, which is why its largest acquisition to date was privately held Los Angeles, California-based streaming service Beats Music and Beats Electronics for more than USD 3bn in 2014.
Through its music business, he said Apple has discovered that ownership of exclusive content makes a meaningful difference in the number of transactions that occur at Apple stores and the conversion rates of its software subscription trials.
Now Apple is working to apply the same strategies it has deployed in music to video. The Cupertino, California-based giant is experimenting with the production of original television shows, such as “Carpool Karaoke,” which it purchased the first-window rights to last year for its streaming service.
Apple plans to see how these initial TV shows are received by consumers and “go from there,” Maestri said. Apple is already a large distributor of video through its computer, smartphone, tablet and television platforms.
Despite the enormous success of its iPhone business, the company still sees plenty of growth and innovation ahead as smartphones increasingly become more ingrained in consumers’ lives, Maestri said. Apple wants to gain market share in emerging markets, such as China and India, where penetration is low, he said. The company also continues to work on advancing key foundational technologies that go into the product, including processors, sensors, batteries, displays and cameras, the CFO said.
To that end, the amount it spends on research and development is higher than in the past, Maestri said, because its portfolio of products and services is larger. Developing technologies in-house allows it to push the envelope of innovation and have better control of costs, time and quality, he said.
The US tax code was also a topic of discussion.
The existing corporate tax rate of 35% is punitive for companies, he said, and creates tensions around the world. Apple has long championed tax reform, Maestri said, noting that Congress is expected to make changes this year.
If companies are allowed to repatriate capital held overseas, he said it would provide Apple additional flexibility to allow it “to move more quickly.”
The Trump administration’s proposed border tax, however, would harm tech companies and the economy, Maestri contended, because the financial burden would be passed on to consumers. Not only are the majority of its products manufactured overseas but Apple’s suppliers are also there.
Closing Market Summary: Averages Close Wednesday Mixed
Investors tapped the brakes on Wednesday, displaying slight caution amid a wave of potentially influential economic reports. The Nasdaq (-0.1%) closed in line with the S&P 500 (-0.1%) while the Dow outperformed (+0.2%), recording its ninth consecutive gain.
The major averages started today's session with modest losses, but they ticked up following Existing Home Sales for January. The report came in better than expected, showing an annualized rate of 5.69 million units while the Briefing.com consensus expected a reading of 5.57 million.
Equity indices then slid slowly into the next event on Wednesday's calendar, a speech from Fed Governor Jerome Powell. However, the speech turned out to be a non-event as Mr. Powell provided little to no new information, stating that a gradual tightening of policy is appropriate as long as the economy continues to behave roughly as expected.
Finally, the last major event on the calendar, the FOMC Minutes, was met with a muted response from investors. The minutes showed that many FOMC members see a rate hike "fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations."
And while recent hotter than expected ISM Index, Nonfarm Payrolls, PPI, CPI, Retail Sales, Housing Starts, and Existing Home Sales readings met the rate hike prerequisite, the statement's vague "fairly soon" clause gives little indication as to the timeline of said rate hike.
In summary, after all the noise, the fed funds futures market now points to May as the most likely time for the next rate hike to be announced with an implied probability of 52.1%, up from 45.9% yesterday. The implied probability of a March rate hike increased to 22.1% from yesterday's 17.7%.
On the earnings front, Toll Brothers (TOL 33.93, +1.94) spiked 6.1% after the luxury homebuilder reported better than expected top and bottom lines and issued upbeat delivery guidance. More notably, Toll Brothers' bullish disposition lifted the iShares U.S. Home Construction ETF (ITB 30.04, +0.12) to its highest level in over a decade. The consumer discretionary sector (unch) capitalized on hombuilders' solid showing, outperforming the benchmark index.
Financials (+0.1%) and telecom services (+0.1%) closed in line with the consumer discretionary sector while technology (+0.2%), materials (+0.3%), and utilities (+0.4%) performed a bit better.
Energy (-1.6%) led the five remaining sectors lower, succumbing to a 1.4% loss in crude oil. The energy component trades in the red for the week after squandering all of Tuesday's gain in Wednesday's session. WTI crude closed its trading day at $53.59/bbl.
Treasuries closed Wednesday's session slightly higher. The benchmark 10-yr yield finished one basis point lower at 2.42%.
Today's economic data included January Existing Home Sales and the MBA Mortgage Index:
- Existing home sales for January increased 3.3% from December to an annualized rate of 5.69 million units while the consensus expected a reading of 5.57 million.
- The key takeaway from the report is that high prices and limited inventory continue to compress the affordability factor for prospective buyers, and have prevented existing home sales from being even stronger.
- The weekly MBA Mortgage Index decreased 2.0% to follow last week's 3.7% decline.
Tomorrow's economic data will include Initial Claims (consensus 242,000) and December FHFA Housing Price Index (Consensus 0.4%). The two reports will cross the wires at 8:30 am ET and 9:00 am ET, respectively.
- Nasdaq Composite +8.9% YTD
- S&P 500 +5.5% YTD
- Dow Jones Industrial Average +5.1% YTD
- Russell 2000 +3.4% YTD
RWE: Strom und Drang Premium
Clarity on dividends and decommissioning is welcome but a convincing plan is needed
Germany’s pre-Romantic literary movement was characterised by emotional extremes described as Sturm und Drang. RWE shareholders know all about those. In 2016, the German utility wiped €3bn off the carrying value of its power stations and axed its dividend. It also carved out Innogy, stabilised its balance sheet, reached a deal with Berlin on nuclear clean-up costs and won a partial court victory over the shutdown of atomic power.
On Wednesday the company pre-announced headline numbers from its 2016 results, due March 14. They included another impairment charge — €4.3bn this time — against generation assets. Four-fifths of this is applicable to German power stations. It also said that it would not pay a dividend on its ordinary shares in respect of 2016, the second year of no payout. It aims to make a 50-cent distribution in respect of 2017. Analysts had forecast 30 cents for 2016 and 45 for 2017; the last ordinary dividend was €1 in 2014.
This news will disappoint many shareholders, especially the various Ruhr municipalities that hold about 23 per cent of RWE’s stock — though they may be comforted by the suggestion that future payout policy will be progressive. Rating agencies will feel reassured, even though not paying a 30 cent dividend will save a relatively paltry €184m. Keeping them onside is important: RWE derives a quarter of profit from its trading business, which needs an investment-grade rating. Moody’s rates RWE just above junk.
There were other positives. RWE’s overall debt fell by more than expected, partly reflecting the carve-out of Innogy. That transaction has given it sufficient firepower to make its €6.8bn contribution to the nuclear decommissioning fund in one payment, in July 2017. This will reduce political risks, although it will not remove them entirely. About a quarter of RWE’s generating capacity is lignite-fired. The future of these plants, which are heavily polluting, may be revisited after the federal election in the autumn.
Greater clarity on dividends and decommissioning is welcome. But the problem of low power prices remains, leaving RWE looking like a low-growth vehicle for legacy liabilities (adjust for its stake in Innogy, and its equity value is negative) It cannot compete with its offspring in renewables or grids. A convincing strategy is needed if it is to focus on Strom (electrical current in German) and move away from Sturm.