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Over the weekend, aerospace and defense giant General Dynamics Corp. (NYSE: GD) announced that it intends to proceed with its tender offer to acquire all outstanding shares of defense contractor and IT company CSRA Inc. (NYSE: CSRA) for $40.75 per share in cash.
General Dynamics announced its intention to acquire CSRA in February, but the latest announcement comes in response to a CACI International Inc. (NYSE: CACI) unsolicited offer proposing to acquire CSRA for $44.00 per share in cash and stock. The proposed merger “would unite two businesses with long-term customer relationships, complementary capabilities and substantial presence in high-growth markets,” according to CACI. And it “would further capitalize on this opportunity for growth, amplifying both CACI’s and CSRA’s position in key market areas and improving the value proposition and customer footprint.”
General Dynamics offered the following reasons why its bid for CSRA is the superior one:
We believe the nominal price of CACI’s offer to CSRA overstates the real value to the CSRA shareholders and understates the risk attendant to it.
CACI’s offer is comprised of $15.00 per share of cash, less than 35 percent of the purported value.
Over 65 percent of CACI’s proposed consideration consists of a fixed exchange ratio of CACI stock, which is subject to daily market fluctuations and an estimated four-month delay at a minimum before its real value can be ascertained with certainty.
CACI’s nominal $44.00 per share offer depends upon the all-time closing high share price of CACI’s volatile common stock.
We believe that CACI’s proposal would burden the resulting entity with approximately $6.8 billion of debt, which would result in leverage of approximately 5.7x debt to EBITDA, one of the highest in the Government Technology Services sector.
CACI’s proposed offer would appear to be approximately 25 percent dilutive to CACI’s GAAP earnings on a pro forma basis pre-synergies and also dilutive to CACI’s GAAP earnings on a pro forma basis even assuming the elevated level of CACI’s estimated cost synergies.
CACI’s estimated synergies are, we believe, aggressive at best.
With CSRA shareholders owning 55 percent of the combined company, CSRA will bear the burden of 55 percent of the termination fee payable to General Dynamics as well as 55 percent of the transaction expenses, which we estimate for CSRA alone at a total potential after-tax cost of approximately $0.66 per share for each CSRA share. Assuming CACI’s transaction expenses approximate CSRA’s, the estimated total potential after-tax cost could be approximately $0.82 per share for each CSRA share.
Based on CACI’s statement that it could close the acquisition of CSRA by July 31, 2018, the time value of money for an investor between early April and the closing of a CACI/CSRA combination would represent a significant opportunity cost.
Using the average trading price of CACI’s stock over the past 30 trading days and taking into account the 55 percent of the transaction expenses and termination fee to be borne by the CSRA shareholders and the time value of money opportunity cost due to the significant delay in the closing of a proposed CACI transaction, we estimate the value of CACI’s unsolicited offer to be less than the General Dynamics offer.
On this basis, we believe the CACI offer is inferior to our cash offer of $40.75 per share even prior to factoring in the significant market risk associated with a CACI transaction closing many months in the future with a fixed exchange ratio.
Merrill Lynch recently named General Dynamics one of its top alpha generation ideas for the rest of 2018. The stock is also on the Merrill Lynch US 1 list of high-conviction picks. Alpha generating stocks make good sense for long-term growth accounts that can buy good ideas and put them away for a reasonably long time.
A few other analysts have chimed in on General Dynamics recently:
Cowen reiterated an Outperform rating and has a $253 price target.
Morgan Stanley has an Underweight rating and a $225 price target.
RBC has an Outperform rating and a $267 price target.
Credit Suisse has an Outperform rating too and boosted its price target to $262.
Argus has a Buy rating with a $250 price target.
Shares of General Dynamics were last seen at $222.74, in a 52-week trading range of $183.72 to $230.00. The stock was inactive in Monday’s premarket.
CSRA shares were up 2.7% to $41.74 in premarket trading, a new 52-week high if it holds. The 52-week low is $27.38.
CACI ended trading last week at $157.45 a share, and it also was quiet in the premarket.
Stocks have been trading mixed for the better part of two weeks now, and the major indices were looking for direction on Friday. The bull market is now over nine years old, and investors still are considering how they want to be positioned for the rest of 2018 and beyond. One trend that has kept working is for investors to buy all the big pullbacks.
24/7 Wall St. reviews dozens of analyst research reports each day of the week to find new ideas for investors and traders alike. Some analyst and research reports cover stocks to buy. Others cover stocks to sell or to avoid.
Additional color and commentary has been added on most of the daily analyst reports. The consensus analyst price targets and other valuation metrics are from the Thomson Reuters sell-side research service.
These were the top analyst upgrades, downgrades and other research calls from Friday, March 16, 2018.
Bank of America Corp. (NYSE: BAC) was reiterated as Outperform and the price target was raised to $36 from $35 at Credit Suisse, with the firm raising earnings estimates in 2018 and 2019. Bank of America has a 52-week trading range of $22.07 to $33.05, and it has a consensus analyst target price of $34.62.
Broadcom Ltd. (NASDAQ: AVGO) was up 2.75% at $267.76 ahead of earnings and was last seen down 1.6% at $263.50 afterward. JPMorgan started coverage as Overweight with a $340 price target, and Wells Fargo started coverage as Market Perform. Broadcom has a 52-week range of $208.44 to $285.68.
Brookfield Infrastructure Partners L.P. (NYSE: BIP) was started with an Outperform rating at CIBC. Shares closed at $40.50 and have a 52-week range of $36.51 to $46.88.
Dominion Energy Inc. (NYSE: D) was downgraded to Neutral from Overweight at JPMorgan, and UBS downgraded it to Neutral from Buy. The shares closed down 3.1% at $71.24 on Thursday and were indicated down 0.7% at $70.75 on Friday.
Farmland Partners Inc. (NYSE: FPI) was downgraded to Neutral from Outperform and the $9 fair value estimate was maintained as Janney. The firm fears an expected global retaliation against tariffs with respect to U.S. exports of soybeans, corn, wheat and other agricultural products.
Intelsat S.A. (NYSE: I) was started with a Neutral rating and assigned a $4.80 price target (versus a $4.76 prior close) at Barclays. Intelsat has a 52-week range of $2.44 to $7.47 and a consensus price target of $3.44.
Netflix Inc. (NASDAQ: NFLX) was started with a Buy rating and assigned a $325 price target at Loop Capital. Netflix has a 52-week range of $138.66 to $333.98 and a consensus price target of $280.15.
NextEra Energy Partners L.P. (NYSE: NEP) was raised to Buy from Underperform with a $43 price objective (versus a $39.12 close) at Merrill Lynch, with the firm noting that it has a strong pipeline through 2022.
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egasystems Inc. (NASDAQ: PEGA) was reiterated as Outperform with a $73 price target (versus a $61.85 close) at Wedbush Securities. The firm says that Pegasystems is winning new customers and large contracts over major CRM vendors, and that it is really the only CRM major with capabilities in robotic automation.
Quality Realty Trust Inc. (NYSE: QTS) was raised to Buy from Neutral with a $45 price target (versus a $37.09 close) at Goldman Sachs.
Tenaris S.A. (NYSE: TS) was raised to Neutral from Sell at UBS. The stock closed down 1.4% at $35.01 on Thursday but was indicated up 1.7% at $35.61 on Friday. The 52-week range is $25.91 to $37.48, and the consensus price target is $35.63.
Thor Industries Inc. (NYSE: THO) was raised to Buy from Hold at Argus, with the independent research firm saying that the pullback has provided a favorable entry point for new investors. Thor closed down 1.7% at $120.74 on Thursday and was indicated up 1.9% at $123.10 on Friday morning, in a 52-week range of $87.96 to $161.48 and with a consensus target price of $164.67.
Twenty-First Century Fox Inc. (NASDAQ: FOXA) was started with a Buy rating and assigned a $43 price target (versus a $37.15 close) at Loop Capital. The 52-week range is $24.81 to $39.14, and the consensus price target is $40.91.
WellCare Health Plans (NYSE: WCG) was raised to Buy from Neutral and the price objective was raised to $240 from $236 (versus a $193.57 close) at Merrill Lynch. WellCare has a 52-week range of $136.23 to $221.75 and a consensus price target of $228.53.
Western Digital Corp. (NASDAQ: WDC) was raised to Outperform from Neutral and the price target was raised to $135 from $95 (versus a $102.23 close) at Robert W. Baird. Western Digital has a 52-week range of $71.38 to $104.60 and a consensus price target of $113.89.
Winnebago Industries Inc. (NYSE: WGO) was raised to Buy from Hold with a $54 price target (versus a $42.95 close) at SunTrust Robinson Humphrey. It has a 52-week range of $24.15 to $58.65, and the consensus price target is $57.86.
RBC Capital Markets has identified four potential technology buyout targets.
Deutsche Bank has five serious airline picks for upside ahead.
Robert W. Baird sees four top American restaurant destinations as attractive for investors’ appetites too.
You might not believe just how much March Madness is capturing in gambling dollars.
Thursday’s top analyst upgrades and downgrades were in shares of AON, Broadcom, Expedia, Exxon Mobil, Match, Mylan, Ocean Rig UDW, Signet, Transocean and many more.
The U.S. National Highway Traffic Safety Administration has begun an investigation into accidents of certain Hyundai and Kia cars. The accidents have allegedly caused several deaths and injuries. According to the safecar.gov website:
The Office of Defects Investigation (ODI) is currently aware of six crashes with significant collision related damage events involving Hyundai and Kia models where air bags failed to deploy in frontal crashes. Four such crashes involved model year (MY) 2011 Hyundai Sonatas and two others involved MY 2012 and MY 2013 Kia Fortes. The MY 2013 Forte crash occurred in Canada and the Forte was a Canadian market vehicle. ODI learned of two crashes via Vehicle Owner Questionnaires (VOQ) filed in 2015 and 2016, and all six crashes were reported via Early Warning Reporting submitted between 2012 and 2017. In total, the crashes resulted in four fatalities and six injuries.
On February 27, 2018, Hyundai filed a defect information report leading to NHTSA Recall No. 18V-137. Hyundai indicates that the DIR stemmed from post-collision inspections of the air bag control units (ACUs) showing that an electrical overstress condition (EOS) of an ACU electronic component occurred in three of the crashes, and that the fourth ACU is under evaluation for the same concern. Hyundai has not identified a remedy for this recall, and states that the cause of the EOS is being investigated with the ACU supplier, ZF-TRW. ODI’s current understanding is that the above Kia products also use similar ACUs supplied by ZF-TRW. Additionally, ODI is aware of a prior recall, 16V-688 where EOS appeared to be a root cause of air bag non-deployment in significant frontal crashes in certain Fiat Chrysler vehicles.
Under the investigation, ODI will evaluate the scope of Hyundai’s recall, confirm Kia’s use of the same or similar ZF-TRW ACU, review the root cause analysis of all involved parties, and review and evaluate pertinent vehicle and/or ACU factors that may be contributing to, or causing EOS failures. Additionally, ODI will determine if any other vehicle manufacturers used the same or similar ACUs, as supplied by ZF-TRW, and if so, evaluate whether the field experience of these vehicles indicates potentially related crash events.
The date of the notice is March 16
MARCH NEWSLETTER 4
GOVERNMENT INVESTIGATES HYUNDAI & KIA
With free two-day (or faster) shipping on millions of items, along with a host of other benefits, Amazon Prime offers plenty of generous membership time- and money-saving perks to offset the $99 annual fee.
However, the added convenience of a Prime membership can quickly lead to overspending. With one-click checkouts and the chance to have the item you want delivered within 48 hours, it's easy to be tempted to buy things on a whim, resulting in impulse spending.
Here are six simple strategies to help curb impulse buys on Amazon Prime.
1. Add your desired item to your wish list. While it's easy to buy an item with just one click, you can always click the "Add to List" button instead. That way, you can keep tabs on the items you want, and review it later. Plus, someone might use that wish list as a tool for selecting a gift for you at a future gift-giving occasion.
2. Delete your credit card information. While having your credit card information stored in Amazon is an added convenience, it's also opens the door to lots of impulsive buying. By deleting your credit card information from the site, you can make that impulse buying a little more challenging, take a few moments to really reflect on whether you need the item and avoid spending on a whim
3. Unsubscribe from deal alerts and sales emails. Amazon offers many different email subscription options featuring daily deals and special offers. These deal-focused alerts are often populated with items you don't need, but are dangled at enticing low prices. Resist the urge to buy products you don't need by unsubscribing from those emails.
4. Switch off one-click ordering. Another useful trick for moderating your purchases is to turn off the one-click purchasing option on the site. Go into your account settings, choose "1 Click Settings," and then choose to disable it. By turning off this option, you can reduce unplanned purchases. That gives you a little more time to reflect on the purchase before you commit to purchasing items that you might not really need.
5. Build a habit of conducting research and comparing prices. If you're going to buy something on Amazon, make it a requirement for yourself that you research the item elsewhere. Spend some time looking at other reviews, and evaluate whether it's an item that you need, weigh the cost-benefit of making the purchase and assess if it's worth its price.
6. Take advantage of free benefits. With Amazon Prime, members can enjoy lucrative perks beyond fast home delivery service. For example, you can enjoy free music and video streaming services and discounts on select family items, such as baby food and diapers. What's more, with Amazon's acquisition of Whole Foods, Prime members can also benefit from discounts on grocery purchases with an Amazon Prime Rewards Visa Card and reduced prices for select items. And in some cities like Atlanta and San Francisco, Amazon is offering complimentary delivery service for orders totaling at least $35 or up. So, make sure to seize upon freebies and price before overpaying for items and services included in your membership.
10 WAYS YOU’RE OVERSPENDING WITHOUT REALIZING IT
LARGE BUY BACK PROVISION
IN PURSUIT OF CSRA
DATA BREACHES UP
Ford recalls nearly 1.4 million cars, steering wheel can come loose 3 Hours Ago | 00:32
Ford is recalling nearly 1.4 million midsize cars in North America because the steering wheel can detach from the steering column and drivers could lose control.
The recall covers certain Ford Fusion and Lincoln MKZ cars from the 2014 through 2018 model years.
Ford says steering wheel bolts can loosen over time. The company says it knows of two crashes and one injury allegedly related to the problem.
Dealers will replace the bolts with longer ones that have more aggressive threads and a nylon patch to stop them from coming loose.
Just over 1.3 million cars in the U.S. are being recalled. The rest are in Canada and Mexico.
Ford is also recalling roughly 6,000 additional cars for a potential clutch pressure plate fracture that could pose a fire risk.
The vehicles affected in the second recall are 2013-16 Ford Focus with 1.0-liter Fox GTDI engines and B6 manual transmissions, and well as 2013-15 Ford Fusion with 1.6-liter Sigma GTDI engines and B6 manual transmissions.
Clarification: This story has been updated to clarify that Ford says two crashes and one injury are ALLEGEDLY related to the defect.
Adidas reported its most recent quarterly results before the markets opened on Wednesday. Overall, the company delivered solid results that culminated a year of impressive sales. However, one of the big takeaways from this report was shareholder return, which seems to be driving the stock even higher.
During the fourth quarter, Adidas revenues increased 19% on a currency-neutral basis, driven by a 22% increase at brand Adidas. This development reflects strong double-digit sales growth in the running, football and outdoor categories, as well as at Adidas Originals and Adidas neo.
Additionally, a mid-single-digit sales increase in the training category also contributed to this development. Revenues at the Reebok brand declined 1%, as double-digit increases in the running category as well as in Classics were more than offset by declines in the training category.
Looking ahead, Adidas expects sales to increase at a rate of around 10% on a currency-neutral basis in 2018. Currency-neutral revenues are projected to grow at double-digit rates in North America and Asia/Pacific, while currency-neutral sales in Western Europe and Latin America are forecast to improve at a mid-single-digit rate each. Currency-neutral revenues in Emerging Markets are expected to grow at a low-single-digit rate. Currency-neutral sales in Russia/CIS are projected to be flat.
As for the shareholder return, the company detailed in its release:
As a result of the strong operational and financial performance in 2017, the company’s strong financial position as well as Management’s confidence in adidas’ short- and long-term growth aspirations, the Executive and Supervisory Boards will recommend paying a dividend of € 2.60 per dividend-entitled share to shareholders at the Annual General Meeting on May 9, 2018. This represents an increase of 30% compared to the prior year dividend (2016: € 2.00) and a payout ratio of 37.1% (2016: 37.4%) of net income from continuing operations excluding the negative one-time tax impact in 2017. This is within the target range of between 30% and 50% of net income from continuing operations as defined in the company’s dividend policy. In addition, adidas decided to launch a multi-year share buyback program of up to € 3.0 billion in total until May 11, 2021. Starting on March 22, the company plans to buy back shares worth up to € 1.0 billion in 2018. Both the company’s dividend policy as well as the share buyback program reflect adidas’ commitment to sustainably creating long-term value for its shareholders.
Over-the-counter shares of Adidas were last seen up about 9% at $116.46, with a consensus analyst price target of $138.87 and a 52-week range of $92.97 to $118.98.
Data breaches are perhaps one of the biggest burdens that companies face in 2018. Forget slumping sales or careless ad campaigns. When a company is breached and hackers have all its customers’ information, that’s when real damage can be done.
In the past, hackers have been able to steal credit card and personal information from major companies like Equifax, JPMorgan and Home Depot. As a result, cybersecurity has become more necessary, and according to the Identity Theft Resource Center (ITRC), the number of breaches affecting all industries continued to grow at an increased pace year over year.
For the month of February, 94 breaches were added to the 2018 ITRC Breach Report, for a 38.2% increase over last year’s records for the same period.
While the business sector is still the hardest hit by breaches, there has been a significant increase in the percentage of banking/credit/financial institutions affected by breaches last month (14.9% of the breaches reported in February) compared to February 2017 (0% reported).
According to the ITRC:
When considering the methods of compromise, hacking continues to be the most frequently identified type of attack. In February, 22 percent of the total number of breached entities included in the ITRC Breach List identified hacking as the leading type of attack. Of this 22 percent, 65 percent indicated phishing was the method of the hack, 20 percent were hacked using ransomware, and less than 1 percent hacked indicated a skimming device was used. The remainder are attributed to unpublished methods of hacking.
Keep in mind, the business, banking/credit/financial and government/military sectors have been the hardest hit by hacking, versus other methods of compromise, as reported in February at 54%, 50% and 46%, respectively, for their industries.
Unauthorized access accounted for 24% of breaches in the business sector and 14% or less of breaches for each of the other sectors, showing that the business sector is a large targe
A senior executive at Nike Inc. (NYSE: NKE) left after complaints about his behavior. According to The Wall Street Journal:
Nike Inc. said it had received complaints about inappropriate workplace behavior and that its No. 2 executive has resigned, setting off a management shuffle at the sportswear giant.
The company said Trevor Edwards, Nike brand president and a potential successor to Chief Executive Mark Parker, will leave his position immediately and retire from the company in August.
Fiat Chrysler Automobiles N.V. (NYSE: FCAU) lost the appeal of a case about a car fire. According to The Wall Street Journal:
The Georgia Supreme Court upheld the results of a wrongful death trial that hit Fiat Chrysler Automobiles with nearly $40 million in legal damages on account of a Jeep fire that killed a 4-year-old boy.
The court’s nine justices on Thursday unanimously rejected arguments from the Italian-U.S. auto maker that a trial judge erred in allowing plaintiffs’ lawyers to present Chief Executive Sergio Marchionne’s compensation as evidence in the case.
Toy makers will be hit hard by Toys “R” Us bankruptcy. According to The Wall Street Journal:
The liquidation of Toys “R” Us Inc. has sent the toy industry reeling, leaving Mattel Inc., Hasbro Inc. and other manufacturers without a large chain devoted to selling games and dolls and forcing them to scramble to secure other outlets to carry their items.
Toys “R” Us, which had more than $11 billion in revenue in its last fiscal year, is one of the retail chains that were once seen by vendors as “category killers” and have emerged as crucial checks on the power of Amazon.com Inc. Stores like Best Buy Co. and Barnes & Noble Co. provide electronics manufacturers and book publishers with vast networks of physical showrooms.
Ford Motor Co. (NYSE: F) believes it can beat Toyota Motor Corp. (NYSE: TM) in the hybrid market. According to The Wall Street Journal:
Ford Motor Co. Chief Executive Jim Hackett said Thursday he sees “upside” to the auto maker’s longer-term 8% target for profit margins, citing progress on cost-cutting initiatives and an overhaul of product-development procedures.
Mr. Hackett, nearing one year at the helm, said the company is emerging from an extended “think phase” during which about 10 top executives hammered out a series of strategic steps. “We’re just going to run the company better,” Mr. Hackett said.
Ford plans to surpass Toyota Motor Co. in annual U.S. sales of hybrid vehicles in 2021, for instance, looking to lead a segment where Detroit auto makers have long been laggards. Ford is a relatively strong in hybrids already, but Mr. Hackett said its presence in that market is “unsung.”
Chinese hackers have taken aim at several U.S. firms. According to Bloomberg:
Chinese hackers have launched a wave of attacks on mainly U.S. engineering and defense companies linked to the disputed South China Sea, the cybersecurity firm FireEye Inc. said.
The suspected Chinese cyber-espionage group dubbed TEMP.Periscope appeared to be seeking information that would benefit the Chinese government, said FireEye, a U.S.-based provider network protection systems. The hackers have focused on U.S. maritime entities that were either linked to — or have clients operating in — the South China Sea, said Fred Plan, senior analyst at FireEye in Los Angeles.
Wynn Resorts Ltd. (NASDAQ: WYNN) founder Steve Wynn could sell his holdings in the company. According to CNBC:
Wynn Resorts Ltd’s former chief executive, Steve Wynn, may elect to sell all or a portion of his stake in the company, according to a regulatory filing dated Thursday.
Steve Wynn is the largest shareholder in the company, owning about 11.8 percent of the casino operator followed by his former wife who has a 9.3 percent stake, according to Thomson Reuters Eikon data.