The Daily Call

Morning Summary | Consumer  | Energy | Industrial  | Financial  | Health Care | Tech/Media  | M&A and Corporate Action  | IPOs & Secondaries

Morning Summary

Jayme Casey, Gregory Martino (203) 861-7650 | 8.17.2018

 

Asian markets finished mostly higher following Thursday’s move in the US. The Nikkei added 35bps on light volume as financials and industrials led gains. China underperformed again, finishing 1.34% lower, while Hong Kong closed up 40bps bolstered in part by a 3% jump by Tencent Holdings. Australia gained 20bps, while the Kospi finished 28bps higher and the Taiex added 7bps. The RBA reiterated that rates are likely to hold steady at least in the near term.

European markets opened marginally higher this morning before swiftly moving into negative territory. Italy leads the way lower, down 1.11%, while the UK is off 13bps and Germany is down 27bps. In economic news, the final reading of Eurozone July CPI was in line with estimates, and Austria July HCPI was also in line.

US equity futures are ~15bps lower with a Turkish court set to rule tomorrow on the release of the detained US pastor, which, if denied, would lead to further sanctions from the Trump Administration. In other news, the President has asked the SEC to review whether to replace quarterly corporate earnings reports with semi-annual releases. Economic data today is light with LEI and University of Michigan data at 10am. Crude futures are ~70bps higher ahead of weekly rig data at 1pm. OPEC+ announced it will delay the review of quota implementation by one week to August 27. In M&A news, CAVA Group will buy Zoe's (ZOES) for $12.75/sh in cash. In an article in O Globo, it was reported without citing sources that Tyson (TSN) may buy Marfrig’s (MRFG3 BZ) Keystone brand for $2.5bn. In other news, Tesla (TSLA) is offered lower this morning after an interview with the NYT drew more attention to Musk’s go-private tweets and the condition in which he decided to make the statements, citing multiple tearful moments by Musk who said no one reviewed the tweets before he sent them. The NYT also reported that Tesla (TSLA) may be searching for a COO to provide Musk with relief. The WSJ reported that Google (GOOGL) said it is not close to launching the Chinese search engine that made headlines in recent days. Dutch shipping giant, Maersk (MAERSKB DC) announced plans to spin-off its drilling unit into a separately-listed company on the Nasdaq Copenhagen as the company continues to shift its focus to its core transportation business. After the close Thursday, Antares Pharma (ATRS) and Teva (TEVA) announced FDA approval for their generic EpiPen. Bristol-Meyers’ (BMY) Opdivo was approved by the FDA for small cell lung cancer treatment. Regeneron (REGN) received FDA approval for its age-related macular degeneration treatment. A US District Court ruled that the State Department must conduct another environmental review of the XL pipeline (TRP CN, TRP US), possibly further delaying construction. Trans Mountain, which was bought from Kinder by the Canadian government, said that workers are on site preparing to clear a path for the arrival of construction crews in 2019. Apple (AAPL) will begin selling 13in MacBooks in September according to the Digitimes with an expected price of $1,200.

Earnings: This morning, Deere (DE) beat EPS estimates and reported better Q3 sales guidance. Thursday after the close Nordstrom (JWN) beat estimates and Nvidia (NVDA) and Applied Materials (AMAT) both missed guidance expectations.

Analyst Actions: Fluor (FLR) raised to buy at Canaccord, Viper Energy (VNOM) raised to buy at Stifel, Esperion (ESPR) raised to buy at Citi

Secondary/Note offerings:

    • ILMN - Illumina prices $650M offering of 0.0% convertible notes due 2023. The initial conversion price is $457.77/share.
    • KRYS - Krystal Biotech announce 625K share private placement at $16/share to Frazier Healthcare Partners through Chardan
    • AVEO - Aveo Pharmaceuticals intends to offer common stock in an underwritten public offering through Piper Jaffray pursuant to its $200mm mixed shelf registration
    • AMRS - Amyris announces up to 7.4M-share secondary (for holders) through B. Riley FBR

Consumer News

Jared Mancuso (203) 861-7650 | 8.17.2018

 

Notable Headlines:

    • TSLA- Tesla former security employee files whistleblower complaint with SEC, alleges company spies on its workers and suppressed internal investigation into criminal activity at its Gigafactory – CNBC.  The former Tesla security employee Karl Hansen, accuses the company of covering up theft of $37M of raw materials and spying on workers by engaging in wiretapping and hacking their cellphones and computers.  In addition he claims that the company failed to disclose to local law enforcement and to the U.S. DEA that a Gigafactory employee may have been involved in drug trafficking.
    • KOSS- (bid up 10%) Koss Corp reports Q4 EPS $0.05 vs year-ago ($0.01).  Reports Q4: Revenue $7.2M vs year-ago $6.2M
    • TSN- Tyson Foods awarded Defense Commissary Agency contracts.   Tyson Fresh Meats is being awarded an indefinite-delivery, requirements type contract to provide fresh beef and frozen coarse ground beef products for commissaries located in the Central and East Areas of the continental U.S.
    • HLF- Herbalife Nutrition announces closing of $1.25B credit facility and $400M aggregate principal amount of senior note offering.  A $250M revolving credit facility maturing August 2023, $250M term loan A maturing August 2023 and a $750M term loan B maturing August 2025.
    • CRMT- (bid up 6%) America's Car-Mart reports Q1 EPS $1.53 vs FactSet $1.15.  Reports Q1: Revenue $144.1M vs FactSet $139.3M. Same store revenue +12.1%
    • ATGE- (offered down 3%) Adtalem Global Education reports Q4 EPS $0.86 vs FactSet $0.91.  Reports Q4: Revenue $319.8M vs FactSet $352.5M. Q1 Guidance: Revenue to increase approximately 1% y/y. FY Guidance (Jun 2019): EPS expected to be in line with the prior year.
    • JWN- (bid up 8%) Nordstrom reports Q2 EPS $0.95 vs FactSet $0.84.  Reports Q2: Revenue $3.98B vs FactSet $3.96B. FY Guidance (Jan 2019): EPS $3.50-3.65 vs prior guidance $3.35-3.55 and FactSet $3.46. Revenue $15.4-15.5B vs prior guidance $15.2-15.4B and FactSet $15.78B. Comps. +1.5% to +2% vs prior +0.5% to +1.5% and FactSet +0.8%.
    • ZOES- Zoe's Kitchen postpones Q2 earnings announcement and conference call

Analyst Actions:

    • DF- Dean Foods downgraded to underweight from neutral at JPMorgan
    • DSW- DSW downgraded to negative from neutral at Susquehanna
    • HIBB- Hibbett Sports reiterated buy at Canaccord Genuity following checks
    • WMT- Wal-Mart Inc. downgraded to outperform from strong buy at Raymond James
    • HLT- Hilton Worldwide downgraded to market perform from outperform at Bernstein
    • YUMC- Yum! China Holdings downgraded to perform from outperform at Oppenheimer

Energy

Gregory Martino (203) 861-7650 | 8.17.2018

 

Summary: WTI futures rose ~50bps ahead of weekly rig data at 1pm, but remain well off the week’s $68.37/bbl high. OPEC+ announced it will delay the review of quota implementation by one week to August 27. In company news, Dutch shipping giant, Maersk (MAERSKB DC) announced plans to spin-off its drilling unit into a separately-listed company on the Nasdaq Copenhagen as the company continues to shift its focus to its core transportation business. A US District Court ruled that the State Department must conduct another environmental review of the XL pipeline (TRP CN, TRP US), possibly further delaying construction. Trans Mountain, which was bought from Kinder by the Canadian government, said that workers are on site preparing to clear a path for the arrival of construction crews in 2019. Finally, SJW Group’s (SJW) board rejected California Water’s (CWT) revised $70/sh acquisition proposal.

Analyst Actions:

    • CXO - Concho Resources initiated hold at National Alliance Securities. Target is $145
    • AZRE - Azure Power Global initiated buy at Janney Montgomery Scott. Target is $20
    • VNOM - Viper Energy Partners LP upgraded to buy from hold at Stifel Nicolaus. Target increased to $42 from $38

Industrial News

Gregory Martino (203) 861-7650 | 8.17.2018

 

Notable Headlines:

    • LODE- Entered into an equity purchase agreement, dated 7-Apr-17, as amended, with Leviston Resources LLC for an at-the-market offering program, under which the company could offer and sell, the company’s common stock having an aggregate sale price of up to $4.0M and filed a prospectus supplement, dated 28-Dec-17, to the base prospectus forming a part of the company’s effective registration statement on Form S-3.  Effective 16-Aug-18, the company and Leviston terminated the Purchase agreement and no further sales pursuant to that program will be made. At the time of termination, the company had issued ATM Shares with an aggregate purchase price of $2.2M.
    • VRS- Verso Corp to sell Wickliffe Mill to Global Win Wickliffe LLC for $16M.  On 16-Aug-18, Verso Paper Holding LLC, a wholly owned subsidiary of Verso, entered into a purchase agreement with Global Win Wickliffe LLC for the sale of Verso Wickliffe LLC for a purchase price of approximately $16.0M in cash.  Verso Wickliffe owns substantially all of the assets that comprised Verso’s Wickliffe, Kentucky paper mill and related operations. The sale is expected to close in Q3 of this year.
    • DE- Deere & Co. reports Q3 EPS $2.78 vs FactSet $2.73.  Net Sales Of The Equipment Operations $9.29B vs FactSet $9.18B; EPS includes $0.19 of tax reform expense.  FY Guidance: Reaffirms net sales and revenues are expected to increase by about 26%.  Adj net income, excluding provisional income-tax adjustments associated with tax reform, about $3.1B vs prior guidance of $3.1B, which included $803M of provisional income tax expense.  Reaffirms company equipment sales are projected to increase by about 30% for FY18. 

Analyst Actions:

    • CF- CF Industries target increased to $57 from $50 at Susquehanna
    • FLR- Fluor upgraded to buy from hold at Canaccord Genuity
    • WAB- Wabtec downgraded to sector weight from overweight at KeyBanc
    • BXG- Bluegreen Vacations Corporation downgraded to underperform from buy at Bank of America Merrill Lynch.
    • CFX- Colfax Corp upgraded to outperform from market perform at Cowen

Financial News

Brad Berger (203) 861-7650 | 8.17.2018

 

Notable Headlines:

    • MET, STT - MetLife, Inc. and State Street announce $2B commercial mortgage co-lending multi-year agreement. MetLife Investment Management, the institutional asset management platform for MetLife, Inc. (MET) and State Street Corporation (STT), announced a multi-year agreement in which MetLife Investment Management and its affiliates will originate and service for State Street affiliates up to $2B in commercial mortgage loans. State Street affiliates and MetLife affiliates will co-lend each loan under the agreement.
    • CBRE - CBRE Group announces new organization structure. CBRE Group announced a new organization structure that will become effective 1-Jan-19, and several senior executive promotions made in anticipation of the future organization. Under the new structure, the company will organize its operations around, and publicly report its financial results on, three global businesses: Advisory Services; Global Workplace Solutions; and Real Estate Investments.
    • FOR - Forestar announces new $380M senior unsecured revolving credit facility. Entered into a three-year $380M senior unsecured revolving credit facility. The facility has an uncommitted $190M accordion feature which could increase the facility to $570M.
    • China suspends major credit ratings agency Dagong – FT.  According to the report, two Chinese regulators have suspended Dagong Global Credit Rating, one of China’s three main ratings agencies, from bond market business for one year for lax corporate governance, conflicts of interests, and other problems.
    • BLK - BlackRock and The DSP Group completed transaction for BlackRock to sell its minority interest in DSP BlackRock Investment Managers to DSP, according to a company statement on website.  BlackRock had held a 40% stake in the venture, which manages and markets a range of co-branded mutual funds in India.
    • WMIH Corp. approves 1-for-12 reverse stock split. WMIH expects to hold a special meeting of stockholders in October to obtain stockholder approval of the Proposed Amendment, which would effect the reverse stock split, proposed at a ratio of 1-for-12, reduce the total authorized shares of WMIH’s common stock from 3.50B to 300.0M and increase the par value of each share of WMIH common stock from $0.00001 per share to $0.01 per share.

Analyst Actions:

    • MSL - upgraded to market perform from underperform at Raymond James.
    • DLR – initiated with neutral rating at New Street Research, PT $130.
    • EQIX – initiated with buy rating at New Street Research, PT $525.
    • FDC- upgraded to overweight from neutral at Atlantic Equities, PT increased to $30 from $18.
    • WSC – initiated with outperform rating at Credit Suisse, PT $20.
    • SUI – downgraded to in-line from outperform at Evercore ISI, PT cut to $100 from $103.

Health Care

Tyler Nugent (203) 861-7650 | 8.17.2018

 

Notable Headlines:

    • ATRS- Antares Pharma announced that the FDA has approved Teva Pharmaceutical Industries' epinephrine auto injector drug-device combination product indicated for emergency treatment of severe allergic reactions including those that are life threatening in adults and certain pediatric patients.
    • BMY- Bristol-Myers Squibb’s Opdivo receives approval from the FDA as the first immuno-oncology treatment option for patients with metastatic small cell lung cancer whose cancer has progressed after platinum-based chemotherapy and at least one other line of therapy.
    • REGN- Regeneron Pharmaceuticals announced the FDA has approved a supplemental Biologics License Application for EYLEA Injection in patients with wet age-related macular degeneration. The sBLA was based on second-year data from the Phase 3 VIEW 1 and 2 trials in which patients with wet AMD were treated with a modified 12-week dosing schedule.
    • ABEO- Abeona Therapeutics announced that it is working closely with the FDA to confirm the final protocol guidance for the EB-101 Phase 3 pivotal trial in recessive dystrophic epidermolysis bullosa (RDEB). The company noted that a draft version of the protocol for the trial had been prematurely posted by its collaborator on the FDA clinical trial online portal and the collaborator has agreed to either retract or withdraw the posting.
    • A- Agilent said that the FDA announced today that it approved the Dako PD-L1 IHC 22C3 PharmDx Assay as a companion diagnostic to select patients with locally advanced or metastatic urothelial carcinoma who are cisplatin-ineligible for treatment with Keytruda. The 22C3 assay determines PD-L1 expression by using a combined positive score assessing PD-L1 staining in tumor and immune cells.
    • ARAY- Accuray reports Q4 EPS ($0.01) vs FactSet ($0.02); reports Q4 revenue $113.8M vs FactSet $107.7M; adjusted EBITDA $7.8M vs FactSet $9.9M
    • EDIT- Editas announced the National Institutes of Health Recombinant DNA Advisory Committee completed the NIH protocol registration process for EDIT-101. The NIH determined a public meeting is not necessary, and the RAC will not be convened to review this clinical trial.
    • EOLS- Evolus says DWP-450 is approved by Health Canada for the temporary improvement in the appearance of moderate to severe glabellar lines in adult patients under 65 years of age.

Analyst Actions:

    • ESPR- Esperion Therapeutics upgraded to buy from neutral at Citi
    • ACER- Acer Therapeutics upgraded to strong buy from outperform at Raymond James
    • LIFE- aTyr Pharma upgraded to neutral from sell at Citi
    • RTRX- Retrophin initiated buy at Canaccord Genuity
    • JAZZ- Jazz Pharmaceuticals mentioned positively at Leerink
    • FOLD- Amicus Therapeutics downgraded to neutral from buy at Chardan Capital
    • LGND- Ligand Pharmaceuticals initiated neutral at Goldman Sachs
    • DARE- Daré Bioscience initiated buy at Maxim Group

Syndicate:

    • AVEO- Aveo Pharmaceuticals intends to offer common stock in an underwritten public offering through Piper Jaffray
    • VCEL- Vericel files for $200M mixed securities shelf

Tech/Media News

Sean Greeley (203) 861-7650 | 8.17.2018

 

Notable Headlines:

    • NVDA – Trading -3.5%. NVIDIA reports Q2 GAAP EPS $1.76 vs FactSet $1.67  Reports Q2: Revenue $3.12B vs FactSet $3.10B GAAP gross margin 63.3% vs FS 63.4% and 64.5% in Q1 - guidance was for 63.3-63.5% plus/minus 50 bp Q3 Guidance: Revenue $3.25B +/- 2% vs FactSet $3.34B GAAP and non-GAAP gross margins are expected to be 62.6% and 62.8%, respectively, plus or minus 50 basis points. FactSet consensus for GAAP gross margin is 62.9%
    • AMAT – Trading-4%.Applied Materials reports Q3 EPS $1.20 ex-items vs FactSet $1.17  Reports Q3: Revenue $4.47B vs FactSet $4.43B Q4 Guidance: EPS $0.92 to $1.00 ex-items vs FactSet $1.17 Revenue $3.85B to $4.15B vs FactSet $4.46B
    • GOOGL - Google CEO says not close to launching search product in China – WSJ.  A person briefed on the comments tell the WSJ that CEO Sundar Pichai tells employees in an all-hands meeting that the company is optimistic about doing more business in China, but the process would be slow and complicated. However, the company is not close to launching a search product in China as media reports stated last week
    • TWTR – House Energy and Commerce Cmte is considering issuing a subpoena to compel Twitter CEO Jack Dorsey to testify before the panel, according to a congressional aide familiar with the matter. The committee has been trying to get Dorsey, who has been courting U.S. lawmakers, to testify at a hearing. Committee Chairman Greg Walden said earlier this month that he looked forward to having Dorsey testify “at a date and time to be agreed upon”. Earlier today, Walden took a different tone In a Twitter post directed at the Twitter CEO, Walden said: “I appreciate your willingness to speak publicly on issues facing Twitter and agree complex algorithms must be better communicated to consumers. After many good faith efforts from staff, this is your formal invitation to appear before @HouseCommerce on Sept. 5”. Bloomberg
    • AAPL - Apple Is Said to Roll Out 13-Inch MacBook in Sept: Digitimes. New model is expected to be priced at $1,200 and will feature Intel’s 14nm Kaby Lake processor, Digitimes reports, citing unidentified people in the industry.
    • CNET – Trading + 35%. Chinanet Online Holdings reports Q2 EPS ($0.60) vs year-ago ($0.07)  Reports Q2: Revenue $22.5M vs year-ago $10.5M
    • VJET – voxeljet AG reports Q2 EPS (€0.74) vs FactSet (€0.49) -- 1 estimate   Reports Q2: Revenue €5.3M vs FactSet €6.3M -- 2 estimates Q3 Guidance: Revenue €6-8M vs FactSet €7.8

Analyst Actions:

    • NVDA - NVIDIA upgraded to outperform from perform at Oppenheimer
    • FDC - First Data upgraded to overweight at Atlantic Equities
    • NTNX - Nutanix downgraded to hold from buy at Jefferies
    • CACI – CACI International  downgraded to hold at Noble Capital

M&A and Corporate Action News

Robert Sicari, Chris Swann (203) 861-7650 | 8.17.2018

 
    • ZOES- The Cava Group is buying Zoe’s Kitchen for $12.75 in cash. Details: 1) Under the terms of the agreement, Zoës Kitchen shareholders will receive $12.75 in cash for each share of common stock they hold. 2) This represents a premium of approximately 33% to Zoës Kitchen’s closing share price on August 16, 2018 and a premium of approximately 33% to Zoës Kitchen 30-day volume weighted average price ended on August 16, 2018, and an enterprise value of approximately $300 million. 3) The acquisition of Zoës Kitchen will be financed through a significant equity investment in CAVA led by Act III Holdings, the investment vehicle created by Ron Shaich, founder, chairman, and former CEO of Panera Bread, and funds advised by The Invus Group, with participation from existing investors SWaN & Legend Venture Partners and Revolution Growth. 4) CAVA has agreed to pay to the Company a $17 million termination fee if the merger agreement is terminated under certain circumstances and the merger does not occur. The Company would be required to pay to CAVA an $8.5 million termination fee if the Company terminates the merger agreement to accept a superior proposal under certain circumstances. 5) The parties expect the merger to close in the fourth quarter of 2018. 6) Under the terms of the merger agreement, the Company is permitted to actively solicit, for a 35-day period, alternative acquisition proposals from potential buyer and business combination candidates. 7) Zoës Kitchen also announced that it will not hold its previously scheduled second quarter 2018 earnings conference call and web simulcast on the morning of Friday, August 17 and will not issue a press release with second quarter 2018 financial results. The Company expects to file its quarterly report with second quarter 2018 financial results on or before August 20, 2018
    • GSM- Yesterday’s move attributed to parent co. balance sheet improvement, not company sale prospects.
    • TSLA- NYT article on infamous “Funding Secured” narrative.
    • NVO- Novo Nordisk A/S agreed to buy Ziylo Ltd. to develop new forms of insulin that would respond better to blood sugar level for ~$800MM.

IPOs & Secondaries

Patrick O'Donohue, CFA (203) 861-7650 | 8.17.2018

 
IPO or ADDL?
Ticker
Company
Ann. Date
Price Date
Shares
Offering Price
Close
PX Last
Market Value
ADDL
AMRS
AMYRIS INC
8/16/2018
TBA
7,430,000
TBA
$7.50
$ 6.52
$55,725,000
ADDL
QTWO
Q2 HOLDINGS INC
8/16/2018
8/17/2018
500,000
TBA
$60.15
$ 60.15
$30,075,000
ADDL
ISDR
ISSUER DIRECT CO
8/16/2018
TBA
TBA
TBA
$17.38
$ 16.25
 
IPO
SFET
SAFE-T GROUP-ADR
7/5/2018
8/17/2018
510,400
14.35
 
$ -
$7,324,240
 
 
 
 
 
 
 
 
Total
$93,124,240
 
 
 
 
 
 
 
IPOs
$7,324,240


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