|Bid||40.12 x 1200|
|Ask||40.13 x 800|
|Day's Range||40.09 - 40.42|
|52 Week Range||36.74 - 50.43|
|Beta (3Y Monthly)||1.24|
|PE Ratio (TTM)||8.77|
|Earnings Date||Oct 14, 2019 - Oct 18, 2019|
|Forward Dividend & Yield||1.40 (3.51%)|
|1y Target Est||53.38|
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Federal Reserve officials viewed their interest-rate cut last month as insurance against headwinds from the trade war and low inflation -- reasons that look even sharper as they move toward their meeting in September.Minutes of the Federal Open Market Committee’s July 30-31 meeting released Wednesday in Washington laid out the reasons for the quarter percentage-point cut, highlighting risks to the outlook even though the U.S. economy, for now, is performing well.Investors fully expect another rate cut at the Fed’s Sept. 17-18 meeting and further easing this year. A big clue could come from Chairman Jerome Powell when he speaks on Friday at the Kansas City Fed’s annual policy retreat in Jackson Hole, Wyoming.“The Fed is almost certain to ratify market expectations of another easing in September,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note to clients.How far Powell can go may still be limited by divisions within the Fed despite some investors pushing for aggression. The minutes showed Fed presidents Eric Rosengren of Boston and Esther George of Kansas City favored no change in July, while a “couple” of participants wanted a half-point cut.“The split FOMC has made it harder for the Fed to jump ahead of the curve,” Morgan Stanley strategists said in a report to clients on Thursday. ”Chairman Powell may still be able to clear the path for a 25 basis point September rate cut when speaking at Jackson Hole tomorrow, but markets have been asking for more.”Three BulletsIn the minutes, the case for the July cut was presented under three explicit bullet points. Here’s a look at the Fed’s arguments and what’s happened since then.First, the Fed said the cut was to insure against a further slowing of business investment, stemming in part from a global manufacturing slump arising from trade uncertainty. One day after the Fed’s last meeting, President Donald Trump escalated his trade war by announcing additional tariffs against China. Since then, uncertainty remains high, threatening to paralyze investment decisions further.The second reason the Fed listed was risk management, a phrase that encompasses various downside threats to the economy. One issue Fed officials underscored was that foreign central banks “had only limited policy space’’ to cut rates if growth slumped. Since the July meeting, data showed German output shrinking in the second quarter, as well as mounting concerns for a no-deal exit by Britain from the European Union.“If anything the risks have increased since this meeting,’’ said Laura Rosner, partner at MacroPolicy Perspectives LLC in New York. “There will be more support for pre-emptive insurance rate cuts” when officials meet next month, she said.Fed officials’ third reason for cutting was to re-set inflation back on its 2 percent target. While core inflation measured by the consumer price index rose 2.2 percent for the year ending July, the committee’s larger concern is that the public’s longer-run price expectations are stuck below 2 percent because inflation has been so low for so long.“Most participants judged that long-term inflation expectations either were already below the committee’s 2% goal or could decline below the level consistent with that goal” if inflation remained too subdued, the minutes said.Since the last meeting, the dollar has strengthened as the global economic outlook dimmed, adding more downward pressure on prices by making imports cheaper.Economic DataWhile U.S. data are mixed, economists remain largely positive on growth with estimates showing the expansion continuing into 2021, according to forecasts compiled by Bloomberg.Retail sales in July advanced by the most in four months. At the same time, consumer sentiment plummeted to a seven-month low in August, raising the risk that the economy’s biggest engine may be poised to down shift. A key gauge of service-industry activity also decelerated last month.“Because of the intensification of the downside risks, at least some previously reluctant FOMC participants probably now view another cut a bit more favorably than they did three weeks ago,” said Roberto Perli, a partner at Cornerstone Macro LLC, in a note to clients. “If that’s the case, a 25 basis point cut next month should happen.”(Adds split in fifth-sixth paragraphs.)\--With assistance from Christopher Condon.To contact the reporter on this story: Craig Torres in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Alister Bull at email@example.com, Margaret CollinsFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- For 47 years, the Business Roundtable has lobbied on behalf of corporate America. Much of that time, it maintained a fiction(1) -- that the sole purpose of a corporation was to maximize profits on behalf of shareholders. This philosophy has been under assault for several years now, and this week the Business Roundtable announced it wants to put it to rest.In a widely circulated memo, the 200-member organization reversed itself, writing that "shareholder primacy” is no longer the sole purpose of a corporation. Instead, corporations must include a commitment to “all stakeholders,” which includes customers, employees, suppliers and local communities.Some kudos are in order for JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, and chairman of the Business Roundtable, for driving these changes. He has been discussing the need for a more inclusive form of capitalism, both in public speeches and in his letters to shareholders, for some time.But turning this aircraft carrier around won’t be easy, in large part because of the group's own history. Indeed, the Roundtable has spent most of the past four decades advocating against the interests of those exact stakeholders. To cite some of the more notable examples:\-- It fought the rise of labor unions and pro-union legislation;\-- Helped to defeat antitrust bills;\-- Prevented the formation of the Consumer Protection Agency;\-- Opposed corporate governance changes to make boards of directors and CEOs more accountable to stockholders;\-- Fought proper accounting of stock options given as compensation to executives and insiders;\-- Opposed increases in the national minimum wage (it now favors increases);\-- Lobbied to prevent restrictions on executive compensation;\-- Fought legislation that would create cleaner energy and address climate change;\-- Pushed for corporate income-tax cuts;\-- Supported anti-consumer Supreme Court decisions, including the fiction that corporations are legal people, and that campaign donations equal speech. The Roundtable might respond that this is all in the past. Let’s hope so. But the organization has an even greater challenge: Scan the list of 181 signatories to the recent memo and it's a Who’s Who of corporate behavior that has burdened and disadvantaged the very stakeholders they will now champion.Consider a few of the signatories:\-- Amazon.com Inc. and Apple Inc.: Two of the most valuable companies in the world are famously effective at using various tax dodges to avoid paying their fair share. I can recall when the Internal Revenue Service went after maneuvers that serve no valid business purpose other than tax avoidance. Consider that what isn't paid in tax by those who avoid them must be made up for by those who do -- mostly average Americans who also happen to be customers of these companies.The share of federal tax revenue paid by corporations has dropped by two-thirds in the past seven decades -- from 32% in 1952 to 10% in 2013; and corporate income tax as a share of gross domestic product has fallen from about 6% in 1946 to about 1.5% today.\-- Visa Inc., Mastercard Inc. and American Express Co.: Show good faith -- working with card-issuing banks as needed -- by simplifying the incomprehensible small print in the cardholder agreement and spell out in clear language the terms and penalties for late payment. Second, do the same for mandatory arbitration clauses that take away the right of customers to seek redress in public courts.\-- Ameriprise Financial Inc., Morgan Stanley and Principal Financial Group Inc: The brokers and insurers on the list have been zealous opponents of the fiduciary rule. Instead, they prefer a less stringent rule that allows them to sell products that are better for them than for their customers. Until those firms -- and Citigroup Inc. and JPMorgan are in this group -- embrace a higher duty of care, their gestures toward stakeholders are hollow. Oh, and they should drop the requirement that customers agree to mandatory arbitration clauses as one of the conditions for opening a brokerage account.\-- Coca Cola Co. and PepsiCo Inc.: For years these companies have been helping the American public achieve record levels of diabetes and obesity by selling health-damaging sugary drinks. They should acknowledge and warn customers of the consequences of consuming too much of their products, and accept the same kinds of taxes and health warnings now affixed to cigarettes.\-- Deere & Co.: The maker of farm machinery has led the fight against customers, insisting that they not make repairs to the equipment they own, and denying them access to parts and instructions. Repairs can only be made by Deere service technicians in what has come to be known as a “repair monopoly.” Apple, by the way, does the same thing.\-- Walmart Inc. and McDonald's Corp.: Both were steadfast opponents of increases in minimum wages for years. Although both now offer higher minimum pay, it was only after a tightening labor market forced them to increase wages. But this wasn't a case of corporate altruism -- their stores were messy and employees were sullen, and pay increases were part of plans to keep ill-treated customers from defecting. (McDonald's is not a signatory to the Roundtable memo).For the Roundtable commitment to be meaningful, the signatories are going to have to alter their behavior in ways large and small, and maybe even in ways that aren't always optimal for maximizing short-term profits. Still, we should be encouraged. But the proof will be in the follow through and the actual actions of the Roundtable members.(Corrects to clarify section on credit-card companies to indicate the role of banks in setting terms for customers. )(1) In “The Shareholder Value Myth,” Lynn Stout explained how the entire theory is based on a misreading of a 1919 court case -- Dodge vs. Ford – at the time, both privately held, non-public companies.To contact the author of this story: Barry Ritholtz at firstname.lastname@example.orgTo contact the editor responsible for this story: James Greiff at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Wanda Sports Group Co. -- a global sports marketing firm and event promoter -- has nabbed the interest of Wall Street bulls, suggesting it could be the next tech and media darling, and further indicating the growth in investor demand for Chinese stocks.American depository receipts in the Beijing-based company rose the most on record Wednesday, climbing 13% in New York, as several investment banks initiated the stock with buy-equivalent ratings. Deutsche Bank said the company is “well positioned for growth” in a “highly fragmented industry offering substantial organic and inorganic growth opportunities.”Wanda Sports, which owns the organizer of the Ironman triathlon race, began trading on the Nasdaq in late July. While it has lost almost half of its market value since its debut, Morgan Stanley sees the company as a “distinctive asset at [a] distressed valuation.”The fast-growing global sports industry has Morgan Stanley optimistic, and Wanda Sports’ portfolio of mass participation and spectator events worldwide “are relatively resilient amid macro uncertainties.” The firm began coverage of the stock with an overweight rating and $8 target.Wanda Sports, a unit of Chinese conglomerate Dalian Wanda Group Co., prompted Citigroup to also join the bullish wave with its buy rating. Citigroup, Deutsche Bank and Morgan Stanley led the company’s initial public offering. Loop Capital’s buy call turns a focus to China, which the firm sees as Wanda Sports’ “largest growth opportunity.”While investor reception has most recently been lukewarm, the “company’s reach into China will be an increasingly important differentiator with sports federations looking to expand global audience and participation,” said Loop Capital managing director Alan Gould.(Updates shares and chart, adds more commentary in final paragraph.)To contact the reporter on this story: Kamaron Leach in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Catherine Larkin at email@example.com, Morwenna ConiamFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Equity hedge funds are enjoying their strongest performance since 2009 -- with the S&P 500 index up 16% this year -- but Goldman Sachs Group Inc. warns that crowding is a risk.Funds have benefited from both a rising stock market and successful stock selection, strategists including Ben Snider and David Kostin wrote in a note Aug. 20. They’ve also concentrated their holdings into a reduced number of industries, such as health care, and into single names, particularly Amazon.com. Inc. When rallies peak, too much professional money can try to get out of the same stocks simultaneously and exaggerate declines.“Funds continue to lift portfolio weights in their top positions, which are increasingly also the top positions of other funds,” the strategists wrote. “These dynamics, along with higher leverage, lower portfolio turnover, and declining market liquidity, have boosted the performance of momentum stocks while also increasing the risk funds face from crowding.”They added that this will “make funds particularly vulnerable to a potential market unwind, particularly if accompanied by the decline in liquidity that typically coincides with falling risk appetite.”Investment banks from Goldman to Morgan Stanley increasingly study the relative positioning of funds that compete with each other to beat benchmarks. The crowding issue is in focus this month, as August has seen a spike in stock and bond markets volatility. Hedge funds rushed for safety last quarter as Treasuries rallied and concerns about economic slowdown flared, regulatory filings compiled as of last week showed.Goldman found the most popular long positions had lagged the S&P 500. The favorite short positions trailed by even more. Overall, the average equity fund return in 2019 has been 9%.Alongside the success comes some concern as well, after examining the holdings of 835 hedge funds with $2.1 trillion of gross equity positions at the start of the third quarter.Goldman found a rotation continued from technology into health care, which is now the sector with the largest overweight versus the Russell 3000 Index, which like the S&P 500, is also up 16% this year. Overweights in health care and industrials are at a 10-year high, the report said. Funds trimmed positions in semiconductors and “other stocks exposed to U.S.-China trade conflict,” according to the strategists.Also, late June and July saw a sharp rise in exposures as the Federal Reserve began to cut rates and U.S.-China trade relations appeared to thaw, the strategists said. But leverage has been trimmed again in August. While the S&P 500 rose in June and July, it’s down 1.8% so far this month. Amazon.com appeared most frequently among the 10 largest holdings of funds, followed by Facebook Inc. New names on the list of the top 50 such stocks include Allergan Plc and Micron Technology Inc.(Adds S&P 500 performance in recent months in penultimate paragraph.)To contact the reporter on this story: Joanna Ossinger in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Christopher Anstey at email@example.com, ;Samuel Potter at firstname.lastname@example.org, Todd White, John ViljoenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
for a role in Saudi Aramco’s planned stock market listing after a charm offensive by top executives, including former Trump administration official Dina Powell. The Wall Street bank had failed to secure a top advisory role in 2017 when Saudi Aramco nominated banks including JPMorgan Chase, Morgan Stanley, Moelis, Evercore and HSBC for what could be the world’s largest listing. The successful launch of a $12bn international bond by Saudi Aramco this year renewed momentum for the IPO and revived optimism about the Saudi economy after the international condemnation that followed the killing of journalist Jamal Khashoggi.
Banks likely to get some respite soon, with the U.S. regulators showing the green light for easing of the Volcker Rule under the Trump administration.
(Bloomberg) -- Luxshare Precision Industry Co. drew a series of analyst price upgrades after the Chinese assembler of Apple Inc.’s AirPods revealed a roughly 80% surge in first-half profit and sales.The company, regarded as a bellwether for China’s consumer hardware industry, is expected to become an increasingly important supplier of components for wearable devices like the Apple Watch, some analysts say. Goldman, CICC and Morgan Stanley were among the investment houses that lifted their stock price target on the consumer hardware firm after it posted results late Tuesday.Luxshare is among the largest of a crop of Chinese manufacturers of consumer electronics that’re increasingly winning orders from longer-established firms like Foxconn Technology Group. The Shenzhen-based firm has in past years become a primary supplier of AirPods, one of the fastest-selling consumer accessories in the market. TF International analyst Kuo Ming-chi estimates AirPod shipments could rise 60%-70% for 2019, and 50%-60% for 2020.“Luxshare is in a fast-growth phase thanks to its comprehensive product lines and expertise in R&D and production of precision electronic components, which provide a defensive moat,” Csc International analyst Zhu Jixiang said. “Apple’s AirPods in particular are a bright spot in the market, and Luxshare has a significant share of assembling that product.”Luxshare’s stock slid 2% on Wednesday but Bright Smart Securities analyst Mark Huang blamed that partly on a conservative projection for current-quarter net income growth of 18% to 38%. Huang said any losses presented a buying opportunity.Only 1 of 32 analysts covering the company rated it a sell, according to Bloomberg-compiled data (the rest were Buys). Its blended 12-month price-earnings ratio of 27 compared with an average of 24 for the past two years.“Luxshare again produced a solid set of numbers. Any back-sliding in the stock presents a chance to buy,” Bright Smart’s Huang said. “Today’s fall may stem from a temporary valuation adjustment, after a portion of capital chose to lock in profits.”Read more: Trump Tumult Has Gadget Giants Splitting Along U.S.-China LinesAnalysts’ optimism aside, the Chinese company itself warned Tuesday about the uncertain impact of global trade ructions.Trump-administration tariffs on Chinese-made products, including eventually a swathe of consumer and mobile electronics, will pressure contract manufacturers’ margins and accelerate a costly shift of capacity away from China over time . An economic downturn could also depress demand for electronics more generally.Luxshare can counter some of those headwinds due to its strong capability of manufacturing precision instruments and expectations of new wave of 5G-driven demand, Huang said.“Its growth prospects will expand in the 5G era, along with demand for mobile peripherals,” he said.\--With assistance from Debby Wu.To contact Bloomberg News staff for this story: Ludi Wang in Shanghai at email@example.comTo contact the editors responsible for this story: Edwin Chan at firstname.lastname@example.org, Charlie ZhuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Jonathan Pruzan, Executive Vice President and Chief Financial Officer of Morgan Stanley, will speak at the Barclays Global Financial Services Conference in New York on Wednesday, September 11, 2019 at 8:15 a.m.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China is considering allowing provincial governments to issue more bonds for infrastructure investment, people familiar with the matter said, a move that would boost government stimulus as the economy continues to decelerate.Policy makers may raise the annual quota for so-called special bonds from the current level of 2.15 trillion yuan ($305 billion), according to the people, who asked not to be named as the matter isn’t yet public. The amount of the increase hasn’t been decided yet, one of the people said.One person said the plan was mentioned at a recent meeting of the State Council, or cabinet, while another said the final decision probably still needs to be approved by the National People’s Congress, China’s legislature.The move shows that policy makers deem the current level of stimulus insufficient to counter rising headwinds such as slowing investment and the worsening trade war with the U.S. The quota for 2019 is already higher than the previous year, and the government loosened the restrictions over how the money could be used in June. Economists have raised questions over whether the money is actually being used effectively.China May Raise Local Government Bond Quota, MOF Researcher SaysThe finance ministry didn’t immediately respond to a fax seeking comment on the matter.China’s economic growth continued to soften in July after posting the weakest pace since the early 1990s in the second quarter. Morgan Stanley estimates that extra special-bond quota worth 0.75 to 1 percentage point of gross domestic product could be added. That adds to the reform to the People’s Bank of China rate system beginning this week, which is expected to entail lower borrowing costs in the short term.“These measures are defensive in nature and may not fully offset the growth drags amid trade uncertainties,” Morgan Stanley chief China economist Robin Xing wrote in a note.Local governments have been told to finish sales of the existing quota by the end of September. Officials had sold nearly 1.4 trillion yuan worth of special bonds in the first six months of 2019, or 65% of the full-year quota, according to data from the Ministry of Finance.As well as providing money for infrastructure spending, allowing local governments to sell more debt after they exhaust the existing quota also helps shore up credit growth data, as the bonds sales are included in the total financing data and were a key support of the growth in lending in July.The next meeting of the NPC is on Aug. 22 to 26, according to a statement published on the legislature’s website. The public agenda for the meeting includes a regular discussion on the government’s budget implementation this year, but it doesn’t specify if a new bond quota will be reviewed.One of the people said that as part of the change under consideration, the Ministry of Finance may improve oversight of local government debt sales and how the money is used.(Adds economist comment from sixth paragraph.)To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at email@example.com;Jing Zhao in Beijing at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeffrey Black at email@example.com, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Goldman Sachs and Morgan Stanley have distinct ways of doing business, with one focusing on high rewards and the other on caution.
Zacks Industry Outlook Highlights: Morgan Stanley, Charles Schwab, Goldman Sachs, Evercore and LPL
(Bloomberg Opinion) -- It’s generally accepted that one of the keys to a healthy economy is a robust banking system. For some reason, though, central banks seem intent on doing everything in their power to make it as hard as possible for banks around the world to thrive. And so now, as they embark on a fresh round of monetary policy easing to combat the global synchronized slowdown, here’s hoping they find ways to actually spur the economy without penalizing the institutions that are the key to their success.It’s been a decade since the global financial crisis, and despite years of zero or even negative interest rates and trillions of dollars pumped into the world’s financial system through bond and other asset purchases, central banks are now talking about having to double down. That’s even after the collective balance-sheet assets of the Federal Reserve, European Central Bank, Bank of Japan and Bank of England have expanded to 35.3% of their countries’ total GDP from about 10% in 2008, according to data compiled by Bloomberg.Such talk has contributed to the expansion of negative-yielding debt around the world to more than $16 trillion and caused yield curves to invert. Rates on government debt globally with seven to 10 years left to maturity are on average 30 basis points below those due in one to three years, steadily expanding from no difference back in March 2018, ICE bond indexes show.And therein lies the problem for the banking industry, which makes its money by borrowing at low short-term rates and lending the proceeds at higher long-term ones, pocketing the difference. Since the global yield curve inverted 16 months ago, the MSCI World Bank Index has dropped 18%, compared with a small increase of 1% for the broad MSCI All-County World Index of equities. It’s probably no coincidence that when the curve was positive and widening in 2012 and 2013, the bank gauge posted better than 20% annual gains as the global economy was expanding at a 3.5% rate and getting stronger.What central banks don’t seem to realize is that the problem isn’t that interest rates aren’t low enough. No government, company or individual is saying that credit is too expensive or too hard to obtain. If anything, the issue is on the demand side of the equation. The latest National Federation of Independent Business’s monthly index of sentiment among U.S. small businesses that was released last week included a special question, which asked participants whether a 100 basis-point reduction in borrowing costs would change their capital spending plans over the next 12 months. Only 12% said "yes," while 21% said "no" and 24% said they weren’t sure. Another 43% said they "were not planning on borrowing money."Interest rates in the euro zone have effectively been at zero since 2014, and yet the IMF projects its economy will expand by an anemic 1.3% this year and 1.6% in 2020. European Central Bank Governing Council member Olli Rehn told the Wall Street Journal on Thursday that the solution is for his colleagues to come up with an “impactful and significant” stimulus package at their next monetary policy meeting in September. Meanwhile, in Germany, the government of the euro zone’s largest economy is preparing fiscal stimulus measures, similar to the bonuses granted in the 2009 crisis, that could be triggered by a deep recession. In reaction, bank stocks in Europe rose on Monday even as bond yields in the euro zone jumped. It remains to be seen how creative ECB policy makers will get, but the banking analysts at Morgan Stanley say any program that comes with lower rates of even, say, 20 basis points “combined with tiered deposit rates would provide a 5% EPS headwind.” “The lower the ECB pushes rates, the more difficult it will be for banks to remain profitable,” the firm’s strategists wrote in a research report Friday. They also cited research from the National Bureau of Economic Research, which gets to declare when U.S. recessions start and end. The group recently presented a paper at the Federal Reserve Bank of Chicago, asserting that when a central bank’s balance sheet is as large as it is in the euro zone, “a cut in the policy rate into negative territory is actually mildly contractionary.” This is because the negative impact on the banking system outweighs the benefits of lower rates.There’s another side effect of low or even negative rates, which is that economists are starting to believe they have the unintended consequence of boosting savings rates as consumers sock away even more of their earnings to make up for lost interest income. At a recent 8.1%, the personal savings rate in the U.S. is double what it was heading into the financial crisis, when the target federal funds rate was 5.25%. That can also be seen in the amount of excess liquidity at U.S. banks, defined as deposits minus loans, which Fed data show has surged to $3 trillion from about $250 billion in 2008. The banking industry doesn’t engender a lot of sympathy, nor does it deserve any for its role in fostering the abuses and excesses that led to the financial crisis. And nobody is saying that central banks should promote policies that nurture risky behavior. But there’s something to be said for setting monetary policy in a manner that promotes a healthy banking industry rather than hinders its growth. To contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Beth Williams at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Morgan Stanley (MS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.
George Wells, Chairman, Principal & Co-Founder of Wells Group of New York By John Jannarone Many young companies have almost all the right ingredients for success. But without a capable Chief Financial Officer or Chief Operating Officer in place, there is a serious risk a business will experience a failure in corporate governance and even […]
(Bloomberg) -- Cloudflare Inc., a firm that helps websites protect and distribute content, warned potential investors in its initial public offering that risks to its business go beyond the boilerplate Silicon Valley advisory that it may never become profitable.The San Francisco-based company said in its IPO filing Thursday that the risks include negative publicity from the use of its network by 8chan, a website favored by white supremacists and used by gunmen before mass shootings in El Paso, Texas and Christchurch, New Zealand, this year. It also cited the use of its services by neo-Nazi website The Daily Stormer around the time of the 2017 protests in Charlottesville, Virginia.Activities of such groups have had “significant adverse political, business, and reputational consequences” for the company, Cloudflare said in the filing. Terminating those accounts, though, has raised censorship concerns, it said.“We received significant adverse feedback for these decisions from those concerned about our ability to pass judgment on our customers and the users of our platform, or to censor them by limiting their access to our products, and we are aware of potential customers who decided not to subscribe to our products because of this,” according to the filing.Cloudflare co-founder and Chief Executive Officer Matthew Prince has publicly struggled with decisions balancing freedom of speech on the internet with the need to limit hateful, racist online posts and potentially dangerous calls for violence.Risky PrecedentAfter deciding to cut services to The Daily Stormer, Prince said the move could set a dangerous precedent.“After today, make no mistake, it will be a little bit harder for us to argue against a government somewhere pressuring us into taking down a site they don’t like,” Prince wrote.In its filing with the U.S. Securities and Exchange Commission, the company listed the amount of its offering as $100 million, a placeholder that will change when terms of the share sale are set later.Customers, LossesCloudflare said about 10% of Fortune 1,000 companies are paying customers. Its security services blocked an average of 44 billion cyber threats a day during the second quarter, it said.For the first six months of the year, Cloudflare lost $37 million on revenue of $129 million, compared with a loss of $32 million on revenue of $87 million for the same period last year, it said in its filing.Prince currently controls 16.6% of Cloudflare’s shares, according to the filing. Its largest investor is the venture capital firm New Enterprise Associates Inc., with a 20.4% stake, followed by Pelion Ventures with a 18.8% share and Venrock Associates with 16.2%.After going public, the company will have a dual-class stock structure that will give its Class B stockholders 10 votes per share, according to the filing.The offering is being led by Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. Cloudflare is applying to list the shares on the New York Stock Exchange under the symbol NET.(Updates with details of risks starting in second paragraph)To contact the reporter on this story: Michael Hytha in San Francisco at firstname.lastname@example.orgTo contact the editors responsible for this story: Liana Baker at email@example.com, Michael Hytha, Alistair BarrFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Cisco Systems Inc. shares sank on Thursday, after the company gave a first-quarter outlook that was below expectations, pressured by macroeconomic headwinds, including the U.S.-China trade war.The Chinese market was seen as a major factor behind weakness in service-provider orders, and Morgan Stanley wrote that “outsized” macro headwinds “were too much to provide much opportunity for upside.” The firm was one of at least six to trim its price target on the stock.Shares fell as much as 8% in its biggest one-day percentage loss since May 2017. Closing with a decline of that magnitude would represent Cisco’s worst session since November 2013, according to historical data compiled by Bloomberg. At current levels, Cisco is trading at its lowest level since February, and it has dropped more than 18% from a peak in July.Here’s what analysts are saying about the results:Morgan Stanley, James Faucette“The outsized headwinds” in service-provider orders, along with weakness in China and other emerging markets, “were too much to provide much opportunity for upside” to the quarter.The current valuation is “appropriate.” While the macroeconomic environment is worsening, Cisco’s cash flow gives it flexibility to make acquisitions or return cash to shareholders.Equal-weight rating, price target trimmed to $49 from $51.Jefferies, George NotterInvestors are likely “over-estimating the size of the negative top line growth inflection.”“Cisco has traditionally been very conservative when they’ve reduced expectations,” and historically, “upsets relative to consensus have been followed by several quarters of outperformance.”The outlook “likely contains a healthy dose of conservativism,” but there isn’t much “octane” in the stock right now.Buy rating, price target lowered to $54 from $62.JMP Securities, Erik Suppiger“Orders were flat Y/Y, the worst performance in two years.”About 70% of the company’s software revenue was generated from subscriptions, “suggesting that the company is executing on its strategy of becoming a provider of software and services.”Market-perform rating.Piper Jaffray, James FishThe results were “fine overall,” although the softness should extend into the first quarter.“Cisco is executing better than other vendors in this current macro-downturn,” and Piper is “cautiously optimistic Cisco can manage the macro.”The post-earnings sell-off looks “slightly overdone.”Overweight rating, target trimmed to $55 from $58.UBS, John RoyThe company’s fundamentals are strong despite the weak first-quarter outlook.Buy rating, price target lowered to $58 from $61.What Bloomberg Intelligence Says:“The company’s global IT exposure can’t dodge weakening macroeconomics, despite solidly carrying out its business-model transformation toward a healthier mix of software and recurring sales.”\-- Analyst Woo Jin Ho\-- Click here for the research(Updates stock and chart to market open)To contact the reporter on this story: Ryan Vlastelica in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Catherine Larkin at email@example.com, Steven Fromm, Courtney DentchFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Morgan Stanley famously nabbed this year’s largest initial public offering, thanks partly to its top technology banker’s moonlighting job as an Uber driver. But the firm is nowhere to be found on what’s shaping up to be the year’s second-biggest IPO, WeWork.Morgan Stanley stepped back from a lesser role in the deal after WeWork rejected its pitch to be the top underwriter, according to people with knowledge of the matter. The relationship became strained when the bank wouldn’t extend as much debt financing as WeWork was seeking from key lenders, the people said, asking not to be identified discussing non-public information.The lead roles on the IPO and debt financing are held by JPMorgan Chase & Co., one of WeWork’s biggest investors and a long-time banker to Chief Executive Officer Adam Neumann. On the IPO alone, underwriters could slice up what could be more than $122 million in fees, assuming WeWork ends up paying 3.5%, a figure the company was discussing with banks this month. The final payout hasn’t been disclosed.After the snub, Morgan Stanley chose not to commit as much as its biggest rivals to a $6 billion credit facility for the loss-making company, complaining about WeWork’s risk profile and credit requirements, people with knowledge of the matter said. It did offer to contribute a smaller amount along with a commitment from the bank’s largest shareholder and occasional partner, Mitsubishi UFJ Financial Group Inc. But WeWork wasn’t interested in that kind of arrangement, they said.Bankers at the firm knew their decision to balk at the full credit commitment would risk Morgan Stanley’s role on an IPO, which is slated for September, some of them said. WeWork lost $690 million in the first half of the year, according to a regulatory filing Wednesday.Representatives for Morgan Stanley, WeWork and MUFG declined to comment.Morgan Stanley’s move was a surprise, considering its years-long pursuit of WeWork’s business. Michael Grimes, the New York-based firm’s top technology banker, had previously made a pitch to Neumann for a starring role on the IPO, people familiar with the matter have said.Yet Grimes and Neumann didn’t hit it off, standing in the way of a closer partnership, the people said. Morgan Stanley’s competitors also had a leg up: Affiliates of both JPMorgan and Goldman Sachs Group Inc. are investors in the company.Morgan Stanley was among lenders that led a junk-bond offering for WeWork last year, and it previously underwrote almost $10 million of mortgages for Neumann’s own homes. It was also part of a credit facility almost four years ago with JPMorgan, Citigroup Inc. and Deutsche Bank AG.Morgan Stanley is also among WeWork’s clients. The bank hired the startup last year to overhaul some of its office space to make it more millennial-friendly.But unlike JPMorgan, Morgan Stanley wasn’t among banks to loan Neumann money with his privately held shares as collateral. That $500 million loan, which also involved UBS Group AG and Credit Suisse Group AG, was considered risky by Morgan Stanley’s bankers, the people said.WeWork’s IPO is expected to raise about $3.5 billion, second only this year to Uber Technologies Inc.’s $8.1 billion IPO in May. JPMorgan is leading WeWork’s $6 billion credit facility, and all the banks listed as arrangers are also underwriters on the IPO, including Goldman Sachs, Bank of America Corp., Citigroup and Barclays Plc.Morgan Stanley could still do business with WeWork in the future, people familiar with the matter said.(Updates with client relationship in 10th paragraph.)\--With assistance from Michelle F. Davis.To contact the reporters on this story: Sonali Basak in New York at firstname.lastname@example.org;Gillian Tan in New York at email@example.comTo contact the editors responsible for this story: Alan Goldstein at firstname.lastname@example.org, Steve Dickson, Daniel TaubFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Baidu Inc. has dropped off the list of China’s five most valuable internet companies, underscoring the challenges facing the search giant from a weakening economy to intensifying competition.NetEase Inc., China’s second-largest gaming house, has overtaken Baidu in market value after posting better-than-expected quarterly earnings last week. Shares of NetEase have gained 11% this year, while Baidu’s plunged 40%. The latter company, once touted as a member of China’s internet triumvirate alongside Alibaba Group Holding Ltd. and Tencent Holdings Ltd., has bled $66 billion of capitalization since its peak in May 2018 -- the equivalent of one Morgan Stanley.Baidu has struggled to fend off competition from the likes of Tencent and ByteDance Inc., both of which are luring smartphone-savvy consumers and advertisers to their popular mini-video and social media apps.The company enjoyed a near-monopoly in Chinese internet search after Google departed the market in 2010 over government censorship. This week, ByteDance launched its own standalone search engine, posing a serious threat to the almost two-decades-old Baidu. The company was previously pushed out of the Top 3 in market value by e-commerce operator JD.com Inc. and food delivery service Meituan.Baidu, together with rivals Alibaba and Tencent, has long formed part of a trio of leading internet companies known by the acronym BAT. Now even that title seems under threat, with some dubbing ByteDance the new “B” in the group. Baidu in May posted its first quarterly loss since its 2005 stock market debut, after the Chinese economy slowed and rivals chipped away at its advertising sales.To contact the reporter on this story: Zheping Huang in Hong Kong at email@example.comTo contact the editors responsible for this story: Edwin Chan at firstname.lastname@example.org, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Markets continued to monitor Donald Trump’s Twitter account, as tweets from the U.S. president this week regarding the U.S.-China trade war and the Federal Reserve triggered extreme volatility. Trump sent markets on a wild rollercoaster rise this week, all with less than 280 characters on Twitter. Wall Street stocks took a beating on Monday, with the S&P 500 losing 1.2%, amid concern over the lack of progress in U.S.-China trade talks.
on Wednesday, as the lossmaking property group races to complete an initial public offering that will see it raise billions of dollars to fund its global expansion. Successive infusions of capital from private investors, notably Japan’s SoftBank, WeWork and its co-founder and chief executive Adam Neumann (pictured), have made the shared office provider one of the most valuable non-public companies in the world. The group will list its class A shares under the ticker WE and is expected to debut next month.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Germany’s economy shrank in the second quarter, ramping up pressure on Chancellor Angela Merkel to unleash fiscal stimulus as manufacturers reel from a U.S.-China trade war.The latest report, paired with a protracted slump in business expectations, raises the risk that Europe’s largest economy is on the verge of falling into a recession. It would be the first in six and a half years. Separate data showed euro-area industrial production plunged the most in more than three years in June, while economic growth cooled to 0.2% in the second quarter.German output fell 0.1% in the three months as exports slumped, a second contraction in four quarters. Merkel said Tuesday the country was heading into a “difficult phase” and even hinted her reluctance to respond is softening.Economists’ reactions to the German data resemble different shades of gloom.“We expect a period of protracted underperformance,” said Markus Guetschow, an economist at Morgan Stanley & Co. in London. Robert Greil, chief strategist at Merck Finck Privatbankiers said the second-quarter contraction “is not a drama but a warning shot.”Germany’s performance is weighing heavily on a region struggling to sustain momentum. While the Dutch economy managed to maintain its pace of expansion, growth slowed in the largest euro-area countries. Profit warnings from across the bloc suggest little sign of a turnaround.“The sick man needs its medicine,” Naeem Aslam, chief market analyst at TF Global Markets said. “Hence, the German Chancellor, Angela Merkel, will have to unleash a new fiscal stimulus package for her country to combat the effects of U.S.-China trade war. This may just do some of the trick for the euro-zone’s economy.”Two FrontsHenkel AG summed up Germany’s woes in a profit warning on Tuesday. The industrial firm is facing pressure on two fronts, a slowdown in the auto industry and weaker demand in China, the same environment that’s crippled manufacturing across the country.President Donald Trump on Tuesday delayed the imposition of some new tariffs on Beijing by three months to December. However, there was further bad news from China, the world’s second-largest economy, on Wednesday, with cooling retail sales and the slowest growth in industrial output since 2002.In Germany, second-quarter output was damped by trade, with exports falling faster than imports. Private consumption and government spending rose, and investment increased despite a decline in construction.What Bloomberg’s Economists Say“The industrial sector tipped the economy into contraction in 2Q, and the risk is of further weakness in the second half of the year. If there’s any good news to take from this release, it’s that services must have continued to expand, indicating patches of resilience persist.”\--Jamie Rush.Read the full GERMANY REACTThe European Central Bank has already all but committed to hand out fresh stimulus to jump-start the economy and is forecast to cut interest rates as early as September. All that has helped push yields on German debt to record lows below zero. Earlier this month, the euro fell to the softest since mid-2017.ECB President Mario Draghi has been among the chorus of international voices pleading with Germany to loosen the purse strings after running surpluses over the past half decade.German industry has been mired in a slump as worsening trade woes and weaker global growth sap demand for machinery and cars. Industrial production suffered its biggest drop in a decade in June, and freight volumes at German airports saw the steepest decline since 2012.Among the casualties is Siemens, which said earlier this month it would struggle to meet financial goals because of a deteriorating economy and heightened political uncertainty. Automotive supplier Rheinmetall also lowered its outlook, scrapping expectations for a “tangible” recovery in the coming months.\--With assistance from Kristian Siedenburg, Harumi Ichikura and Catarina Saraiva.To contact the reporter on this story: Piotr Skolimowski in Frankfurt at email@example.comTo contact the editors responsible for this story: Paul Gordon at firstname.lastname@example.org, Jana Randow, Fergal O'BrienFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.