The market fell on Thursday, although the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) gave up less than half their gains from yesterday's phenomenal performances.
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Rising long-term interest rates hurt rate-sensitive stocks, making real estate the weakest sector in the market; the Vanguard REIT ETF (NYSEMKT: VNQ) fell 1.3%. Tech stocks were a rare bright spot, with the iShares PHLX Semiconductor ETF (NASDAQ: SOXX) extending its recent rally to close up 0.5%.
As for individual companies making news, hotel operator Wyndham Worldwide (NYSE: WYN) announced it is buying the La Quinta (NYSE: LQ) chain, to the approval of shareholders, while Alcoa's (NYSE: AA) fourth-quarter earnings received a negative reaction from investors.
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Wyndham snaps up La Quinta
Wyndham Worldwide announced it is acquiring La Quinta's hotel management and hotel franchise businesses for $1.95 billion in cash, sending shares of both companies up. La Quinta rose 3.8% and Wyndham gained 4.8%.
Wyndham will pay La Quinta investors $8.40 per share in cash, repay $715 million of the company's net debt, and set aside $240 million in reserve for taxes that are expected to come due when La Quinta spins off its real estate assets in a separate, publicly traded real estate investment trust to be named CorePoint Lodging. The spin-off, which was announced a year ago today, will be completed before the merger with Wyndham closes, which is why the offering price for La Quinta is below today's share price of $20.
The deal will add 890 upper-midscale hotels to Wyndham's portfolio of 8,350 hotels in 75 countries, including brands such as Ramada, Days Inn, Super 8, Howard Johnson, and Travelodge. It will also add the 13 million members of La Quinta's loyalty program to Wyndham's 53 million rewards members.
"La Quinta will immediately become one of our flagship brands," said Wyndham CEO Geoff Ballotti in the press release. "It is an exceptionally strong brand that is led by service-minded associates who deliver some of the highest customer engagement levels in our industry."
Wyndham is undergoing a transformation itself, spinning off its timeshare business into a separate, publicly traded company in a deal expected to complete in the first half of this year. Both stocks have performed well over the last year, and the addition of the new, asset-light La Quinta hotel business to Wyndham's soon-to-be-focused hotel company made a lot of sense to investors today.
Alcoa reports lightweight profit
Alcoa reported fourth-quarter results that fell short of expectations and the stock got crushed by 7%. Revenue was up 25.1% from last year on a pro forma basis to $3.17 billion. The company reported a loss of $1.06 per share, but adjusting for one-time items, earned $1.04 per share, compared with analyst expectations of $1.23. Alcoa spun off its specialty parts business as Arconic on Nov. 1, 2016.
Alcoa has benefited from higher aluminum pricing, which was largely responsible for a 38% sequential increase in adjusted EBITDA to $775 million. But that number was $50 million less than Alcoa had expected due to factors the company said were short-term in nature: a drought in Brazil, higher power costs in Spain, and weather-related shipping delays.
Alcoa's profit guidance was also lower than Wall Street was expecting. The guidance for 2018 adjusted EBITDA is for growth of about 15% while analysts are expecting adjusted EPS to increase 26%.
Alcoa shareholders have been well-rewarded by the company since the spin-off. The sell-off today simply took the stock back to where it was less than a month ago, and market factors seem to indicate more tailwinds in 2018.
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