Stocks Higher Despite Weak Retail Sales!
Stocks on Wall Street were higher at midday despite worse than expected retail sales data for January. Investors may be willing to discount that data as weather-related, especially given how another major storm is dumping snow all along the East coast and particularly in the Northeast at the moment.
ECONOMIC EVENTS: In the U.S., retail sales fell 0.4% in January, versus forecasts for a 0.1% decline. Jobless claims rose to 339,000 up 8,000 from the prior week’s revised figure. Business inventories rose 0.5% in December, matching expectations.
COMPANY NEWS: Comcast (CMCSA) agreed to a friendly, stock-for-stock transaction to acquire Time Warner Cable (TWC) in a deal equating to $45.2B in equity value. Each Time Warner Cable shareholder will get Comcast shares worth about $158.82 based on their last closing price. In striking the deal, Comcast stepped in front of Charter (CHTR), which had similarly been trying to buy TWC but was unwilling thus far to raise its offer to this level. Following the deal, Time Warner Cable shares rose 7%, Comcast shares dropped nearly 4% and Charter shares fell almost 6%… PepsiCo (PEP) reported quarterly earnings that beat expectations on revenue that was slightly below the consensus forecast. The company also said it will keep its North American Beverage business after an ‘exhaustive review’ found that keeping the current structure will maximize value for shareholders. Additionally, the company raised its annual dividend by 15%, said it expects to increase its share repurchases to $5B this year, and announced a new 5-year, $5B cost-savings program… Dow member Cisco (CSCO) led all decliners on the blue-chip index with a 4% drop after its earnings and revenue beat estimates but it projected that third quarter revenues will be 6%-8% lower than the same period of last year. MAJOR MOVERS: Among the notable gainers was Orbitz Worldwide (OWW), which rose 30% following its quarterly earnings report. Also higher were shares of CBS (CBS), which gained about 4% after announcing fourth quarter earnings and revenue that topped estimates and plans to use a total of $2B of its share buyback program during the current quarter. Among the noteworthy losers was Angie’s List (ANGI), which fell 17% and was downgraded two notches to Market Perform from Strong Buy at Raymond James after the company’s results, guidance and member and service provider additions disappointed. Also lower were shares of The Medicines Co. (MDCO), which dropped over 14% after an FDA panel voted against approval for its cangrelor drug and the company’s shares were downgraded at Jefferies and at Credit Suisse.
ARRIS climbs in wake of Comcast, Time Warner Cable merger – Shares of ARRIS (ARRS) – which supplies broadband network products to cable companies – are rising after Comcast (CMCSA) agreed to merge with Time Warner Cable (TWC). Research firm Jefferies wrote that ARRIS would likely benefit from the deal. WHAT’S NEW: Comcast, an ARRIS customer, agreed to merge with Time Warner Cable in a $45.2 billion deal. The deal could be "very positive" for ARRIS, wrote Jefferies analyst James Kisner in a note to investors earlier today. ARRIS – which has a "tight relationship" with Comcast and is a "critically important vendor" for the cable company – is likely to increase its sales to Time Warner Cable following the merger, Kisner contended. Time Warner Cable has been underinvesting in technology compared with its peers, and Comcast could reverse this trend following the merger, the analyst wrote. Such a development would be "great" for ARRIS, the analyst contended. He kept a $30 price target and Buy rating on ARRIS. WHAT’S NOTABLE: In a separate note to investors today, Kisner wrote that he remained upbeat on ARRIS despite reports that Apple (AAPL) could be working with Time Warner Cable and other partners on a new set-top box. It’s not clear that Apple’s set-top box would replace set-top boxes provided by cable companies, and Comcast is "very unlikely" to adopt the product, since it has already invested a great deal of money in its X1 architecture, the analyst contended. PRICE ACTION: In morning trading, ARRIS jumped $1.70, or 6.6%, to $27.60.
Pepsi falls after opting against spin-off of domestic beverage business – PepsiCo (PEP) shares are lower today after the company reported earnings, gave guidance, announced new cost-savings and capital return plans, and, most notably, announced it decided against changing the structure of its North American beverage business after an "exhaustive review." WHAT’S NEW: Earlier this morning, Pepsi said the company will maximize shareholder value by retaining its North American Beverage business in its current structure within the PepsiCo portfolio. Pepsi said the business competes in a large, profitable category that is "one of the most important to the company’s retail customers," provides operational and customer scale benefits to the company’s other North American operations, and is competitively well-positioned in the segments of non-carbonated and flavored carbonated drinks. Additionally, Pepsi reported quarterly earnings per share that beat expectations on revenue that was slightly below the consensus forecast. The drink and snack maker said it expects its core EPS to grow 7% this fiscal year and for its organic revenue to grow mid-single digits versus 2013. The company also announced a 15% increase in its annualized dividend and said it anticipates increasing share repurchases in 2014 to approximately $5B. Pepsi also announced a new 5-year, $5B productivity program for 2015-2019. WHAT’S NOTABLE: In July of last year, Nelson Peltz’ Trian Fund Management, which holds a significant stake in Pepsi, outlined strategic alternatives the firm believes would drive value creation. Trian proposed two plans, the first of which involved the merger of PepsiCo and Mondelez (MDLZ). The alternative suggested was for Pepsi to split up its beverage and snacks businesses. Subsequently, on January 21 of this year, Mondelez added Peltz to its board of directors and at that time Peltz said he would no longer push for a deal between the company and Pepsi. Peltz said then that he does still want to see Pepsi split its snack and beverage businesses, which he had previously contended could lead to approximately $136 to $144 of implied value per share by the end of 2015 for the company. ANALYST REACTION: In a note to investors this morning prior to the open, Goldman Sachs said it expected Pepsi shares would trade up modestly based on the company’s cost savings and cash return plans, which were partly offset by its 2014 outlook that is below the company’s long-term targets. The firm calculated that Pepsi’s view implied FY14 EPS around $4.50. Analysts consensus FY14 EPS estimate was $4.69 prior to the company’s announcement this morning. Goldman maintained its Neutral rating on shares of PepsiCo. PRICE ACTION: In morning trading PepsiCo dropped 2.9% to $79.12.
High option volume stocks: SGY CGN WAC STAA
Gold is up $2.00 at $1,297.00 an ounce. Crude oilis down $0.23 to $100.14 per barrel. The buck is mixed. The dollar last traded at $1.3667 to a euro; $1.6632 to a British Pound; and 102.120 yen to a dollar.
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