Today - Tuesday, October 6, 2015
- Unit Corp. (UNT +31.2%) skyrockets after raising its 2015 production growth guidance for its oil and natural gas segment, now expecting growth of 6%-8% for this year compared with prior projections of 2%-4% growth.
- UNT expects its 2015 capex will come in ~$30M less than originally budgeted, with the reduction primarily attributable to its oil and natural gas segment.
- Also, UNT says its new borrowing base following a semi-annual redetermination under its credit agreement is $550M, which remains above the company's elected commitment of $500M.
- "Kudos to Trian for timing in acquiring their position in General Electric (GE +2%)," writes The Institutional View's Andrew Addison, noting the fund's average cost is about $25.50 per share.
- Addison expects Nelson Peltz and team to support Jeff Immelt's efforts to continue streamlining operations and buy back stock. He notes Peltz' year-end 2017 valuation of $40-$45 is the same as his (Peltz' valuation was arrived an fundamentally, Addison's technically).
- Dips should be bought, says Addison.
- Previously: Trian Fund Management takes $2.5B stake in GE (Oct. 5)
- "We believe that KCAP Financial (NASDAQ:KCAP) is not well understood by investors and KCAP shares are materially undervalued," says DG Capital Management, disclosing a 3.1% stake in the company, and urging the board to consider a sale of the company, or a sale of certain assets to raise cash with which to buy back stock.
- "We believe that a sale of the entire business to another Business Development Company ("BDC") would likely yield the highest return for shareholders," says DG.
- Up more than 5% on the news earlier today, KCAP is now ahead 2.1% for the session.
- Exterran Holdings (EXH +13.2%) soars after securing financing for the proposed separation of its international contract operations, aftermarket services and fabrication businesses into a standalone company.
- As a result, EXH says it now expects the spinoff of Exterran Corp. will take place in Q4; the spinoff company has applied to list its common stock on the NYSE under the symbol EXTN.
- Exterran says it amended its credit to provide an additional $175M revolving credit facility and has transferred a number of subsidiaries to Archrock to finance the transaction; once completed, EXH will be renamed Archrock and trade on the NYSE under the symbol AROC.
- Oil prices are continuing a recent rally after the EIA forecast global oil demand will see the most growth in 6 years in 2016, and that non-OPEC supply growth will stall. The agency also estimated U.S. crude production fell by 120K barrels/day in September. WTI crude is up 3.8% to $48.01/barrel.
- Seismic equipment and data-processing services provider Ion Geophysical (NYSE:IO), whose shares have plunged into penny stock territory, is posting big gains. Peer Geospace Technologies (NASDAQ:GEOS) is also doing well.
- Marvell (MRVL +3%) and Exar (EXAR +4.2%) are rallying after Skyworks announced a $2B deal to buy PMC-Sierra. Marvell competes against PMC in the storage controller IC and network processor markets; Exar does so in the telecom IC market.
- Marvell has already been the subject of some M&A rumors as the chip industry continues consolidating. Light Reading reported in July Avago is thinking of buying Marvell after digesting (Marvell rival) Broadcom. The company's recent decision to launch major job cuts at its money-losing mobile baseband chip unit could make it more appealing to a would-be suitor.
- Shipping stocks are putting in some gains with dry bulk and gas/oil transportation companies participating in the rally.
- 28 out of the 35 stocks listed in the broad shipping category are higher. The catch-all Guggenheim Shipping ETF (NYSEARCA:SEA) is up 1.0%.
- Brisk stock market gains in Asia this week have helped sentiment, while a spike in crude oil prices won't go unnoticed. The bigger issue for the long-term will be the delicate balance between shipping/tankers supply and demand.
- Leading sector movers are Navios Maritime Partners (NMM +6.2%), Dorian (LPG +4.8%), Teekay (TK +4.2%), Navigator Holdings (NVGS +4.5%), Diana Shipping (DSX +3.2%), and GasLog Partners (GLOP +4.8%).
- Westport Innovations (WPRT +6%) says the new ISL G Near Zero NOx natural gas engine, created through its joint venture with Cummins (CMI +0.9%), has become the first MidRange engine in North America to receive emission certifications from both the U.S. EPA and California's Air Resources Board to meet Near Zero NOx Emissions standards for medium-duty truck, urban bus, school bus and refuse applications.
- The venture says exhaust emissions will be 90% lower than the current EPA NOx limit of 0.2 g/bhp-hr and meets 2017 EPA greenhouse gas emission requirements.
- Skyworks (NASDAQ:SWKS) has tumbled towards $75 after announcing it's buying storage and telecom IC vendor PMC-Sierra (NASDAQ:PMCS) for $2B in cash on hand. (PR)
- Fellow RF chipmaker Avago (AVGO -6.7%), which (thanks to the LSI acquisition) competes against PMC-Sierra in the storage controller market, is also off, as is merger partner Broadcom (BRCM -3.2%), which competes against PMC to an extent in the telecom IC and network processor markets. RF peer Qorvo (QRVO -3.3%) is also getting hit. The Nasdaq is down 1.2%.
- Possibly hurting the group: Skyworks has used the PMC deal to announce it expects FQ4 (calendar Q3) revenue of $880M and EPS of $1.52. That's slightly above prior guidance of $875M and $1.51 and a consensus of $876M and $1.51, but expectations have been high following a long string of beat-and-raise quarters.
- The PMC acquisition expands Skyworks' reach to a slew of non-RF chip markets and enterprise/telecom infrastructure end-markets. It's expected to yield $75M in cost synergies within 12 months of closing (expected in 1H16), and subsequently boost Skyworks' annual EPS by $0.75. Assuming that target is hit, Skyworks is paying 14x forward EPS.
- Update (1:04PM ET): BofA/Merrill is defending Skyworks and Avago, arguing forward P/Es of less than 10 make shares very cheap.
- Chevron (CVX +2.7%) could enjoy "a step forward" in its Q3 results vs. other oil majors such as Exxon Mobil (XOM +1.4%), ConocoPhillips (COP +2.9%) and Canadian Natural Resources (CNQ +4%) that are likely to muddle through another tough quarter for earnings, free cash flow and leverage creep, J.P. Morgan's Phil Gresh writes.
- The analyst sees an opportunity for CVX to take a step forward with rebuilding investor confidence around the long-term cost reduction and dividend coverage story, although the real uplift will have to come with an on-time Gorgon startup, which is still slated for Q1 2016; he rates the stock as Overweight.
- JPM has lowered its 2016-18 EPS estimates for natural gas prices in North America and Europe, which now show limited potential for recovery over the next few years and are considered most impactful for Neutral-rated XOM and CNQ and Underweight-rated COP.
- Investors send FreeportMcMoRan’s (FCX +4.8%) stock surging after the company said it is considering new alternatives for its oil and gas business and that it is slimming down its board to nine members from 16.
- Analysts such as Cowen's Anthony Rizzuto praise the strategic move to refocus on the copper business as "a much needed step in the right direction,” but Citigroup's Brian Yu maintains a Neutral rating, saying that if FCX successfully spins off the oil and gas business it would help the company’s future free cash flow but would not help the overall debt burden.
- The timing of FCX’s strategic review could indicate the company and its board may use it to fend off Carl Icahn if he were to run a proxy context, but it is not clear whether investors will see the moves, combined with a recently announced cost cutting effort, as sufficient action to fix FCX’s woes.
- The energy sector is the strongest group in early trading, outperforming a negative S&P 500, as crude oil rallies to five-week highs following comments by OPEC chief Abdalla Salem el-Badri anticipating big cuts to oil investments that are expected to ease production and draw down global crude supplies.
- There will be “less supply in the very near future. Less supply means high prices,” the secretary general says.
- In a new report, the Energy Information Administration estimates that crude production was 120K bbl/day lower in September than in August and expects output to continue to decline through next August.
- Also, Royal Dutch Shell's CEO says he sees the first signs of a recovery in oil prices.
- WTI crude +3.9% to $48.08/bbl, and Brent crude +4.5% to $51.46.
- ETFs: USO, OIL, XLE, UCO, UWTI, VDE, ERX, OIH, SCO, XOP, BNO, DBO, DWTI, ERY, DIG, DTO, DUG, BGR, USL, XES, IYE, IEO, IEZ, DNO, FENY, PXE, PXI, FIF, PXJ, DBE, OLO, SZO, NDP, RYE, RJN, FXN, OLEM, DDG, JJE, ONG, UBN
- Pengrowth Energy (PGH +10.3%) agrees to sell its non-core Bodo property in eastern Alberta to an unnamed buyer for $95M, which will be used to reduce the company’s debt.
- The Bodo property produced 2.7K boe/day on average for first eight months of 2015, but PGH says it still expects to produce 70K-72K boe/day for the full year.
- PGH says the sale brings its total asset sales and committed sales for 2015 to $260M, and it expects to achieve its $600M target in dispositions of non-core assets for the year.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) continues to push back against critics, saying that in the event of rating downgrade, the ratings' grid in its $6.8B five-year revolving credit facility would provide only a "modest" additional margin step-up.
- Glencore also says it has $4.5B of bonds outstanding, where a margin step-up of 125 basis points would apply if they were rated sub-investment grade by the agencies.
- Meanwhile, Investec is not backing off its gloomy view that recently helped to hammer Glencore shares, saying the company blames everyone else for its woes; yesterday, Glencore urged rivals to shut loss-making mines and blamed hedge funds for wilting commodities prices.
- Shares continue their roller-coaster ride in London trading, falling as much as 8% earlier but now +2.3% to its highest level in two weeks.
- Arguing the growing pace and sophistication of corporate data breaches will act as a tailwind, Sidoti's Stan Berenshteyn has launched coverage on Vasco (NASDAQ:VDSI) with a Buy rating and $34 target.
- Berenshteyn also likes Vasco's low tax rate and balance sheet/cash flow profile. His launch comes a day after the authentication hardware/software provider named a new CFO.
- Shares still -34% YTD. They go for nearly 19x a 2016 EPS consensus of $1.00.
- DuPont (DD +12%) bursts out of the gate to lead all Dow advancers in early trading following yesterday's news after the close that CEO Ellen Kullman would retire amid a reduced outlook for the year and an accelerated plan to cut expenses.
- The board probably pushed Kullman out because of the failure to meet predicted profit, says Suntrust analyst Jim Sheehan, adding "They clearly needed a sacrificial lamb. You wouldn’t have a CEO step aside with only a couple weeks notice without a successor in place unless it was unplanned."
- Deutsche Bank analyst David Begleiter thinks a breakup of DuPont is highly likely following Kullman's departure, noting that interim DuPont CEO Ed Breen as CEO of Tyco broke up the company twice.
- Begleiter believes a separation into an agriculture, nutrition and biosciences company and a chemical and materials company would unlock substantial shareholder value, and reiterates his Buying rating with a sum-of-the-parts analysis yielding a value of $67/share vs. yesterday's closing share price of ~$51.
- Tata Motors (NYSE:TTM) rose sharply in Bombay trading today to cap off its biggest two-day move in over two years.
- The company's Jaguar Land Rover business reported strong sales earlier this week, and Tata is seen as a potential M&A player in the post-Volkswagen scandal shakeup.
- The U.S. Tata ADRs are up 2.88% to $25.37.
- Previously: Tata Motors breaks out (Oct. 05 2015)
- Saudi Aramco has hired Deutsche Bank to explore the potential purchase of some marketing, retail and refining assets of China National Petroleum (PTR +2.2%), Bloomberg reports.
- The deal could be worth several billion dollars, although talks are at an early stage and may fail, according to the report.
- Saudi Aramco has said it wants to make inroads into more advanced chemicals to diversify away from its oil and basic petrochemicals businesses.
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