On the rise
A day after its shares dropped 17.9 per cent to a 21-year low, BlackBerry Ltd. (BB-T) recovered from an early decline and climbed 1.5 per cent following the late Wednesday announcement of the pricing of its upsized US$175-million offering of 3-per-cent convertible bonds due 2029.
The initial conversion price of US$3.88 represents an approximately 32.5-per-cent premium to the stock’s last closing price
The Waterloo, Ont.-based company plans to use net offering proceeds to fund repayment and repurchase of its outstanding US$150-million 1.75-per-cent CBs due Feb 15.
Its U.S.-listed shares are down 17 per cent to start 2024, and have roughly halved from their 2023 intraday high hit last September.
Shares of Well Health Technologies Corp. (WELL-T) were higher by 11.4 per cent after announcing before the bell it expects to record positive earnings per share for the fourth quarter of 2023.
The Vancouver-based digital healthcare provider also predicted it will announce its 20th consecutive quarter of record quarterly revenue , “underpinned by record care metrics which includes record patient visits of over 1.22 million and almost 1.87 million Total Care Interactions in the quarter with both metrics representing 18 per cent sequential quarter-over-quarter growth.
“This quarter’s strong performance was driven by double-digit year-over-year organic growth as well as elevated inorganic growth in both US and Canadian patient visits,” it added in a press release. “On a year-over-year basis, overall patient visits grew by 30 per cent while Total Care Interactions grew by 38 per cent.”
Seeing a recent pullback in Well’s share price as a buying opportunity for investors, Echelon Partners analyst Rob Goff said: “WELL shares are down almost 10 per cent this week after Monday saw a 14-per-cent decline after a broker downgraded the stock to Neutral citing recent trends of softer margins, which they believe will persist. The broker also argued that acquiring lower margin/growth assets, such as primary care clinics, merit a lower valuation multiple with a sum-of-the-parts (SOTP) valuation. We do not focus on WELL’s SOTP valuation and would be more sensitive to modest margin compression on consolidated valuations where the share valuation considerations were primarily EV/revenue and EV/gross profits. However, we see shareholders turning to EV/EBITDA measures where we see value in the EBITDA accretion beyond the potential valuation impact of modest margin compression. We believe investors look for further EBITDA margin tapering reflecting the EBITDA accretive but lower margin acquisitions made at nominal outlays. ... While generating FCF, WELL’s shareholder EBITDA per share has advanced from $0.20 in 2021 to $0.33 in 2022 with our 2023 forecast at $0.37. Furthermore, many of these acquired/absorbed assets have been consolidated for less than 12 months and have further margin expansion ahead. Under WELL’s established M&A playbook, it selectively buys strategic (location and scale are key) lower margin assets (either negative or neutral EBITDA) and through revenue optimization, cost efficiencies, and cross-selling, lifts margins toward 10per cent and on towards 20 per cent. In select cases referred to as “absorptions”, WELL simply takes over the lease and absorbs the clinic versus paying anything upfront to acquire them. Physician groups may be drawn to absorptions where revenue optimization at the clinic leads to higher revenue-based draws. The fact that WELL has been able to buy these assets at very steep discounts and without shareholder dilution gives us confidence the strategy will continue to add shareholder value through EBITDA growth.”
American Airlines Group (AAL-Q) forecast 2024 profit largely above Wall Street expectations on Thursday as the carrier benefits from strong demand for international travel, sending its shares up 10.3 per cent.
The company expects full-year adjusted earnings per share to be between US$2.25 and $3.25, compared with analysts’ estimate of $2.25 per share, according to LSEG data.
U.S. airlines that fly internationally are experiencing a surge in demand for long-haul flights, driven by a robust dollar that is prompting more Americans to consider overseas travel for leisure and recreation.
Airline executives have also flagged bumper revenue during the holiday season, including Thanksgiving and Christmas, as more people choose experiences over purchasing goods.
On Thursday, American Airlines reported a lower fourth-quarter profit of $19 million, or 3 cents per share, compared with $803 million, or $1.14 per share, a year earlier.
Revenue fell 1% to $13.06 billion.
Shares IBM (IBM-N jumped to a more than 10-year high on Thursday after the company reported a better-than-expected revenue outlook backed by strong demand for its artificial intelligence (AI) services.
Orders from IBM’s generative AI business, which includes bookings and sales from services such as those powered by its Watsonx AI platform, doubled in the fourth quarter and are expected to help its revenue grow by around 4-6 per cent in 2024, the company reported late on Wednesday.
Consulting firms and software companies, including Germany’s SAP SE, account for much of IBM’s AI-related bookings, IBM Chief Financial Officer James Kavanaugh told Reuters.
IIBM shares rose to a peak of US$196.58, their highest since June 2013, adding about US$20-billion to the company’s market capitalization. The stock is now up nearly 20 per cent year-to-date and on track for its biggest daily percentage gain since March 2020.
At least eight Wall Street analysts, including from Bank of America, JPMorgan, Jefferies and Evercore, raised their price targets for IBM’s stock following the announcement. The median price target of the 20 analysts covering IBM is US$144.50, unchanged from a month ago, and their average recommendation is “hold”, according to LSEG data.
In an investor note, JPMorgan analysts led by Brian Essex raised their price target to US$190 from US$170.
“We don’t think IBM has seen the valuation benefit that some technology peers have from AI, as recent multiple expansion has trended generally below the primary comparisons we look to for valuation,” they said.
Microsoft Corp. (MSFT-Q) rose 0.6 per cent after news website The Verge reported it is letting go of 1,900 employees at Activision Blizzard and Xbox this week, as last year’s widespread tech layoffs spill into 2024.
The cuts represent around 8 per cent of the overall Microsoft Gaming division and will mostly happen at Activision Blizzard, the report said, citing an internal memo from the head of the company’s gaming division, Phil Spencer.
Blizzard President Mike Ybarra and Chief Design Officer Allen Adham are also leaving the company, while a previously announced survival game by Blizzard has been canceled, the report said.
The news comes months after Microsoft closed its US$69-billion deal for Activision Blizzard, boosting its heft in the videogaming market with best-selling titles including Call of Duty to better compete with industry leader Sony.
Several other big firms including Alphabet, Amazon.com and ebay have also laid off thousands of staff in recent weeks to lower costs and boost profitability.
Comcast Corp.’s (CMCSA-Q) quarterly revenue topped Wall Street estimates on Thursday, as growth in its streaming and theme parks businesses, including a widely watched NFL playoff game, more than offset further losses of broadband subscribers.
Revenue rose 2.3 per cent to US$31.25-billion in the fourth quarter, beating analysts’ estimates of US$30.51-billion, according to LSEG data.
Shares of the U.S. media giant rose 3.4 per cent in Thursday trading.
Comcast lost 34,000 broadband customers in the quarter, less than the loss of 61,000 customers that had been forecast, according to FactSet but exceeding the 18,000 broadband customers it lost in the previous quarter.
During the company’s October call with investors, finance chief Jason Armstrong had said it expected “somewhat higher” broadband subscriber losses in the fourth quarter.
The company has faced pressure from wireless carriers such as Verizon (VZ-N) and T-Mobile (TMUS-Q), which offer broadband services that target lower-income customers.
Revenue at the company’s Peacock streaming service rose 56.5 per cent from a year earlier, surpassing US$1-billion in quarterly revenue for the first time to US$1.03-billion. Paid subscribers increased by 3 million in the fourth quarter, to 31 million.
The company has been investing in live programming in an effort to draw more viewers to Peacock. This month, Peacock was the first streaming service to exclusively air an NFL playoff game. The Kansas City Chiefs and the Miami Dolphins game averaged 23 million viewers and became the most-streamed event in U.S. history.
Comcast reported a 5.7-per-cent rise in revenue in its content and experiences segment, which includes NBCUniversal, to US$11.5-billion.
Hits like Oppenheimer, Super Mario Bros. Movie and Fast X drove Comcast’s Universal Pictures to the number 1 spot at the worldwide box office for 2023 - the first time since 2015 that Walt Disney was not the leader.
Revenue in its theme parks business rose 12.2 per cent, to US$2.37-billion, boosted by attendance at the Osaka, Japan and Hollywood, California parks.
The company raised its dividend by 8 US cents, to US$1.24 per share on an annualized basis for 2024.
Ford Motor Co. (F-N) turned higher and closed up 2.8 per cent in the wake of saying late Wednesday it expects to record a pre-tax remeasurement loss of about US$1.7-billion, related to its employees pension and other post-retirement benefits, in its fourth-quarter results.
On an after-tax basis, Ford says the loss will lower its net income by around US$1.3-billion.
The Detroit automaker said the loss was driven by lower discount rates from a year ago.
A remeasurement loss relates to losses arising from a company re-evaluating the value of long-term assets or foreign currency.
Ford’s announcement comes a week ahead of Detroit rival General Motors’ (GM-N) fourth-quarter results and two weeks before its own.
Skydance Media CEO David Ellison has made a preliminary offer to buy National Amusements, the holding company of the Redstone family, as a way to take control of Paramount Global (PARA-Q), Bloomberg News reported on Wednesday.
Shares of Paramount jumped 4.5 per cent in response.
Mr. Ellison has held discussions with Paramount about merging it with Skydance Media, after he takes control, the report said, citing people familiar with the matter. Both sides have hired advisers, the report added.
Reuters had reported earlier this month that Mr. Ellison was exploring an all-cash bid for National Amusements, with financing from Skydance’s existing investors the Ellison family, RedBird Capital Partners and Tencent.
Paramount frequently receives expressions of interest in acquiring Paramount Pictures, but Shari Redstone, whose family controls Paramount, has been reluctant to part with one of Hollywood’s most prestigious studios, Reuters had reported.
National Amusements directly or indirectly owns 77 per cent of the voting shares of Paramount, and also controls CBS.
On the decline
Parkland Corp. (PKI-T) slid almost 2 per cent after saying it has temporarily shut down fuel processing at its Burnaby, B.C. refinery.
The Calgary-based fuel distributor and marketer says it paused processing operations at the refinery earlier this month due to extreme cold weather in B.C., then encountered an issue on Jan. 21 when trying to restart.
In an advisory to area residents posted on its website Jan. 21, Parkland said the issue occurred in one of the refinery units.
It said residents may notice elevated levels of smoke, odours and particulate matter coming from the refinery.
Parkland Corp. said Wednesday it expects the refinery to remain shut down for approximately four weeks.
The company said it has increased imports of fuel into its on-site terminal in order to ensure reliability of fuel supply in the Lower Mainland and on Vancouver Island.
Tesla (TSLA-Q) tumbled over 12 per cent on Thursday after CEO Elon Musk warned sales growth would slow this year despite price cuts that have already hurt margins and raised investor concerns at the world’s most valuable automaker.
Mr. Musk said growth would be “notably lower” as Tesla focuses on a cheaper, next-generation electric vehicle to be made at its Texas factory in the second half of 2025, which is expected to spark the next boom in deliveries.
But his remarks fell flat with investors, with Tesla set to lose about US$70-billion in market value, if losses hold. That would push its market capitalization loss for the month to about US$200-billion.
“The Tesla headlines have essentially gone from bad to worse,” said TD Cowen analysts, noting that the fourth-quarter revenue and profit were also below expectations.
Shares of other EV makers also fell, with Rivian Automotive Inc. (RIVN-Q), Lucid Group Inc. (LCID-Q) and Fisker Inc. (FSR-N) down.
The EV industry has been grappling with a slowdown in demand for more than a year and the price cuts by Tesla will likely worsen the pressure on the startups and automakers such as Ford (F-N).
“The problem for Tesla is any significant attempt to boost sales from here on will probably need to be achieved at the cost of further falls in operating margin, due to having to compete with BYD in China, as well as increased competition elsewhere,” said Michael Hewson, chief market analyst at CMC Markets.
At least, nine brokerages downgraded the stock, while seven raised their ratings. The company, on average, has a “hold” rating with a median price target of US$225, nearly 9 per cent higher than the share’s last closing price.
Tesla short sellers have made US$3.45-billion so far this year, making it the most profitable U.S. short trade, according to data and analytics firm Ortex.
The company’s stock trades at nearly 60 times its 12-month forward earnings estimates, according to LSEG data. That gives it a more premium valuation than the other “Magnificent Seven” stocks – a group that includes Apple, Microsoft and Nvidia.
Some analysts said valuation could become tough to justify if Tesla’s sales growth and margin weaken further.
“Tesla is increasingly looking like a traditional auto company,” said Bernstein analyst Toni Sacconaghi.
Boeing Co. (BA-N) dropped 5.7 per cent after the U.S. Federal Aviation Administration barred the troubled planemaker from expanding production of its 737 MAX narrowbody planes.
The FAA announced the unprecedented intervention in production schedules late on Wednesday, in a double-edged decision that also saw the partial grounding of the MAX 9 model lifted once inspections are done.
The FAA said the order meant Boeing could continue producing MAX jets at the current monthly rate, but it could not increase that rate. It offered no estimate of how long the limitation would last and did not specify the number of planes Boeing can produce each month.
The ability to resume flying was a relief to U.S. MAX 9 operators Alaska Airlines (ALK-N) and United Airlines (UAL-Q), which had been forced to cancel thousands of flights and aim to begin returning the planes to service on Friday and Sunday, respectively.
But experts said the FAA’s response to “unacceptable” quality controls following the loss of a door plug at 16,000 feet on Jan. 5 could delay some deliveries of new planes to airlines and hurt suppliers already reeling from an earlier MAX crisis and the pandemic.
U.S. health insurer Humana Inc. (HUM-N) said on Thursday that its 2025 profit forecast was no longer achievable after an increase in medical care among older adults led to a sharply lower outlook for this year, sending its shares plunging almost 12 per cent.
Medical costs for health insurers have surged in recent quarters as people, especially older adults, returned to hospitals to undergo procedures like joint replacements which they had delayed during the COVID-19 pandemic.
“We believe the elevated (Medicare) medical costs are an industry dynamic, not specific to Humana, and that they may persist for an extended period or, in some cases, permanently reset the baseline,” Humana said.
Shares of other health insurers such as CVS (CVS-N), Cigna (CI-N), Centene (CNC-N) and UnitedHealth (UNH-N) were also down.
Humana forecast an adjusted profit of about US$16 per share for 2024, much lower than analysts’ expectations of US$29.10 per share, according to LSEG data.
The company, which primarily provides government-backed insurance including Medicare Advantage, saw an increase in its medical benefit ratio to 90.7 per cent in the fourth quarter, higher than analysts’ estimates of 89.7 per cent.
With files from staff and wires
David Leeder