Daily stocks in the news
Mercury, a supplier of sensor and processing technology, has experienced a significant decline in its stock price after announcing its decision not to pursue a sale and instead focusing on a turnaround strategy under new leadership. This unexpected move has resulted in a strong negative market reaction, with Mercury's shares sinking to levels not seen in over five years. The company has been facing substantial challenges over the past few months, with its shares plummeting by more than 41% since reaching their peak in February. Despite operating in the global aerospace and defense sectors, which have shown resilience during uncertain times, Mercury has encountered difficulties due to pandemic-related factors, leading to margin degradation. The prolonged timeframes for program development, caused by supply chain delays and labor market constraints, have contributed to these issues. Although Mercury anticipates that its challenges will be short-lived and expects margins to return to pre-pandemic levels, the company has experienced consecutive quarterly declines in gross margins and has revised its adjusted earnings per share forecast for FY23 downward. Investors, growing impatient with these persistent problems, had been hopeful of a potential takeover, but Mercury's decision to continue independently under new leadership has dashed those hopes. The company has appointed a new CEO and CFO, with former CEO Mark Aslett stepping down and Board member Bill Ballhaus assuming the role of Interim CEO. While the end markets for Mercury remain resilient, the effectiveness of the new leadership and the company's ability to overcome its near-term challenges are uncertain, making it prudent to wait and assess the situation, possibly after the release of Q1 (September) results.
In a separate development, IBM has accelerated its efforts to transform into a larger cloud company through the acquisition of Apptio, a cloud software company, for $4.6 billion. Reports of discussions between IBM and Vista Equity Partners, the private equity firm that owns Apptio, emerged last Friday, and the acquisition was officially announced today. Apptio, which offers solutions to help businesses track, analyze, manage, and optimize their spending on cloud services, went public in 2016 before being purchased by Vista Equity Partners in 2018. Financial information about Apptio is limited as a privately held company, and IBM's press release did not provide specific details on its recent financial performance. However, reports suggest that Apptio's revenue run rate in 2022 was approximately $189 million, and assuming a revenue close to $200 million for 2023, IBM is estimated to be paying over 20 times the revenue for the acquisition. This substantial price tag, coupled with Apptio's unprofitable status, initially resulted in a negative market reaction, possibly due to concerns that IBM might be overpaying in a still uncertain market environment. Strategically, the acquisition makes sense for IBM, which has been reshaping its business to capitalize on the digitalization trend and the rise of AI. By expanding its cloud software offerings and reducing its reliance on mainframe computers, IBM aims to enhance its growth prospects. Although Apptio's immediate impact on IBM's top-line revenue is expected to be limited, the integration of Apptio into IBM's extensive sales channels has the potential to make it a significant contributor over time. Additionally, IBM plans to combine Apptio with its existing automation software and AI platform, aiming to provide customers with enhanced value and capabilities in managing their cloud services. Overall, the acquisition of Apptio seems to be a suitable addition to IBM's software segment, which has shown sales growth in recent quarters, in contrast to its infrastructure division. Despite the relatively high acquisition price, IBM's financial resources position it well to foster the growth of Apptio into a larger business in the future.
Carnival Corporation (CCL) is facing challenges despite reporting better-than-expected results for Q2 (May). The cruise line company reported a loss of $(0.31) per share, which exceeded expectations, and its revenue doubled year-over-year to $4.91 billion, also surpassing estimates. However, the midpoint of their Q3 (August) earnings per share (EPS) guidance fell slightly below analyst expectations, despite an increase in their FY23 EPS outlook. Carnival's adjusted EBITDA, a relevant metric for capital-intensive cruise ship companies, reached $681 million, at the higher end of their previous guidance. The company also raised its FY23 adjusted EBITDA guidance to $4.10-4.25 billion. Carnival has experienced an upswing in demand, with bookings reaching a new all-time high, exceeding Q1's volumes. Favorable pricing trends and extended booking lead times are contributing to their positive performance. Nevertheless, the stock price declined, potentially due to the modest Q3 EPS guidance, the expectation of a robust Q4 (November) outcome, and a desire for stronger Q3 adjusted EBITDA guidance. The stock's previous significant increase since May and high expectations may have also influenced the market reaction. Despite the recent setback, Carnival's pent-up demand and its focus on experiential travel make it worth monitoring. The cruise industry is gradually returning to normal, and the stocks are still below their pre-pandemic levels.
Lucid Group (LCID) experienced a boost in its stock price after entering a long-term strategic partnership with luxury automaker Aston Martin. This collaboration involves Lucid providing Aston Martin access to its electric powertrain technology, as Aston Martin aims to launch its first pure electric vehicle by 2025. This deal, worth over $450 million, is a significant milestone for Lucid, which has faced challenges since going public in early 2021. Production delays caused by supply chain disruptions and the semiconductor shortage have been ongoing issues for Lucid, and it remains uncertain if these problems have been resolved. Macroeconomic challenges and high-interest rates also pose hurdles for the company, as it primarily targets higher-priced, discretionary buyers. Lucid's cash burn and the need for additional capital through equity offerings have further impacted its performance. However, the partnership with Aston Martin could serve as a catalyst for a turnaround, attracting interest from other high-end automotive manufacturers venturing into the electric vehicle market. Lucid's largest shareholder, Saudi Arabia's Public Investment Fund (PIF), remains committed to supporting the company's growth by investing billions of dollars and ordering 100,000 vehicles. Lucid's expansion in China also presents an opportunity for future demand. While risks remain, the partnership with Aston Martin has sparked a relief rally for Lucid's stock, although improvements in cash burn and share dilution are necessary for long-term success.
Past update:
Under Armour's market value continues to decline after Wells Fargo downgraded the company's stock, citing concerns about its sales outlook and the challenging North American wholesale channel. This downgrade has contributed to a more than 40% drop in Under Armour's shares since their peak in February. The company's disappointing earnings reports have also contributed to the decline. Despite these challenges, analysts believe that Under Armour's stock may be reaching a point where it could be a reasonable investment. One of the major concerns for the company is its margins, which may face pressures due to a decrease in consumer discretionary spending and an increase in promotional activities. However, competitor lululemon athletica has suggested that the promotional environment may not worsen, which could provide some stabilization for Under Armour. E-commerce is an area where Under Armour has underperformed compared to its peers, but with the appointment of CEO Stephanie Linnartz, who has experience in technology transformation, the company is focusing on improving its online platform and brand recognition. By emphasizing e-commerce and direct-to-consumer sales, Under Armour aims to return to positive growth and improve its margins. However, the company's guidance for fiscal year 2024 indicates a slight decline in North American sales and the possibility of missing its target for international revenue growth due to deteriorating economic conditions overseas. Overall, Under Armour is expected to face challenges in the coming year, but with its stock trading at multi-year lows, much of its current issues may already be priced in.
Apogee Enterprises has surprised investors with a strong start to fiscal year 2024, reporting higher-than-expected earnings in the first quarter. The company, which supplies and installs windows for commercial buildings, is seen as a barometer for the non-residential construction market. Apogee exceeded earnings-per-share expectations and reported an increase in revenue. Additionally, the company raised its full-year earnings-per-share guidance significantly. This suggests that Apogee expects further upside in earnings for the remaining quarters of the fiscal year. However, the company maintained its outlook for flat to slightly down sales for the year, citing market forecasts of a potential slowdown in non-residential construction in the second half of fiscal year 2024. The standout performer for Apogee was its Architectural Glass segment, which saw a 27.5% year-over-year increase in sales. The company's strategic shift to emphasize premium, high-performance products in this segment has resulted in higher margins and improved segment results. The operating margin for the Glass segment increased substantially, although the company acknowledges that this level may not be sustainable for the full year. Nevertheless, Apogee raised its margin expectations for the Glass segment for fiscal year 2024. On the other hand, the Architectural Framing Systems segment experienced minimal sales growth, but improved pricing and mix offset lower volume. The Architectural Services segment posted a decline in sales primarily due to lower project volume. Overall, Apogee's solid performance in the first quarter, especially in the Glass segment, demonstrates the success of its focus on higher-margin areas. This positive performance aligns with recent reports from other construction-related companies, indicating a solid non-residential construction sector.
CarMax is gaining momentum as it demonstrates further signs of stabilization in the retail car market during the first quarter. The company surpassed analysts' earnings estimates and achieved better-than-expected top-line growth. CarMax's strategy of prioritizing margins over market share is proving successful, as gross profit per retail and wholesale units remained steady despite a significant year-over-year decline in unit sales. The company also noted that its market share hit its lowest point in December but has since shown sequential gains from January to April. CarMax's emphasis on margins resulted in a modest 7.7% year-over-year drop in earnings per share (EPS) to $1.44, marking a significant beat compared to the previous quarter. Gross profit per retail used and wholesale unit remained relatively stable year-over-year, even with a decrease in average selling prices for both categories. The company's focus on controlling expenses contributed to a reduction in adjusted selling, general, and administrative (SG&A) expenses by 5.7%, enabling consolidated gross margins to expand by 120 basis points to 10.6%. CarMax Auto Finance (CAF), the company's financing division, also provided a margin cushion due to its low costs. Although the total interest margin contracted year-over-year, CAF's penetration increased to 42.7%, indicating positive performance despite tightening credit conditions. Improved inventory management was another highlight of CarMax's first-quarter performance, with the company purchasing 343,000 vehicles from consumers and dealers, representing a modest decline compared to the previous year but a significant sequential increase. Despite these positive developments, CarMax still faces headwinds. The used car market remains depressed, particularly in the wholesale segment, and the resumption of student loan payments could negatively impact the retail auto market. However, CarMax expressed optimism about ongoing improvements in near-term trends, with accelerating performance across the board during the first quarter. The company believes that the worst of its struggles may be in the past, especially considering the sequential growth in market share from January to April. Nonetheless, there are some concerns that could impact CarMax's recent gains in the future. CarMax's strong performance in the first quarter sets a positive tone for upcoming reports from peers in the retail car market. Investors are keenly watching for reports from companies such as AN, LAD, SAH, and CVNA, which will provide further insights into the industry's performance in the second quarter.