Updated: 09-25-2017

Quotes at time of story, top stories today: 03:29PM | 12:17PM | 11:19AM | 09:58AM | 09:51AM | 09:44AM | 09:27AM

03:29PM ET
Red Hat will report earnings after the bell

Red Hat (RHT) will report second quarter results after the bell (usually at 16:15) and host a call at 17:00.

Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to provide reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies.

Red Hat guided for second quarter non-GAAP EPS of $0.67 (versus $0.55 last year) on revenue of $595-702 million.

Analysts expect billings (revenue plus the change in deferred revenue) to come in near $660 million. Analysts expect another strong quarter and the stock seems to reflect that, trading within a few percent of its all-time highs.

Red Hat will also update FY18 guidance, which currently calls for non-GAAP EPS of $2.66-2.70 on revenue of $2.785-2.825 bln (+17%).

The stock is up ~50% since the company missed 3Q17 sales estimates due to some large Federal contracts being delayed in December of last year (the CFO also departed). The last two quarters came in better than expected.

With a nearly $19 billion market capitalization, Red Hat trades at 6.5x sales estimates or just under 40x adjusted earnings estimates.

12:17PM ET
Looking Ahead - September 26, 2017 - New Home Sales

There wasn't any U.S. economic data of note on Monday, but there will be on Tuesday, which features the release of the New Home Sales report for August.

New Home Sales Report for August (Tuesday, September 26, at 10:00 a.m. ET)

  • Why it's important
    • While new home sales account for a relatively small portion of total home sales, there is some economic value in this report as new home sales (reported when a contract is signed) are seen as a leading indicator for the economy
      • Note: Existing home sales are counted when the sale of the property actually closes
    • New home sales activity contributes to investor expectations for homebuilding companies
    • New home construction creates jobs and spending on building materials, so the report offers some insight on the potential multiplier effect of new home construction
    • Market participants are anxious to see if new home demand is accelerating given the lack of available inventory of existing homes for sale, improved labor market conditions, and relatively low mortgage rates
    • Hurricane Harvey likely had some modest impact on new home sales in the South in August, yet the full force of its impact (and Irma's) won't be seen until the September report
    • New home sales in July were at a seasonally adjusted annual rate of 571,000, down 9.4% from June and down 8.9% from the same period a year ago
      • The West region saw a surprisingly large 21.3% decline in new home sales in July, so a rebound there is expected to be a driver of better overall numbers in August

  • A closer look

    The Numbers:

    Tues, Sept. 26 Time of Release Briefing.com Consensus Prior
    New Home Sales 10:00 ET 577K 571K

   

  • What's in play?

    • Homebuilding Stocks
      • Toll Brothers (TOL)
      • Pulte Homes (PHM)
      • Lennar Corp (LEN)
      • Ryland Group (RYL)
      • NVR Corp (NVR)
      • DR Horton (DHI)
      • Hovnanian (HOV)
      • KB Home (KBH)
      • Standard Pacific (SPF)
      • Beazer Homes (BZH)
      • CalAtlantic Group (CAA)
      • TRI Pointe Group (TPH)

    • Homebuilding ETFs
      • iShares U.S. Home Construction (ITB)
      • SPDR S&P Homebuilders ETF (XHB)

    • Home improvement retailers
      • Home Depot (HD)
      • Lowe's (LOW)

    • Consumer Discretionary Select Sector SPDR (XLY)

11:19AM ET
Circor nabs Fluid Handling business from CFX for about $855 mln in cash, shares

Circor (CIR 53.65, +2.38 +4.64%) stands up a bit today following news out this morning that the company would acquire Colfax's (CFX 42.45, -0.29 -0.68%) Fluid Handling business for about $855 million including cash, newly issued CIR shares, and the assumption of pension plan liabilities linked to the CFH business.

CIR announced it signed a definitive agreement to acquire Colfax Fluid Handling (CFH) from CFX for about $855 million including cash, newly issued CIR shares, and the assumption of pension plan liabilities linked to the CFH business. The deal will expand CIRCOR's product and service offering while strengthening its position as a leading provider of flow control solutions. The combination results in estimated pro forma combined revenues of about $1.1 billion based on the trailing 12 month results as of June 2017.

Under the terms of the agreement, CIR will pay $542 million in cash, issue about 3.3 million new CIR shares to CFX representing about $163 million in value, and assume global pension plans with a net liability of $150 million on a pre-tax basis. Upon closing of the transaction, CFX will own about 16% of CIR. CFX has agreed to certain restrictions on the transfer of shares, including a six month lock-up.

The deal is validated by CIR's expectations to realize cost synergies of $23 million by the fourth year following the transaction close, primarily driven by improved supply chain efficiency, SG&A cost reductions, and manufacturing rationalization. The company also expects to incur about $10 million in one-time costs to achieve these synergies. Further, the deal is expected to be accretive to CIR's cash EPS and adjusted operating margins in the first year following close, with additional margin expansion and long-term EPS growth going forward as synergies are realized.

Lastly, in connection with the transaction announcement, CIR also reaffirmed its Q3 Net Revenue and Adjusted EPS guidance originally announced on July 28, 2017. The company will announce Q3 results on October 27, 2017. 

09:58AM ET
Target Raising Minimum Wage; Reiterates Guidance

Retailer Target (TGT 58.63, -0.36, -0.6%) announced some good news for its employees today, which in turn should generate some good P.R. for the company.  That good news is an increase in its minimum hourly wage for all team members to $11.00 in October, and a commitment to getting its minimum hourly wage to $15.00 by the end of 2020.

The good news for shareholders is that Target still expects to meet its third quarter and full-year adjusted earnings guidance despite the pay increase, which will also be applicable to the more than 100,000 hourly employees hired for the holidays season.

The new pay policy means Target's minimum hourly wage is higher than the minimum hourly wage in 48 states and comparable to what has been adopted in the states of Massachusetts and Washington.

Target's adjusted earnings guidance ranges for the third quarter and full-year are relatively wide, so the question on investors' minds today is where Target's earnings will ultimately fall within those ranges, which are $0.75 to $0.95 for the third quarter and $4.34 to $4.54 for the full-year 2017.

The retail environment is extremely competitive from a pricing standpoint, so it seems that Target will either have to cut costs elsewhere, sell more higher-margin products, or see stronger-than-expected sales activity to be in the upper end of its guidance ranges, which presumably did not incorporate the pay increase when it was provided in mid-August.

Target reiterated that it expects comparable sales growth in the third and fourth quarters to be similar to what it experienced in the first and second quarters and that its full-year comparable sales will be in a range around flat, plus or minus 1 percent.

Shares of TGT are down 19% year-to-date after having made a 21% move off their June low.  The early response from shareholders to the company's hourly wage announcement has been tepid at best.

09:51AM ET
Genuine Parts trades up on deal to buy AAG; gives them good scale in Europe

Genuine Parts (GPC) is trading sharply higher this morning (+7%) after announcing it will acquire Alliance Automotive Group from private equity funds managed by Blackstone and AAG's co-founders. The acquisition is valued at a total purchase price of approximately US$2 billion, including the repayment of AAG's outstanding debt upon closing.

In terms of quick background, Genuine Parts is an Atlanta-based distributor of automotive replacement parts in the US, Canada, Mexico and Australasia. Its Automotive Parts Group includes NAPA automotive parts distribution centers and automotive parts stores. The company also distributes industrial replacement parts through its Motion Industries subsidiary. SP Richards, the Office Products Group, distributes business products in the US and Canada. The Electrical/Electronic Group, EIS, distributes electrical and electronic components throughout the US, Canada and Mexico.

Alliance Automotive Group is the second largest parts distribution platform in Europe, with a focus on light vehicle and commercial vehicle replacement parts. Headquartered in London, AAG has 7,500 employees and over 1,800 company-owned stores and affiliated outlets across France, the U.K. and Germany.

The deal has been approved by the Board of Directors of GPC and is expected to close in 4Q17. AAG is expected to generate gross annual billings of approximately $2.3 billion (US$) including supplier direct billings, or $1.7 billion of revenue on a US GAAP basis in 2017. Additionally, GPC expects the acquisition will be immediately accretive to earnings in the first year after closing. For 2018, incremental adjusted EPS is estimated at $0.65-0.70.

GPC says it's excited to combine with AAG and enter the European markets with critical scale and a leading market position in the automotive aftermarket. Lionel Assant, Head of European Private Equity at Blackstone, said, "Over the past three years, AAG has experienced tremendous growth and transformed into one of Europe's leading automotive parts distributors."

GPC intends to finance the transaction, including the pay-off of AAG's existing debt arrangements, with approximately $2 billion of debt financing. This will include the combination of new term loan agreements, new multi-currency debt and an upsized revolving credit facility.

In sum, based on the reaction in GPC's stock price, investors clearly happy with this news. The deal seems to make a lot of sense. GPC does not have a lot of exposure in Europe as it mostly operates in the Americas region. This instantly provides GPC was significant scale in Europe.

09:44AM ET
AZZ Slides After Guidance Cut

AZZ (AZZ 47.85, -3.10) has slid 6.1% after lowering its guidance for fiscal year 2018. Today's early decline leaves the stock, which is down 25.1% year-to-date, on track for its lowest close of the year.

The company, which provides galvanizing, welding solutions, specialty electrical equipment, and engineered services, announced that it expects full-year revenue to be between $825 million and $885 million, down from previous guidance for sales between $880 million and $950 million. The company also lowered its bottom-line guidance, expecting earnings between $1.80 and $2.30 per share, down from previous expectations for earnings between $2.60 and $3.10 per share.

AZZ's guidance reduction was impacted by a series of factors. Hurricanes Harvey and Irma were a negative for the company's refinery turnaround efforts while the closure of the VC Summer Nuclear Project and fallout from the Westinghouse nuclear bankruptcy weighed on conditions in the U.S. nuclear market. Furthermore, the company saw lower than expected electric utility spending in Saudi Arabia.

The company expects to see a rebound in activity during the early portion of next year. The company is looking to improve margins and competitiveness of its two business segments. The integration of recently-acquired Enhanced Powder Coating and Powergrid Systems is going as expected.

The company will release its full earnings report ahead of the opening bell on October 3, 2017.

09:27AM ET
The Week Ahead for the IPO Market

The IPO market sprung back to life last week with six deals pricing. While the volume of deals has finally picked up, it has been quite a while since the IPO market has had a true "headliner". That will change this week as Roku (ROKU), the leader in TV streaming, launches its IPO. Given that it is a widely-recognized name, and, that its growth has been quite strong, we'd expect there to be plenty of buzz and interest surrounding its IPO.


Monday, September 25:

  • No IPOs expected.

Tuesday, September 26:

  • No IPOs expected.

Wednesday, September 27:

  • RYB Education: The largest early childhood education service provider in China is expected to price its 7.8 million share IPO within a range of $16-$18.

Thursday, September 28:

  • Roku (ROKU): The provider of streaming TV services is expected to price its 15.7 million share IPO within a range of $12-$14.
  • NuCana (NCNA): The clinical stage biopharmaceutical focused on cancer therapies using is ProTide technology is expected to price its 6.7 million share IPO within a range of $14-$16.
  • Deciphera Pharmaceuticals (DCPH): The Clinical stage biopharmaceutical developing drugs for the treatment of cancer is expected to price its 6.3 million share IPO within a range of $15-$17.

Friday, September 29:

  • PQ Group (PQG): The provider of catalysts, specialty materials, and chemicals is expected to price its 29.0 million share IPO within a range of $21-$23.

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