Everyone will be talking about the Vice Presidential Debate that took place last night. It was a good debate with no clear winner - both men appear ready and able should anything happen to the men at the top of their respective tickets. We think that the market does not react to this debate in a big way and would instead focus on the economic news today. Asian markets are higher, but European markets are lower this morning. Look to hear more news out regarding the US wireless market in the days and weeks ahead while also looking to see if some of our oil plays can close on their asset sales and/or joint ventures.
We have economic news out today, it is as follows (data set - consensus).
- PPI - 0.8%
- Core PPI - 0.2%
- Mich Sentiment - 78.5
- Treasury Budget - $75.0B
Looking at Asian markets we see markets are mostly higher:
- All Ordinaries - up 0.11%
- Shanghai Composite - up 0.10%
- Nikkei 225 - down 0.15%
- NZSE 50 - up 0.34%
- Seoul Composite - up 0.01%
In Europe markets are lower:
- CAC 40 - down 0.53%
- DAX - down 0.38%
- FTSE 100 - down 0.25%
- OSE - down 0.23%
The big news yesterday was that Sprint (S) was in talks to effectively sell most of the company to Japan's Softbank. Although no deal has been reached, it is believed that the structure of the deal would have Softbank buy shares from Sprint in order to inject capital into the company while also doing a tender offer to buy shares from current holders of Sprint shares. This would give Sprint the financial backing to simultaneously build out their network, buy other carriers and shore up the balance sheet. Investors cheered the news pushing Sprint shares up by $0.72 (14.29%) to close at $5.76 on volume of 517 million shares. For those who had been buying around the $5/share level where we have recommended going long in the past, yesterday was not a bad day at all for your holdings.
The big winner from any potential deal would most certainly be Clearwire (CLWR) and investors know it based off of yesterday's price action. Clearwire rose $0.92 (70.77%) to close at $2.22/share on volume of 170.4 million shares as investors bet that any deal where Sprint would sell control of itself would lead to a deal of Sprint taking control of Clearwire and their spectrum. It was only a few weeks ago that we wrote that a buyout of Clearwire by Sprint did not seem likely which now appears off base, but the reality of the matter is that this deal makes it possible as it ads financial heft and would offset the additional debt load any purchase of Clearwire would add to the balance sheet. Today might be a day of selling as investors take profits, but looking ahead it appears that there will be consolidation within the industry and the rise of a third option of significance in the US cellular market.
DragonWave (DRWI) could also benefit from any deal which would involve Clearwire and/or allow them to continue their nationwide buildout of next generation technology as DragonWave is a big supplier for that network. The company has missed many of their goals due to Clearwire's slowing of their network build out which was caused by financial issues, but if Softbank is going to inject capital into Sprint, we should see a 'trickle down effect' in the industry as Sprint chooses how it is going to add heft to take on the big boys in the industry. DragonWave is further down the line than other names for those who would benefit, but shares reacted favorably to the news closing at $2.45/share after rising $0.25 (11.36%) on volume of 1.4 million shares.
We have been bearish of shares of JC Penney (JCP) for some time now due to a constantly changing business plan and what we view as a lack of execution. They moved to an entirely different approach to pricing without fully educating the customer base and this is what in a way led to yesterday's rise. We think it would be wise to sell into yesterday's rally as it was based on the company simply sending out a coupon to get people back into the stores. It looks like another change in direction for the company and we seriously wonder if Mr. Johnson is winging it as he goes. With shares rising $2.03 (8.41%) and closing at $26.18/share we think it wise to sell now before the shares are discounted anymore - that seems to be the prudent move here.
One of yesterday's losers was Dollar Tree (DLTR) as the company said that their third quarter revenue would be disappointing. Shares immediately trended lower with shares falling $3.63 (7.74%) to close at $43.28/share with volume spiking at 16.2 million shares. The stock was also downgraded by Piper Jaffray to Neutral from Overweight. It has been a great run for the dollar stores and they have most certainly benefited from the economic malaise of the past few years, but the bigger stores seem to be turning the corner and being able to better compete against these smaller players so it shall be interesting to see how well these guys can compete moving forward.