A roundup of some of the North American equities making moves in both directions today
On the rise
Martinrea International Inc. (MRE-T) rose 2.5 per cent on Friday as it raised its dividend after its fourth-quarter profit increased despite the negative effects of the GM strike in the United States.
The autoparts manufacturer says its payout will increase half a cent to 4.5 cents on April 15.
It earned $51.1-million, or 63 cents per share in the quarter ending Dec. 31, up from the $37.8-million or 44 cents per share a year earlier. Adjusted net income including a $17.3 million tax adjustment was $33.8-million, or 42 cents per share, compared with $43.8 million, or 51 cents per share last year.
Raymond James analyst Michael Glen said: “We believe Martinrea is under-owned, undervalued, and underappreciated. We use an extremely conservative target EBITDA multiple of 3.75 times, which remains well-below the 5 and 10-year average forward multiples of 4.8 times and 4.4 times, respectively. The biggest investor pushback regarding MRE stock has been free-cash generation, and we viewed this as the primary factor influencing the heavily discounted valuation. This situation has now changed quite substantially, and we believe the stock deserves to move higher and significantly narrow the valuation gap between itself and its North American peers. We see tremendous value in the stock at current levels and reiterate our Outperform rating.”
On the decline
Costco Wholesale Corp. (COST-Q) was 1.4 per cent lower despite saying Thursday concerns over the coronavirus outbreak have prompted customers to stock up on essentials, including disinfectants, forcing the warehouse operator to replenish certain items frequently.
The company has lately been seeing a surge in footfall as customers queue up at its U.S. stores, similar to the holiday season, which has forced it to place quantity limits on some products.
Some of the frequently purchased items include bleach, bottled water, dry grocery items, sanitizing wipes, sanitizers and water filtration products.
“We’re getting deliveries daily, but still not enough given the increased levels of demand on certain key items,” Chief Financial Officer Richard Galanti told analysts, and added that shopping frequency has been off the charts.
Costco said its February comparable sales, on an adjusted basis, rose 11.7 per cent, adding that concerns related to the virus outbreak had boosted comparable sales by about 3 per cent. The company added the rise in traffic has been continuing into March.
In a research note, RBC Dominion Securities analyst Scot Ciccarelli said: “Sales trends were strong all month/quarter and then accelerated meaningfully as COVID-19 fears spread. GMs were down/missed our forecast, but this was due to mix (gas), e-commerce penetration, and the company’s continual reinvest in value for its members (creating its virtuous sales cycle). Given the rising concerns over an economic slowdown, COST should provide investors with a relative haven. We remain buyers of COST.”
Tesla Inc. (TSLA-Q) fell 2.9 per cent despite saying it has secured Chinese government approval to sell longer-range China-made model 3 vehicles in China, the Ministry of Industry and Information Technology said on Friday.
The vehicles will have a driving range of more than 600 kilometres before they need to be recharged, the ministry said in a statement, while the current China-made Model 3 has a standard driving range of more than 400 kilometres.
Tesla started delivering cars in December from its US$2-billion factory in Shanghai.
See also: Top U.S. stockpicker Michael Baron bets on research, not nerves
Vermilion Energy Inc. (VET-T) plummeted almost 19 per cent on the heels of reporting a fourth-quarter profit of $1.5-million and cutting its dividend in half due to weakness in commodity prices and reduced global economic prospects following the outbreak of the novel coronavirus.
The oil and natural gas producer says COVID-19 has altered individual, business and government behaviour and that these impacts are negative for the outlook for global economic growth, commodity prices in general, and oil demand and prices in particular.
Calgary-based Vermilion says it will now pay a monthly dividend of 11.5 cents per share, down from its earlier rate of 23 cents per share.
In a research note, AltaCorp Capital’s Patrick O’Rourke said: “verall, we view the event as mostly neutral from a financial and operational perspective, with production modestly trailing expectations but cash flow and capital expenditures modestly better than expectations. However, the data point that investors will clearly focus on will be the reduction in the dividend of 50 per cent, which balances the Company’s payout ratio to the current reality of the commodity environment and changing nature of the asset base. Given the yield at close yesterday was 22 per cent, the right sized payout ratio still offers an appealing 11-per-cent yield, and the financial sustainability of the business is directionally improved. Although the short position in the equity had decreased from its peak in October, a short position which is still near all-time highs and an improved financial viability should provide investors some downside protection in the near-term.”
Canada’s three top telecoms companies were down on Friday after the federal government said they must lower prices of their mid-range wireless service plans by 25 per cent within two years, or face regulatory action to increase competition.
Alexandra Posadzki: Ottawa says telecom companies must lower wireless prices or face regulatory consequences
The move aims to fulfill a campaign promise of Prime Minister Justin Trudeau’s Liberal Party to lower the cost of services that Ottawa says are among the highest in the world.
Innovation Minister Navdeep Bains said Bell, a subsidiary of BCE Inc. (BCE-T), Rogers Communications Inc. (RCI.B-T) and Telus Corp. (T-T) must lower the pricing for midrange wireless plans that include data ranging from 2 gigabytes to 6 gigabytes.
“If they are unable to meet those targets in the next two years we will take additional regulatory measures,” he said in a phone interview.
BCE and Rogers were down 0.5 per cent, while Telus dropped 0.6 per cent.
Enbridge Inc. (ENB-T) was almost 1.3 per cent lower after its said Friday it has hired companies to design and build a disputed oil pipeline tunnel beneath the channel linking Lake Huron and Lake Michigan, despite pending legal challenges.
The Calgary-based company is forging ahead with plans to begin construction work next year on the tunnel, which would replace twin pipes that have lain across the bottom of the Straits of Mackinac in northern Michigan since 1953.
JPMorgan Chase & Co. (JPM-N) declined 5.1 per cent after the bank said Chief Executive Jamie Dimon is recovering from emergency heart surgery that took place on Thursday morning, with two deputies taking over as he recuperates.
Mr. Dimon experienced an acute aortic dissection, which was caught early and treated successfully, JPMorgan said by publicly releasing an internal memo.
He is “awake, alert and recovering well,” according to the memo.
The bank’s Co-Presidents and Co-Chief Operating Officers Daniel Pinto and Gordon Smith sent the message to all employees, and are running JPMorgan as Mr. Dimon recovers.
The 63-year-old banker has been CEO of JPMorgan for over a decade, and is a larger-than-life figure on Wall Street.
Starbucks Corp. (SBUX-Q) was 1.2 per cent lower after announcing late Thursday it expects China sales in stores open for at least a year to fall by about 50 per cent in the quarter ending March due to the coronavirus outbreak.
The world’s largest coffee chain said the impact of the epidemic could reduce its second-quarter revenue in China by US$400-million to US$430-million versus its prior expectations, and hurt its adjusted earnings per share by 15 US cents to 18 US cents.
“The estimate reflects the impact of expected lost sales for the period, as well as continued expenses related to partner wages and benefits, store operations and additional costs incurred in response to the COVID-19 outbreak,” the company said in a regulatory filing.
Starbucks said it has been forced to defer some store openings planned in China for fiscal year 2020 to next year due to the outbreak.
See also: Starbucks, Second Cup halt use of reusable cups amid novel coronavirus outbreak
Chipotle Mexican Grill Inc. (CMG-N) dipped 0.7 per cent in the wake of saying on Friday founder Steve Ells has stepped down from the board, handing over the role of executive chairman to Chief Executive Officer Brian Niccol.
Since founding Chipotle in 1993, Mr. Ells has held or shared the CEO role until two years ago. He stepped down from the top role after succumbing to investor pressure on failing to turn around the burrito chain from a string of food safety lapses.
The company’s stock, which took a big hit when two major illness outbreaks were reported, has recovered to touch a new high under CEO Niccol.
See also: Ackman still likes Chipotle, says sold shares to manage portfolio
Arizona-based ON Semiconductor Corp. (ON-Q) was up 3.2 per cent after cutting its first-quarter revenue outlook amid the fast-spreading coronavirus.
The U.S. chipmaker expects revenue to be in range of US$1.28-billion to US$1.33-billion, compared with its previous outlook of US$1.36-billion to US$1.41-billion.
“We saw soft order trends in China in the weeks following Lunar New Year holidays, but orders have since picked up, and we have not seen any significant cancellations of orders,” said Chief Executive Officer Keith Jackson.
U.S. regional TV station operator Gray Television Inc. (GTN-N), based in Atlanta, was down 4.4 per cent after announcing it has made an offer to acquire larger peer Tegna Inc. (TGNA-N) for approximately US$8.5-billion, including debt, people familiar with the matter said on Friday.
A successful bid by Gray would significantly expand its footprint in several TV markets. It underscores the pressure Gray and other companies in the TV station industry are under to gain scale and more pricing power with advertisers and the major networks.
Gray, which has a market capitalization of US$1.6-billion, has offered about US$20 per share in cash and stock for Tegna, two of the sources said. The acquisition financing would add to Gray’s US$3.8-billion debt pile, but the company has a plan to quickly pay down debt should the deal be completed, one of the sources added.
There is no certainty that Tegna, which has a market capitalization of US$2.9-billion and outstanding debt of US$4.2-billion, will accept Gray’s offer or successfully negotiate a deal, the sources said.
Shares of Tegna were 26.5 per cent higher.
With files from staff and wires