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A roundup of some of the North American equities making moves in both directions

On the rise

Manulife Financial Corp. (MFC-T) was higher with the announcement after the bell on Wednesday of a deal with Pennsylvania-based Venerable Holdings Inc. to reinsure over 75 per cent of its legacy U.S. variable annuity block.

It expects the transaction to release approximately $2.0-billion of capital, including a one-time after-tax gain of approximately $750-million to net income and approximately $1.3-billion of net LICAT required capital.

It is also projected to lower annual earnings by approximately $200-million in 2022, reduced core return on equity by 0.5 per cent and increase book value by 38 cents per share.

In a research note, RBC Dominion Securities analyst Darko Mihelic said: “Here is what we see as potential positives of this deal: 1. The deal will reduce legacy earnings by $200 million (maybe call this optics) and more importantly allow capital to be redeployed to high growth, high ROE businesses like Asia and Wealth; 2. A gain on the transaction serves as evidence that MFC’s reserves were more than adequate; 3. MFC’s ability to complete complex deals is impressive; 4. Maybe (and this is a big maybe) it could help with the IFRS 17 transition (though reinsurance accounting under IFRS 17 can be tricky).”

“Overall, we think the deal is a modest positive for MFC but we remain unsure how much of a catalyst this will be for the stock as MFC appears to be selling a high ROE business of 15 per cent-plus and the risk reduction to tail equity market risk does not appear very impressive.”

Pet Valu Holdings Ltd. (PET-T) saw gains after it raised its guidance for the year, driven by strong third-quarter performance, and initiated a dividend.

The Markham, Ont.-based company, which went public in late June, said its revenue was $200.7-million in the third quarter, up from $159.8-million a year earlier.

Net income was $24.3-million, up from $8.7-million in the prior year. Adjusted net income was $27.7-million or 39 cents per share, which was above expectations of 23 cents and compared to 18 cents a year ago.

The board declared an inaugural quarterly dividend of a penny per common share.

The company also raised its 2021 guidance: It now expects revenue of approximately $765-million, up from $730-million previously, which it said is supported by same-store sales growth slightly above 15 per cent.

It also expected adjusted EBITDA of approximately $177-million, up from $158-million and adjusted net income of approximately $69-million, or 97 cents per diluted share, up from $56 million, or 78 cents per share.

Tesla Inc. (TSLA-Q) reversed course after U.S. securities filings showed CEO Elon Musk sold an additional US$930-million in shares on Monday to meet tax withholding obligations related to the exercise of stock options.

Mr. Musk sold 934,091 shares after exercising options to buy 2.1 million stocks at US$6.24 each on Monday. Tesla shares closed at US$1,013.39. He is required to pay income taxes on the difference between the exercise price and fair market value of the shares.

This is the second time in a week that the billionaire has exercised his stock option. Last Monday, he sold another 934,000 shares for US$1.1-billion after exercising options to acquire nearly 2.2 million shares.

The two options-related sales were set up in September via a trading plan that allows corporate insiders to establish preplanned transactions on a schedule, the filings said.

As of the end of 2020, he had an option to buy 22.86 million shares, which expire in August next year, a Tesla filing shows.

JPMorgan Chase & Co on Monday sued Tesla Inc for US$162.2-million, accusing it of “flagrantly” breaching a contract related to stock warrants after its share price soared.

According to the complaint filed in Manhattan federal court, Tesla in 2014 sold warrants to JPMorgan that would pay off if their “strike price” were below Tesla’s share price upon the warrants’ expiration in June and July 2021.

Pfizer Inc. (PFE-N) was up on the same day it announced it will allow generic manufacturers to supply its experimental antiviral COVID-19 pill to 95 low- and middle-income countries through a licensing agreement with international public health group Medicines Patent Pool (MPP).

The voluntary licensing agreement between Pfizer and the MPP will allow the UN-backed group to grant sub-licences to qualified generic drug manufacturers to make their own versions of PF-07321332. Pfizer will sell the pills it manufactures under the brand name Paxlovid.

Medical charity Medecins Sans Frontieres said it was “disheartened” by the deal which it said was restrictive and excluded countries such as Argentina and China with established capacity for producing generic drugs.

“The world knows by now that access to COVID-19 medical tools needs to be guaranteed for everyone, everywhere, if we really want to control this pandemic,” said Yuanqiong Hu, MSF Senior Legal Policy Adviser.

Pfizer, which also makes one of the mostly widely used COVID-19 vaccines, has said the pill cut the chance of hospitalization or death for adults at risk of severe disease by 89 per cent in its clinical trial. The drug will be used in combination with ritonavir, an HIV drug that is already available generically.

Pfizer’s licensing deal follows a similar arrangement by rival Merck & Co. (MRK-N) for generic manufacturing of its COVID-19 treatment. The deals are unusual arrangements that acknowledge the dire need for effective treatments as well as the pressure drugmakers are under to make their life-saving drugs accessible at very low costs.

Pfizer will waive royalties on sales in low-income countries. It will also waive them in the other countries covered by the agreement as long as COVID-19 remains classified as a public health emergency of international concern by the World Health Organization.

Pfizer’s version of the drug will be in high demand. The company has said it expects to manufacture 180,000 treatment courses by the end of next month and at least 50 million courses by the end of 2022.

Even so, the drugmaker could be stretched trying to supply 47 per cent of the world’s population. A Pfizer executive said last week the market for the drug might be up to 150 million people and that many countries might also be interested in buying doses for their strategic reserves.

Pfizer has said it will sell the supply it produces using a tiered pricing approach based on the income level of each country. In the United States, it expects to price its treatment close to where Merck has priced its drug at around US$700 a course.

Qualcomm Inc. (QCOM-Q) said on Tuesday it expects chip sales to Apple Inc. (AAPL-Q) to dwindle to a trickle in the coming years but predicted brisk growth in chips for autonomous cars and other connected devices, sending shares up.

Qualcomm currently supplies all of the modem chips that connect Apple’s devices to mobile data networks, but Apple is working on its own modem chips.

At an investor conference in New York, Qualcomm executives said they expect to supply only 20 per cent of Apple’s modem chips by the launch of the iPhone in 2023. Qualcomm Chief Financial Officer Akash Palkhiwala expects Apple to make up a “low single-digit” percentage of the company’s chip sales by the end of fiscal 2024.

But Apple losses will be more than offset by gains in other fields, Qualcomm executives said.

Qualcomm expects revenue from the automotive sector, where sales were just under US$1-billion in fiscal 2021, to reach US$3.5-billion in five years and US$8-billion in 10 years. Earlier on Tuesday, Qualcomm landed a deal to sell self-driving car chips to German automaker BMW.

On the decline

Shares of Walmart Inc. (WMT-N) dipped at the open after it raised its annual sales and profit forecast in anticipation of a surge in demand for toys and apparel during the crucial holiday season, even as global supply chain disruptions hit its margins in the third quarter.

Major retailers including Amazon have been struggling to bring products into the United States ahead of the peak shopping season due to shipping logjams, shuttered factories in parts of Asia and a scarcity of raw materials in the recent months.

Walmart, which has been chartering its own vessels to move goods, said U.S. inventory was up 11.5 per cent ahead of the busy festive season.

“We have the people, the products, and the prices to deliver a great holiday season for our customers and members,” Chief Executive Officer Doug McMillon said in a statement.

Some analysts expect Walmart and its rivals to have enough inventory this holiday season as shipments that have been delayed for months arrive at U.S. ports.

“All of a sudden you have three months worth of product coming in,” Marshal Cohen, NPD’s chief retail analyst, said.

“What could have been a shortage of product at one point could now very well turn into a surplus.”

Walmart’s forecast comes weeks after rival ecommerce giant Amazon reported an underwhelming fourth-quarter outlook and warned of higher costs during the holiday period.

Bentonville, Arkansas-based Walmart also said it expects full-year U.S. same-store sales to be more than 6 per cent higher than its prior forecast of a 5-per-cent to 6-per-cent rise. Adjusted profit is expected to be around US$6.40 per share up from a previous range of US$6.20 to US$6.35.

In the third quarter, sales at U.S. stores open at least a year rose 9.2 per cent, excluding fuel, benefiting from higher grocery demand and people buying more at stores. Analysts had estimated a gain of 7.04 per cent, according to Refinitiv data.

The increased foot-traffic comes at a time when inflation is high, and deep discounters like Walmart are trying to draw cash-strapped Americans to stores.

Still, some analysts warned of a margin hit during the festive season, with Evercore’s Greg Melich saying that supply chain issues or inflation could see Walmart down 10-30 basis points on its fourth quarter gross margin rate in the U.S..

The company’s third-quarter gross profit rate decreased 42 basis points. Total revenue grew by a better-than-expected 4.3 per cent to US$140.53-billion and on an adjusted basis it earned US$1.45 per share, 5 US cents above Wall Street expectations

Home Depot Inc. (HD-N) also declined after it beat quarterly sales estimates by nearly US$2-billion on Tuesday as Americans, buoyed by a strong housing market, hired more builders and handymen to complete large home improvement projects, boosting demand for tools and materials.

Professional contractors have been rushing back to Home Depot’s stores as they look to upgrade their toolkits and source building materials to complete a backlog of home improvement and repair jobs that were put on hold during the health crisis.

Rising home prices in the United States has also given people confidence to invest in upgrade jobs for their homes, while more millenials moving to suburban areas during the pandemic has expanded the core customer base of retailers like Home Depot.

Same-store sales rose 6.1 per cent in the third quarter, beating estimates of a 1.4-per-cent increase, according to Refinitiv IBES data. Overall net sales rose nearly 10 per cent to US$36.82-billion, beating estimates of US$35.01-billion.

“The results show that home spending is remaining strong even as we cycle the big COVID-related surge from a year ago,” D.A. Davidson analyst Michael Baker said.

Mr. Baker added that Home Depot’s profit margins were performing well despite surging freight and logistics costs due to global supply chain disruptions.

Home Depot has been spending heavily to minimize shortages including even chartering its own cargo ship to deal with the pandemic-driven slowdown of sea networks.

Still, the company said its net earnings rose 20.3 per cent to US$4.13-billion, or US$3.92 per share, in the third quarter.

The retailer’s total transactions fell 5.5 per cent as fewer do-it-yourself customers made purchases compared to last year when the pandemic sparked a surge in amateur home improvement projects.

Home Depot’s results set a high bar for smaller rival Lowe’s Cos Inc. (LOW-N) when it reports quarterly results on Wednesday, analysts said, especially as Lowe’s is more dependent on DIY customers.

NFI Group Inc. (NFI-T) declined despite announcing an order from the University of Michigan’s Transportation Services that could grow to 54 buses.

The initial commitment is for three forty-foot transit buses and one sixty-foot bus. The contract has a base term of one year with 13 one-year renewal terms and also includes options for up to 50 buses in 35-foot, 40-foot and 60-foot lengths.

Separately, it announced an increase to its bought deal offering of unsecured convertible debentures to $300-million from $250-million.

Laurentian Bank Securities’ Nauman Satti said: “NFI’s share and debenture offerings should result in leverage reduction, alongside the covenant relief from the lenders as NFI navigates the industry-wide supply chain challenges. We continue to like NFI’s positioning in the growing EV market, albeit the transaction is reflective of NFI’s balance sheet challenges that limit its ability to invest in new products or undertake any M&A activity. Net/Net, we do not expect the two transactions to have a material impact on our valuations or stock price. For NFI stock to see any multiple re-rating, improvement in supply-side challenges and backlog growth is warranted.”

With files from Brenda Bouw, staff and wires

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