Thursday, September 29, 2016 - 8:15pm

The following are the M&A deals, rumors and chatter circulating on Wall Street for Thursday September 29, 2016:

Qualcomm Said to be in Talks to Acquire NXP Semiconductors for $30B+

The Rumor:
Qualcomm Inc. (NASDAQ: QCOM) is said in talks to acquire NXP Semiconductors NV (NASDAQ: NXPI), according to sources as reported by Dow Jones on Thursday. The sources said a deal, which could happen over the next two to three months, would likely be valued at over $30 billion, though NXP's market cap was already over $32 billion following the report.

NXP Semiconductors closed at $96.12 on Thursday, up 16.88%. Qualcomm closed at $67.45, up 6.30%.

 

National Amusements Proposes Combination of CBS, Viacom

The Letter:
The majority owner of CBS (NYSE: CBS) and Viacom (NASDAQ: VIAB) voting stock, National Amusements, announced Thursday, that it has asked the boards of CBS and Viacom to consider a potential merger. A letter was sent to the boards of both companies by the Redstone-controlled NAI, is proposing an all-stock transaction in which the stockholders of each company would receive shares in the combined company of the same class as they currently hold.

CBS closed at $54.57 on Thursday, up $0.42. Viacom closed at $37.77, up 3.31%.

 

Two Groups Set to Submit Bids for Cabela's

The Rumor:
Two separate groups will make bids this week to acquire Cabela's Inc (NYSE: CAB), according to sources as reported by Reuters on Thursday. The first consortium consists of Bass Pro Shops, Goldman Sachs Group and Capital One Financial, which is interested in Cabela's credit card business. The second group conisists of private equity firm Sycamore Partners and Synchrony Financial, the sources said. Binding offers for Cabela's are said to be due this week.

Cabela's closed at $53.55 on Thursday, up 2.27%.


Thursday, September 29, 2016 - 5:12pm

Costco Wholesale Corporation (NASDAQ: COST) is trending up after reporting its fourth quarter results Thursday afternoon. The world's second biggest retailer beat earnings expectations despite missing sales estimates.

Costco delivered earnings of $1.77 per share, beating estimates by $0.04. Revenue missed by a little over a billion, coming in at $35.73 billion.

Overall, comps were flat for Costco in Q4, including a 1 percent decrease in the US.

Costco's stock has experienced nearly a 10 percent decline in the past month. The stock reversed Thursday's losses, trading up about 2 percent to $150.24 in the after-hours session.


Thursday, September 29, 2016 - 5:08pm
Image credit: Pedro Plassen Lopes

Deutsche Bank AG (USA) (NYSE: DB) shares fell 6.6 percent Thursday following reports that a small number of hedge funds are reducing their positions in Europe’s largest investment bank. Deutsche Bank shares are now down 52.3 percent in 2016 and are threatening to dip into the single-digits.

The Financial Select Sector SPDR Fund (NYSE: XLF) is down about 20 percent year-to-date.

Deutsche Bank’s decline is also sparking comparisons to Lehman Bros, and speculation about the systemic risk involved in a potential Deutsche Bank collapse. Pressure is mounting on the German government to step in and commit to bailing out the ailing bank if things get worse.

Related Link: El-Erian On Deutsche Bank: They May Need To Provide 'Stronger Assurances' About Financial Health

Deutsche Bank’s U.S. ADR traded 51.6 million shares in Thursday’s session, its highest one-day volume ever. The stock’s 6.6 percent decline is its third daily loss of at least 6 percent this month.

The stock fell 8 percent on September 15 following a massive $14 billion penalty imposed by the U.S. Justice Department related to the company improperly selling mortgage-backed securities. Deutsche Bank had anticipated a fine, but nothing nearly as large as $14 billion.

Deutsche Bank shares declined another 7.0 percent on Monday as fear spread about the company’s solvency.

These declines pale in comparison to Deutsche Bank’s massive 17.5 percent one-day selloff following the UK’s surprise Brexit vote back in June.

There’s no question that 2016 has been a disastrous year for Deutsche Bank investors. At this point, the market seems to have serious doubts about whether the bank will make it through to 2017 without some major help.

Image credit: Pedro Plassen Lopes


Thursday, September 29, 2016 - 4:49pm

U.S. stocks tumbled on Thursday, largely driven by Apple Inc. (NASDAQ: AAPL)’s 1.55 percent decline, as well as a general drop in financial stocks triggered by worries about the financial health of Deutsche Bank AG (USA) (NYSE: DB).

After the market closed, Costco Wholesale Corporation (NASDAQ: COST) reported Q4 results. While revenue of $35.73 billion missed estimates by $1.08 billion, EPS of $1.77 beat the Street’s consensus by $0.04. Moreover, even though comps were flat year over year, underlying comps rose by 3 percent. Shares of Costco gained about 1.85 percent after the bell rang.

CalAmp Corp. (NASDAQ: CAMP) fell more than 11 percent after-hours, pushed by a revenue miss. Although EPS of $0.27 were in line with estimates, sales of $90.5 million missed expectations by $1.76 million. Q3 guidance was also disappointing, as management expects revenue in the $81 million to $87 million range, versus consensus at $95.01 million, and non-GAAP EPS of $0.24-$0.30, below estimates of $0.31.

ImmunoGen, Inc. (NASDAQ: IMGN) rose spiked 1.5 percent since the market closed. The rise came after the announcement of the completion of its strategic review, which led to the decision to fire 17 percent of its employees, and to find a development partner for its non-core B-cell lymphoma programs. Management said it anticipates the company will save $11 million per year.

VolitionRX Ltd (NYSE: VNRX) slipped 6.65 percent in Thursday’s after-hours session after reporting an offering of common shares, although neither the amount of shares nor the pricing were publicized.

Also after-hours, the Vetr crowd downgraded On Deck Capital Inc (NYSE: ONDK) from 4.5 Stars (Strong Buy) to 4.0 Stars (Buy), seeking to reflect a more limited upside potential. Shares of Vale SA (ADR) (NYSE: VALE) were also downgraded from 3.5 Stars (Buy) to 3.0 Stars (Hold); 50 percent of the crowd’s ratings are bullish at the time.


Thursday, September 29, 2016 - 4:29pm

Dan Deming of KKM Financial spoke on Bloomberg Markets about the technology sector and he suggested a bullish options strategy in Technology SPDR (ETF) (NYSE: XLK) to exploit a potential move higher in the space.

He wants to buy the October 21, 48 call and sell the October 21st, 49 call for $0.33. The trade breaks even at $48.33 or 1.45 percent higher from the current stock price. It can maximally make $0.67, if the stock jumps 2.85 percent to $49.

Deming explained that Technology SPDR (ETF) has exposure to Microsoft Corporation (NASDAQ: MSFT) and also to the semiconductor space and he believes that they are going to lead the ETF higher.


Thursday, September 29, 2016 - 4:19pm

France is the Eurozone's second-largest economy behind Germany, but the iShares MSCI France ETF (NYSE: EWQ) doesn't command headlines and investors' attention on par with other single-country Europe exchange traded funds.

Perhaps the largest ETF dedicated to tracking French stocks should be getting more attention. In a year in which ETFs tracking the PIIGS economies are struggling, EWQ has been solid. The France ETF's 2.7 percent year-to-date gain is slightly ahead of the comparable Germany ETF and more than twice as good as the Vanguard FTSE Europe ETF (NYSE: VGK).

EWQ offers another perk: A tidy-by-comparison dividend yield. The France ETF's trailing 12-month dividend yield 2.94 percent is nearly 95 basis points better than comparable yield on the S&P 500 and looks downright tempting when considering the negative yields on Eurozone debt. Importantly, French dividends are growing.

“2016 is shaping up to be another strong year for French income investors as the aggregate dividends paid by the CAC 40 over FY 2016 is set to rise by 6% compared to the previous year. This strong rise means that ordinary dividends payments made by the country’s large cap stocks will rise above the €45bn mark,” according to Markit.

The $297.2 million EWQ tracks the MSCI France Index, not the CAC 40, but many of the blue chip large caps that reside in the benchmark French equity index also reside in EWQ, including New York-listed names such as oil giant Total SA (NYSE: SA) and pharmaceuticals maker Sanofi SA (NYSE: SNY). Those are EWQ's top two holdings, combining for 16 percent of the ETF's weight.

Interestingly, French dividends are growing even as the major banks there keep payouts flat this year.

“All three CAC constituent banks, BNP, Societe Generale and Credit Agricole all boosted their payments by over 50% in the last fiscal year, but the current low interest environment and coupled with new capital constraints means that all three firms are forecasted to pay flat dividends in the FY 2016,” notes Markit.

Financials are EWQ's third-largest sector allocation behind industrial and consumer discretionary names. BNP, Societe Generale and Credit Agricole combine for about 7.6 percent of the ETF's weight with only BNP being a top 10 holding in the fund.

Automotive names such as Michelin, Renault and Valeo are leading French dividend growth. That trio combines for four percent of EWQ's lineup.


Thursday, September 29, 2016 - 4:12pm
Public Domain

Barclays examined the possibility of a tie-up between Time Warner Inc (NYSE: TWX) and AT&T Inc. (NYSE: T) following the reports of a potential merger between CBS Corporation (NYSE: CBS) and Viacom, Inc. (NYSE: VIAB).

Aside from that, Walt Disney Co (NYSE: DIS) was rumored to have shown interest in Twitter Inc (NYSE: TWTR), triggering wide-spread consolidation chatter in the cable, media and telecom sectors.

Related Link: Sell-Side Sentiment On Twitter Following Buyout Chatter Has Not Been Positive

Barclays Take

Analysts Kannan Venkateshwar and Amir Rozwandowski see any possible integration between Time Warner and AT&T could provide industry scale immediately. They pointed out that the management admitted economic severity contributing higher value proposition in offering differentiated content to the market.

In a research note, the brokerage said, "While we currently believe the carrier has its plate full (i.e. DTV/Mexico integration, OTT launch, etc.), over time we could see the value proposition provided by moving into the content arena."

Barclays does not expect any incremental financial gains from the speculated combination of Time Warner and AT&T, although speculations are rife on the industrial logic that is similar to Comcast Corporation (NASDAQ: CMCSA)–NBCU in hindsight.

Therefore, the brokerage found it tough to see any favorable financial gains on a standalone basis. As such, there should be some competitive necessities and revenue synergies pointing out that gains would not like to accrue immediately.

At Time Of Writing ...

  • AT&T closed down 0.29 percent at $40.73.
  • CBS closed up 0.78 percent at $54.57.
  • Comcast closed down 0.64 percent at $66.25.
  • Disney closed down 0.43 percent at $91.80.
  • Time Warner closed up 0.06 percent at $78.61.
  • Twitter closed up 0.22 percent at $23.01.
  • Viacom closed up 3.31 percent at $37.77.

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Thursday, September 29, 2016 - 4:08pm

Argus said it likes Sun Life Financial Inc's (NYSE: SLF) relatively low investment exposure to the energy sector. The firm noted that the company reported strong second quarter results despite low interest rates and declining stock prices hurting its investment portfolio.

Fundamentals

Argus highlighted the company's strong balance sheet and its above-peer 3.8 percent dividend yield. Currency repatriation and turbulence at its investment holdings could render the earnings volatile, according to the firm. However, higher dividend yield can have an offsetting effect.

Argus noted improvement in Asia and the U.S. and its asset management business.

Valuation High But Justified

The firm noted that its target price of $37 assumes a multiple of 10.4 times its 2017 earnings per share estimate, which is above the multiples of its peer group. However, the firm said the higher valuation is justified, given Sun Life's industry-leading return on equity, operating revenue growth and expanding global operations.

The firm also believes the recent weakness could prompt the management to announce additional buybacks.


Thursday, September 29, 2016 - 4:03pm

Although Pier 1 Imports Inc (NYSE: PIR) shares are trading higher by around 5 percent after reporting Q2 results, UBS maintained a Sell rating and $3.50 price target.

Analyst Michael Lasser cited low velocity in outdoor furniture sales and low e-commerce sales growth as key reasons for the rating. The company saw a 10 percent increase in e-commerce sales for the second consecutive quarter this year, according to the analyst.

Pier1 management claimed improved comp in August and September, but Lasser attributes this to the retailer's gift registry launch and expanded loyalty program.

"The outstanding question is will this be enough to make a sustainable difference, especially as it gets into what should be a very competitive holiday," asked Lasser. "Our view is it faces an uphill battle."

Contributing to this "uphill battle" will be high marketing expenses and a "complicated" real estate situation, according to the analyst.


Thursday, September 29, 2016 - 3:59pm
Public Domain

Small-cap stocks and exchange-traded funds are often thought as destinations for investors seeking growth. With that can come added volatility and making that trade-off all the more the difficult is that small caps are usually a low-yielding corner of the equity market.

Add to that, if U.S. small-caps have a reputation for volatility, then many investors often view international small stocks as being even more volatile than the U.S. equivalents. Fortunately, the WisdomTree Intl. SmallCap Div Fd. (ETF) (NYSE: DLS) can change the way investors think about small caps, dividends and volatility.

A New Way Of Thinking

DLS currently sports a distribution yield of 2.53 percent, or 110 basis points more than the trailing 12-month dividend on the widely followed Russell 2000. Plus, DLS defies the notion that international small caps have to be a risky asset class. Actually, data suggest U.S. small caps are more volatile than their international peers.

Related Link: Trim Tabs Float Shrink ETF Is Reborn

“One reason for this is that international companies tend to be predominantly dividend payers compared to the Russell 2000, in which almost 20 percent of companies tend to be unprofitable and nearly half the companies tend to be non-dividend payers,” said WisdomTree Research Director Jeremy Schwartz in a recent note.

The major country exposures in DLS reflect the ETF's less volatile spin. Japan, the U.K. and Australia combine for about 56 percent of the ETF's weight and there is only scant emerging markets exposure among the 23 countries represented in DLS.

In the essence of portfolio diversity, DLS can be paired with a Russell 2000 fund with impressive long-term results and lower volatility.

The Power Of Diversification

“Interestingly, showing the principles of diversification, a 50/50 approach of developed international small caps combined with the Russell 2000 and rebalanced annually back to the 50/50 allocation delivered a risk level that was almost as low as the international small-cap dividend payers and substantially lower than the volatility of U.S. small caps on their own,” added Schwartz.

The $1.1 billion DLS, which recently celebrated its tenth anniversary, has been 420 basis points less volatile than the Russell 2000 since coming to market. Over that time, DLS has also outperformed the MSCI EAFE Index by an almost 3-to-1 margin while being 350 basis points less volatile, indicating that investors would have been more rewarded with small-cap developed markets dividend payers than with large-cap developed markets names.

Industrial, consumer discretionary and financial services stocks combine for almost two-thirds of the sector lineup in DLS.

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