Breakout

Constellation drinking in solid earnings, LinkedIn upgraded and La Quinta premiers

Jeff Macke
Breakout

Here are today's Trending Ticker's as measured my your Yahoo Finance searches:

Constellation Brands (STZ) - up more than 1% after opening a tall can of better than expected earnings.

Linked In (LNKD) - Topeka Capital upgraded it to buy from hold and the stock is up more than 2 percent on the news

And the big story today is La Quinta Holdings (LQ) which started trading earlier today. Shares initially fell off but regained their footing and are trading up more than one percent. La Quinta sold 38.2 million shares at $17. The deal values La Quinta at roughly $2.1 billion.

The La Quinta offering was supposed to be for 37.2 million shares priced between $18 - $21. With the current price hovering around $17 investors are clearly saying "no mas" to more IPOs.

The fact that they were willing to sell a million more shares below the range is a "grande rojo" flag. As a relatively low-priced chain appealing to families and business travelers, La Quinta is on the bleeding edge of the economy. The overall industry has made an impressive comeback since the great recession but last year La Quinta made less than $50 million on more than $800 million in revenue. Even at the reduced price, shares are trading over 40x projected earnings making La Quinta one of the pricier hotel stocks on the market.

So why was La Quinta willing to take a haircut? The company needed the cash. According to its S-1 La Quinta has $2.7 billion in debt all coming due in July. It's new financing deal was contingent on getting this IPO done. Even with this transaction the company still has $2.1 billion in outstanding debt. That made La Quinta desperate sellers in a suddenly tight IPO market. Hence weakness when they went to price shares.

Kudos to Blackstone for booking gains and my compliments to Main Street investors for their skepticism regarding LQ shares.

More from Breakout:
'Momo’ tech stocks risky business for traders seeking mojo
Big banks to increase extra capital by $68 billion, will make them safer says Jeff Saut
Earnings preview: Rough waters ahead before a calmer second half

 

 

Rates

View Comments (6)