Stocks rebounded Monday, with the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) making big gains, recovering part of what they lost last week.
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Technology stocks continued the comeback they started on Friday, with the Technology Select Sector SPDR ETF (NYSEMKT: XLK) jumping 1.8%.
As for individual companies, CSRA (NYSE: CSRA) is being acquired by General Dynamics (NYSE: GD) for a healthy premium, and Restaurant Brands International (NYSE: QSR) beat earnings estimates and raised its dividend.
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General Dynamics creates defense IT giant
Shares of CSRA, provider of IT a cybersecurity services to government, soared 31.1% after it announced it is being acquired by defense giant General Dynamics in a $9.6 billion, all-cash deal. General Dynamics will make a cash tender offer of $40.75 and will assume $2.8 billion in CSRA debt. CSRA shares closed at $40.41, while those of General Dynamics fell 1.2% on the news.
The agreement, which has been approved by the boards of both companies, will be financed by available cash and new debt, and is expected to close in the first half of 2018. General Dynamics expects the deal to be accretive to earnings and free cash flow in 2019, and will generate cost savings of 2% of the combined entity's revenue by 2020.
CSRA had $5 billion in revenue in its most recent fiscal year, and General Dynamics, with $31 billion in revenue last year, will combine the acquired business with its existing IT unit to create an IT business with $9.9 billion in sales and double-digit EBITDA margins. With defense stocks already trending higher in anticipation of increases in defense spending, today's deal may make General Dynamics even more attractive in the long run.
Restaurant Brands makes a whopper of a dividend hike
Restaurant Brands International stock rose 6.1% after the company reported fourth-quarter profit that beat expectations and announced it was more than doubling its dividend payout. The parent company of the Burger King, Popeyes, and Tim Horton chains saw revenue increase 11.1% to $1.23 billion and adjusted earnings per share grow 50% to $0.66, both numbers reflecting the purchase of Popeyes Louisiana Kitchen last year. Analysts were expecting EPS of $0.57 on sales of $1.26 billion. The quarterly dividend was hiked from $0.21 to $0.45.
RBI's Burger King unit had standout results. Despite competition from a resurgent McDonald's, comparable-store sales at the chain grew 4.6%, compared with growth of 2.8% in the period last year. Total sales at Burger King grew 12.3%. Results at the other chains weren't quite so impressive, though, with comps growing only 0.1% at Tim Hortons and falling 1.3% at Popeyes.
Management indicated that they think the new dividend rate, now amounting an annual yield of 3%, is sustainable now that the company has retired its preferred shares. Looking forward, the company will be investing in technology and innovation to enhance the customer experience, having recently created a new position of chief technology and development officer to guide efforts it that direction.
Competition has been intense in the quick-serve restaurant market, so the success at Burger King made an impression with investors, despite struggles in the other chains.
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