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1:43 pm Looking Ahead - February 9, 2016

Concerns about global growth have been bubbling up in many corners.  Trade reports out of China and the US have contributed to those concerns.  On Tuesday Germany will check in with its trade balance report for December, which will be a focal point with respect to the global growth outlook.

German Trade Balance Report for December (Tuesday, February 9, 2:00 a.m. ET)

  • Why it's important
    • Germany is the eurozone's largest economy, so its economic performance helps shape expectations for the broader eurozone economy and the European Central Bank's monetary policy
    • Exports of goods and services account for a significant portion of Germany's GDP (45% in 2014 based on the latest data from The World Bank)
    • Germany's trade balance report will provide a sense of how German manufacturers are benefiting (or not) from the weaker euro
    • This report will provide some insight on demand from China and the US, which are two of Germany's main trading partners
    • Germany runs a trade surplus since it exports more than it imports.  This report will be watched to see if the trade surplus is widening or narrowing.  A narrowing surplus that stems from weaker export demand would be regarded as a negative in the context of the global growth outlook.

  • A closer look
    • Germany's trade surplus in November was 19.7 billion versus 20.5 billion in October.  In December 2014 Germany registered a trade surplus of 21.6 billion. 
    • Exports were up 0.4% month-over-month in November after declining 1.3% in October
    • Imports were up 1.6% month-over-month in November versus a 3.2% decline in October

 

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  • What's in play?

    • Eurozone sovereign bonds

    • Treasuries

    • S&P futures

    • Currencies
      • EUR/USD

    • Continental ETFs
      • FTSE Europe ETF (VGK)
      • iShares MSCI EMU ETF (EZU)
      • iShares Europe ETF (IEV)

    • Regional Market ETFs
      • iShares MSCI Germany (EWG)
      • iShares MSCI Spain Capped ETF (EWP)
      • iShares MSCI Italy Capped ETF (EWI)
      • iShares MSCI France ETF (EWQ)

11:33 am WEX sharply lower as Q4 results out-shadowed by worse than expected Q1/FY16 guidance

Shares of WEX (WEX 60.10, -7.43) are down about -11.0% this afternoon following the company's better than expected Q4 results, but worse than expected guidance for both Q1 and Fiscal Year 2016.

For those who are not familiar, WEX is a payment processing firm which specializes in the US Government commercial and vehicle fleet industry with offices in 10 countries. The company noted in the quarterly results press release that it will amend the way it reports revenues, beginning with the upcoming Form 10-K -- in said filing, WEX will report through three main business segments: Fleet Solutions, Travel and Corporate Solutions and Health and Employee Benefit Solutions. WEX believes this change will better align the company's transparency and provide clarity on how they operate the business.

For the coming quarter, WEX expects to record earnings per share (EPS) in the range of $0.80-0.88 on revenues of $190-200 million, both of which are worse than expected. For FY16, the company sees EPS of $3.80-4.10 on revenues of $860-890 million, both of which are also worse than expectations.

The company noted that among other reasons, the chief explanation for the worse than expected guidance stems from headwinds the company faced in 2015 persisting into this year.

As for Q4, WEX reported better than expected EPS of $1.15 on revenues which rose 0.3% year-over-year to $212.6 million, and also came in better than expected. 

Further, WEX noted average vehicles serviced was about 9.5 million, up 12% compared to 4Q14. WEX also noted total fuel transactions processed were up 4% compared to last year and payment processing transactions were also up, by 7%, to 84.8 million.

WEX reported increased payment processing volumes this quarter, rounding out their fiscal year nicely. However, the guidance was too tepid for investors, with worse than expected EPS and revenues for the foreseeable future dragging the stock into negative territory today. For perspective, the broader market is also getting crushed today, as all three major US indices trade worse than -2% -- Dow Jones (-2.07%), S&P 500 (-2.11%), Nasdaq (-2.60%).

9:56 am ON Semiconductor Slides Despite Earnings Beat

Semiconductor and integrated circuit manufacturer ON Semiconductor (ON 7.68, -0.37) reported its quarterly results today, announcing earnings of $0.13 per share on $840.30 million in revenue. The company's bottom-line results came in just ahead of analysts' average estimates while revenue was reported in-line with analyst estimates.

The company's top line matched market expectations, which masked the fact that revenue fell 7.1% year-over-year. However, the fourth quarter decline did not stop the company from realizing 10.6% revenue growth in 2015 with total revenue coming in at $3.496 million.

On a GAAP basis, the company's total gross margin in the fourth quarter was 33.3%, which represented a decrease from 34.1% reported for the third quarter. The fourth quarter margin was lower than the full-year margin, which hit 34.1%.

ON Semiconductor President and Chief Executive Officer Keith Jackson commented on the results, saying the company was able to overcome heightened macroeconomic uncertainty and softening demand thanks to robust cost discipline. Mr. Jackson also highlighted the company's repurchase program, which allowed ON to repurchase $348 million of its shares in 2015 with $20 million worth of shares being bought back during the fourth quarter.

Going forward, ON Semiconductor expects to generate first quarter revenue in the range of $800-840 million, which is roughly in line with market expectations. The company expects some pricing pressures to persist, resulting in a 2.0% quarter-over-quarter decline in average selling prices.

Shares of ON have tumbled 4.6% to levels last seen in late 2014.

9:51 am Cognizant Tech (CTSH)

Cognizant Technology Solutions (CTSH) is trading sharply lower this morning (-7%) after reporting earnings results. The Q4 numbers were pretty good, it was the guidance for Q1 that seems most responsible for the weakness in the stock today.

In terms of quick background, CTSH is an IT and consulting outsourcing company. It's based in New Jersey, but most of its software development operations and employees are located in India. Its core competencies include: BPO (Business, Process, Operations), IT consulting, software development, EIM (Enterprise Information Management), application testing, application maintenance, IT infrastructure services etc. In 2014, CTSH branched into the healthcare space with its TriZetto acquisition, which brought to CTSH a whole new set of offerings. TriZetto is primarily a software company. They have various platforms for the healthcare payer and provider industries.

Customers are constantly evaluating the effect of emerging digital technologies, including social media, mobile devices, advanced analytics and cloud computing on their business operations. These technologies represent a new IT infrastructure that are transforming the way companies engage with their customers. Customers are also seeking to operate more efficiently. Increasingly, companies are relying on service providers like Cognizant to help them meet these needs. Certain countries, particularly India, have large talent pools of technical professionals who can provide high quality IT and business process services at a lower cost. India is regarded as having one of the largest and highest quality pools of talent in the world.

Historically, IT service providers have used offshore labor pools primarily to supplement the internal staffing needs of customers. However, evolving customer demands have led to the increasing acceptance and use of offshore resources even for higher value-added services. These services include application design, development, testing and systems integration, technology and industry-specific consulting and infrastructure management.

Turning to the Q4 results, non-GAAP EPS rose 19% YoY to $0.80, which was slightly better than market expectations and better than prior guidance of "at least $0.77." Revenue rose 17.9% year/year to $3.23 bln, which was basically in-line with market expectations.

So why is the stock down so much? The problem was with the guidance. For Q1, CTSH expects non-GAAP EPS of $0.78-0.80 and it expects revenue of $3.18-3.24 bln. Both forecasts are below market expectations. For FY16, CTSH expects non-GAAP EPS of $3.32-3.44 and it expects revenue of $13.65-14.20 bln. That EPS range is below market expectations and the mid-point of the revenue guidance is also below expectations.

In terms of why the guidance was light, CTSH talked about its healthcare vertical on the call this morning. Rising medical costs, consumerization of healthcare and a changing regulatory environment are driving industry consolidation. As a result, CTSH is seeing some slowdown in its healthcare practice due to this consolidation particularly in the early part of this year as reflected in the Q1 guidance. Also, within its banking vertical, CTSH saw a continuation of spending on projects around regulatory and compliance and cybersecurity as well as a growing interest in re-architecting infrastructure. However, macroeconomic concerns are causing banking customers to pull back a bit on spending.

In sum, the Q4 results were pretty good, it's mainly the Q1 outlook that is spooking investors a bit this morning. Consolidation in the healthcare space seems to be a negative development for CTSH. From a broader perspective, the stock has basically been trading sideways over the past year but it's been pretty weak since late October.

9:30 am Nordic American Tanker Sinks Lower Following Top And Bottom Line Miss

Following its quarterly results, shares of Nordic American Tanker (NAT 11.26) sold off. The company reported fourth quarter earnings of $0.34 per share, which fell short of expectations. On the top line, net voyage revenue rose 80% year/year to $77.39 million, which also fell short of expectations.

However, tanker rates achieved on average for 4Q2015 were about $39,800 per day per vessel. In 3Q2015 and 4Q2014 the spot rates were about $35,000 and $24,000 per day per ship, respectively.

Thanks to a cash breakeven rate below $12,000 per day per ship, a growing NAT Suezmax fleet and achieved spot rates of about $39,800 per day, 4Q2015 produced good results with operating cash flow of $57.2 million.

The company's operating cash flow in 4Q2015 was $57.2 million. In 3Q2015 and 4Q2014 operating cash flow was $49.1 million and $24.5 million, respectively. For the full year 2015 operating cash flow was $212 million -- the strongest year in NAT's history. The company has a fleet of 26 vessels of which two are under construction.

By way of comparison, in the autumn of 2004, the company had three vessels. NAT its vessels are in excellent technical condition. NAT maintains a strong balance sheet with low net debt and focuses on keeping low financial risk. At the end of 4Q2015, the Company had net debt of about $230 million or about $8.8 million per vessel. Overall liquidity in the stock is high compared with other tanker companies.

Separately, on January 13, the company increased its quarterly dividend to $0.43/share from $0.38/share.

Clearly, the miss on the top and bottom line for the fourth quarter here are weighing on the shares. However, the company still has a number of positive catalysts, some of which are listed above. Also, remember that the low oil price is an important positive factor for the tanker market.

Peers of NAT include FRO, STNG, TNK, TNP, TK, NNA, NAP, DHT.

9:09 am Hasbro (HAS)

This morning, well-known toymaker Hasbro (HAS) reported better than expected Q4 results.

Looking at the headline numbers, Q4 sales rose +13% to $1.47 billion (+23% excluding foreign exchange impact), while adjusted EPS rose +14% to $1.39. Both the top- and bottom-lines comfortably exceeded investor expectations. The company did not provide any guidance in the press release.

Drilling down to Hasbro's product categories, during Q4 the Boys segment was the clear leader, up +35% year-over-year to $569.8 million (39% of sales). After that, Preschool sales were up +17% to $170.9 million (11%), Games rose +11% to $465.8 million (32%), and Girls declined -17% to $258.8 million (18%).

The company did not provide any segment commentary for the quarter, but Hasbro did give some color for 2015 as a whole, Full-year 2015 Boys category sales rose +20%, led by Nerf products as well as products related to Star Wars, Jurassic World, and Marvel. Games revenues rose +1% for the year due to continued growth in Magic: The Gathering, Monopoly, and Pie Face. Girls category sales declined -22% in 2015 due to weakness in Furby and Equestria Girls, offset by increases in My Little Pony, Play-Dohvinci, and Disney's Descendents. Finally, Preschool category revenues rose +17% in 2015, led by Play-Doh as well as Jurassic World, Star Wars, and the launch of Playskool Friends My Little Pony.

Looking back on the year, management stated that: "On a constant currency basis, our growth accelerated in 2015 and we began 2016 with positive momentum and good visibility to growth drivers for this year and beyond. In 2015, we overcame an unprecedented impact from foreign exchange translation, both on the top- and bottom-line, while driving strong consumer demand and engagement as well as gaining share in markets around the world."

Within its earnings release, the company declared a quarterly cash dividend of $0.51 per common share, which represents an increase of 11% from the previous quarterly dividend of $0.46 per common share. The company further said that it has $479.3 million remaining in its current share buyback authorization.

The conference call began at 8:30 AM ET.

Shares of HAS are trading roughly flat approximately a half hour before the open.

9:03 am Apollo Education Group Going Private

Phoenix, Arizona-based Apollo Education Group (APOL 8.86, +1.91) has agreed to be acquired by a private consortium that includes The Vistria Group, funds affiliated with Apollo Global Management (APO 13.60), and Najafi Companies.

Apollo Education Group has accepted an offer of $9.50 per share, which translates to a 44.0% premium over APOL's closing price on January 8, 2016 before it was announced that the company was pursuing strategic alternatives.

Following the acquisition, Vistria Group Chief Operating Officer Tony Miller will become Chairman of the Apollo Education Group Board.

Apollo Education Chief Executive Officer Greg Cappelli commented on the deal, saying "this new structure will allow Apollo Education Group the flexibility and runway it needs to complete the transformational plan at University of Phoenix, which will enable us to serve our students more effectively during a period of unprecedented volatility within our industry. We will also continue to expand our international operations and remain committed to driving principles of operating excellence."

Apollo Education will be taken private after the stock has endured a protracted slide from its all-time high near $98.00 that was reached in 2014. More recently, APOL traded near $30.00 between 2014 and 2015, but heavy selling in 2015 pressured the stock into the $7.00 area where it traded prior to the takeover announcement.

8:11 am BioCryst Rocked by Failed OPuS-2 Study

BioCryst Pharmaceuticals (BCRX 6.14) specializes in developing small molecule drugs that block key enzymes involved in rare diseases.  One such drug it has been working on is avoralstat, which is intended for the prevention of attacks in patients with hereditary angioedema (HAE).  

Unfortunately, BioCryst announced today that a clinical trial of avoralstat failed to meet its primary efficacy standpoint of angioedema attack frequency.  This news has led to a major attack on shares of BioCryst, which are trading 57% lower in pre-market action.

The study is referred to as the OPuS-2 (Oral ProphylaxiS-2) study.  It was for HAE patients with a historical attack frequency of greater than 0.45 attacks per week.  HAE, which can cause among other things airway swelling and excruciating abdominal pain due to the swelling of the intestinal wall, can be a potentially fatal genetic condition.  It occurs in about 1 in 10,000 to 1 in 50,000 people.

The HAE patients in trial were randomized to receive either 500 mg or 300 mg of avoralstat, or placebo, administered three times daily for 12 weeks.  

Thirty-eight subjects received the 500 mg dosage, 36 subjects received the 300 mg dosage, and 36 subjects received placebo.  Neither the 500 mg nor the 300 mg dosage managed to produce a statistically significant lower mean attack rate versus placebo.  The mean attack rates per week were 0.63 with the 500 mg dosage and 0.71 with the 300 mg dosage, compared to 0.61 on placebo. 

The disappointing trial result comes at a difficult time for the company. The biopharmaceutical group has been under constant selling pressure since the year began due to valuation concerns and general risk aversion.  BCRX has not been exempt from the selling.  Prior to today's report, shares of BCRX had plunged 41% already this year.

BioCryst added in today's announcement that it expects results from a relative bioavailability study testing a novel solid dosage form of avoralstat by mid-year. The primary goals of that study are to achieve much higher exposure and twice daily dosing.  Also, it expects results from the BCX7353 APeX-1 dose ranging study in HAE patients by year end.

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