A look at North American equities heading in both directions
On the rise
Laval, Que.-based Bellus Health Inc. (BLU-T) soared 99.7 per cent after announcing it has agreed to be acquired by GSK plc in an all-cash deal for US$2-billion as the British drugmaker expands its bet on respiratory therapies.
The move to replenish its pipeline comes as GSK investors fret about whether there is enough in the medicine cabinet to keep the momentum going into the next decade with expected loss of patent protection of one of its key compounds.
At the heart of the deal – announced by both companies on Tuesday – is the experimental drug, camlipixant, which is in late-stage development for refractory chronic cough (RCC).
The condition can cause patients to cough more than 900 times a day. Some 10 million patients globally suffer from it for more than a year. So far, there are no approved therapies in the United States and Europe.
GSK’s offer of US$14.75 per share is more than double Bellus’ closing price of US$7.26 on the Nasdaq on Monday.
The Bellus deal expands GSK’s existing respiratory portfolio, including Nucala and Trelegy, which generated more than a combined 3 billion pounds (US$3.73-billion) last year.
Camlipixant is up against Merck’s rival drug, gefapixant, for RCC patients.
Bank of America Corp. (BAC-N) closed up 0.6 per cent after its first-quarter profit beat analysts’ estimates as it collected hefty interest payments from customers while its bond traders had their best quarter in a decade.
Rival banking giants JPMorgan Chase and Co. (JPM-N) and Citigroup Inc. (C-N) also reaped windfalls from higher interest payments in the first quarter, while setting aside billions of dollars to prepare for a worsening economy.
“Results were strong despite a challenging economic environment with market and banking sector volatility,” Bank of America Chief Financial Officer Alastair Borthwick said on Tuesday.
The collapse of two U.S. lenders in March shook the industry and exacerbated concerns about a looming recession. The crisis battered bank stocks and prompted spooked depositors to move their cash to larger institutions.
BofA reported a profit of 94 US cents in the three months ended March 31, compared with estimates of 82 US cents per share, according to Refinitiv IBES data.
“Bank of America had a strong Q1 as higher interest rates continued to boost its net interest margin despite rising deposit costs,” David Fanger, senior vice president at Moody’s Investors Service, said.
“This, together with strong sales and trading revenues and the seventh consecutive quarter of positive operating leverage, more than offset the adverse impact of modest deposit outflows.”
Total deposits fell 1 per cent to US$1.91-trillion, compared with the fourth quarter, as customers who were unsatisfied with the deposit rates offered by lenders moved their cash into money market funds to chase greater yields.
Traders in fixed income, currencies and commodities stayed in high demand, bringing in US$3.5-billion in revenue for BofA, up 27 per cent from a year earlier.
BofA’s net interest income, which reflects how much money the bank makes from charging interest to customers, rose 25 per cent to US$14.4-billion in the quarter.
The S&P 500 Banks index, which tracks major U.S. bank stocks, has lost 8 per cent this year, as of last close. Meanwhile, the KBW Regional Banking index has lost nearly 20 per cent over the same period.
Meanwhile, global M&A activity shrank to its lowest level in more than a decade in the first quarter of 2023, hurt by rising interest rates, high inflation and recession fears. The slump in dealmaking has weighed on Wall Street investment banks in recent months, prompting thousands of job cuts.
The company’s net income applicable to common shareholders rose to US$7.66-billion, or 94 US cents per share, for the three months ended March 31, the second-largest U.S. lender reported. That compares with US$6.6-billion, or 80 US cents per share, a year earlier.
The company’s revenue, net of interest expense, increased 13 per cent to US$26.3-billion, beating estimates of US$25.13-billion.
U.S. weapons maker Lockheed Martin Corp.’s (LMT-N) first-quarter results surpassed Wall Street targets on Tuesday despite parts and labor shortages, as simmering geopolitical tensions fueled demand from both U.S. and international customers.
Shares of the company rose as much as 3.8 per cent to hit a record high of US$508.1 in morning trading. They closed up 2.4 per cent at US$501.29.
Rising tensions in Europe, the South China Sea and the Indo-Pacific region have translated to more orders for Lockheed’s F-35 fighter aircraft, missiles and other defense equipments, driving quarterly net sales of US$15.13-billion above estimates of US$15.03-billion.
The Pentagon’s US$858-billion defence budget for 2023 has also resulted in multiple contract wins for U.S. defense firms such as Lockheed, Raytheon Technologies and Northrop Grumman Corp, which count the U.S. Department of Defense as their biggest customer.
Bethesda, Maryland-based Lockheed reported GAAP earnings per share of US$6.61, which included non-operational gains of 18 US cents per share, and adjusted earnings of US$6.43 per share for the first quarter ended March 26. Analysts were expecting profits of US$6.06 per share.
During the quarter, Australia said it would buy 40 Black Hawk military helicopters made by Lockheed from the U.S. for about US$1.96-billion as it boosts defense spending over issues with China’s presence in the Indo-Pacific region.
Lockheed had also finalized a deal to sell 88 F-35 jets to Canada in a US$14.2-billion project to replace the country’s aging fleet of fighter aircraft.
The missiles maker reaffirmed its full-year outlook, projecting net sales in the range of about US$65-billion to US$66-billion and profits between US$26.60 and US$26.90 per share.
Nvidia’s (NVDA-Q) stock jumped to its highest in a year on Tuesday, extending a recent rebound after HSBC flipped its recommendation on the graphics chipmaker to “buy” from “reduce,” pointing to opportunities in artificial intelligence.
HSBC Head of Technology Research Frank Lee had been the only one among 48 analysts covering Nvdia to have a negative rating on the chipmaker, according to Refinitiv data.
Nvidia’s 91-per-cent rally so far in 2023 makes it the S&P 500′s top-performing stock during that time. The Silicon Valley company’s stock has rebounded about 150% from its low in October.
Investors have been betting that Nvidia will become a dominant chip supplier in an emerging wave of artificial intelligence computing, even as the global semiconductor industry weathers a downturn in sales due to worries about the economy.
“We’re throwing in the towel on our previous Reduce and double upgrade Nvidia to Buy. We were too focused on the slowdown in datacentres, but what really surprised us was its pricing power on AI chips,” Lee wrote in a client note.
Nvidia rose to US$281.10 on Tuesday, its highest level since March 2022.
Bank of New York Mellon Corp. (BK-N) gained 1.5 per cent as it beat first-quarter profit estimates on Tuesday, benefiting from the Federal Reserve’s rate hikes that boosted the lender’s interest income.
BNY’s average deposits, a key metric investors have been focusing on this quarter following the bank sector troubles, fell 3 per cent to US$274-billion, compared with the end of last year. They dropped 13 per cent on a year-over-year basis.
The banking crisis along with the already existing concerns about a recession prompted BNY to set aside US$27-million in provisions for losses, up from US$2-million a year earlier.
On an adjusted basis, the bank reported a profit of US$1.13 per share, edging past analysts’ average estimate of US$1.12 per share, according to Refinitiv IBES data.
The New York-based lender’s net interest income for the quarter surged 62 per cent to US$1.1-billion, compared with US$698-million a year earlier.
Assets under custody and administration increased 2 per cent to US$46.6-trillion, reflecting client inflows and net new business, the bank said.
Quarterly revenue jumped 11 per cent to US$4.4-billion.
On the decline
PrairieSky Royalty Ltd. (PSK-T) was lower by 3.4 per cent after reporting first-quarter results after the bell on Monday that fell short of the Street’s expectations.
The Calgary-based company reported royalty production of 24,809 barrels of oil equivalent per day, up 9 per cent year-over-year but trailing the consensus forecast of 26,000 boe/d. Cash flow of $86.3-million was also lower than anticipated ($98.8-million) due to a $10.9-million cash charge from its long-term incentive plan.
“PrairieSky posted a softer than expected quarter on natural gas outages/downtime and PPAs relating to freeze-offs in Q4/22,” said RBC Dominion Securities analyst Luke Davis in a note. “Activity levels remain strong, with leasing continuing to trend higher and oil plays making up a greater portion of new wells drilled. We believe this indicates a solid setup for the balance of the year and think investors should look through any near-term weakness given the transient nature of the volume miss.”
Before the bell on Tuesday, several equity analyst updated their target prices for PrairieSky shares in response to the release.
Bank, who is associated with Danish retail chain Salling Group A/S, will formally join Loblaw by the first quarter of 2024, the companies said. He will take over from Galen Weston as the president.
Mr. Weston will remain chair of Loblaw’s board as well as the CEO and chair of the board of George Weston Ltd.
Founded in 1882, George Weston Ltd is majority owned by the Weston family and owns Loblaw and Choice Properties Real Estate Investment Trust (CHP.UN-T). Loblaw operates more than 2,400 stores in Canada.
This appointment comes as Chief Operating Officer Robert Sawyer is due to retire by end-2023. Sawyer served as a director on the George Weston board since 2016 and was appointed the COO of Loblaw in May 2021.
In February, Loblaw forecast its annual earnings above analysts’ expectations and beat fourth-quarter estimates, helped by strength in its pharmacy business and as demand held up for groceries.
Shares of Nuvei Corp. (NVEI-T) fell 0.8 per cent after short seller Spruce Point Capital Management released a second report criticizing the Montreal-based fintech company.
The New York-based investment management firm also issued a “strong sell” rating on Nuvei’s stock, saying it faces a 35 per cent to 50-per-cent long-term downside risk. Shares in Nuvei are up almost 60 per cent this year.
Nuvei did not immediately respond to a Reuters request for comments.
In January, Nuvei bought Paya Holdings, a payments solutions company, in a US$1.3-billion levered deal. Spruce Point alleged in its report that the acquisition “appears troubled,” as Paya was losing market share before the takeover.
Spruce Point said Nuvei’s 2023 earnings before interest, taxes, depreciation and amortization (EBITDA) is falling roughly 40 per cent, if Paya’s acquisition is excluded.
“Nuvei is exposed to slowing inflation and consumer spending. Our analysis also suggests that its underlying economics are deteriorating and that it is heavily reliant on buoying its stock price as a tool to attract, retain and compensate employees,” it said.
The report also challenged Paya’s number of clients, based on talks with a former Paya executive, saying it never had one million customers as it mentions.
The short seller also said Nuvei may have an equity interest in bankruptcy crypto exchange FTX and failed to disclose its total crypto and digital exposure.
In a December 2021 report, Spruce Point questioned the backgrounds and connections of a number of several Nuvei executives, and raised concerns about the company’s accounting for recent acquisitions.
Miner B2Gold Corp. (IMG-T) was down 1.4 per cent after saying Tuesday it has started the phased closure of its Otjikoto open-pit mine in Namibia because of its depleted gold resource.
The mine, which began commercial production in March 2015, produced 161,614 ounces of gold in 2022, contributing nearly 16 per cent of B2Gold’s total output last year. The Canadian miner also has operations in Mali and the Philippines as well as exploration projects in Uzbekistan, Finland and Colombia.
“B2Gold Namibia has commenced with the implementation of its Phased Mine Closure Plan at the Otjikoto mine. Phased downscaling of operations, in line with the closure plan, are only scheduled to commence during the first quarter of 2024,” it said in response to Reuters questions.
The company said it was consulting workers likely to be affected by the closure. It did not say how many of the 942 permanent employees would be affected, saying job cuts would be determined by the ramp-down schedule.
Economically viable operations at Otjikoto, which includes low-grade stock processing, are projected to end in 2031. Open-pit viability is projected to end in 2024, with output dropping to 50 per cent of production capacity.
B2Gold says it will continue to develop its underground mine at Otjikoto in an effort to replace ounces from the winding down of open-pit operations.
It is also in the process of acquiring Canadian exploration and development company Sabina Gold & Silver Corp. (SBB-T) in a $1.2-billion all-share deal.
Goldman Sachs’ (GS-N) first-quarter profit fell 19 per cent as sluggish dealmaking eroded the Wall Street giant’s fees from investment banking, while losses from the sale of some loans from its consumer unit, Marcus, weighed on the results.
Goldman booked a US$470-million loss on the sale as the bank rejigs its strategy after a foray into consumer banking, which Chief Executive David Solomon had championed for years, flopped.
It is also exploring strategic options for its consumer platform business, which has lost about US$3-billion in three years, executives told investors in February.
Goldman reshuffled its businesses last year, leaning into its traditional mainstays of trading and investment banking, beefing up its asset management arm and stepping back from its consumer aspirations.
“The events of the first quarter acted as another real-life stress test,” CEO Solomon said in a statement.
Shares of the bank declined 1.7 per cent. As of last close, they have lost nearly 3 per cent since March 8 when Silicon Valley Bank unveiled its attempt to raise capital and triggered a meltdown in banking stocks.
Goldman’s profit in the quarter ended Mar. 31 fell to US$3.09-billion compared with US$3.83-billion a year earlier, while earnings per share slid to US$8.79 from US$10.76 last year, it said on Tuesday.
Global mergers and acquisitions activity shrank to its lowest level in more than a decade in the first quarter of 2023, according to data from Dealogic. That hurt Goldman’s investment banking fees by 26 per cent to US$1.58-billion.
Revenue from fixed income, currency and commodities (FICC) trading, usually a bright spot, fell 17 per cent to US$3.93-billion, while equity trading revenue fell 7 per cent to US$3.02-billion.
Peer JPMorgan Chase & Co (JPM-N) had last week reported a 24-per-cent drop in investment banking revenue. Its fixed income trading revenue was flat, while equity trading revenue plunged 12 per cent.
Goldman’s net revenue in the quarter fell 5 per cent to US$12.22-billion.
Johnson & Johnson (JNJ-N) beat first-quarter profit estimates and raised its 2023 profit forecast on Tuesday, as cancer drugs such as Erleada and Crohn’s disease treatment Stelara boost sales at its large pharmaceuticals unit.
Shares of the Dow component slid 2.8 per cent as sales across all the company’s businesses, including medical devices and consumer health, beat estimates.
“Our position has changed to responsibly optimistic. We feel very good about 2023,” Chief Financial Officer Joseph Wolk told CNBC.
Sales of its cancer treatments such as prostate cancer therapy Erleada and multiple myeloma drug Darzalex are closely watched by investors as the company targets about US$60-billion in drug sales by 2025 at a time when older drugs face fierce competition.
The company reported sales of US$2.44-billion for Stelara for the first quarter. Two analysts polled by Refinitiv had expected sales of US$2.41-billion.
Darzalex sales of US$2.26-billion met expectations, while Erleada sales of US$542-million beat estimates of $500 million.
A recovery in medical procedures after being weighed down by hospital staffing shortages helped the medical device unit post sales of US$7.48-billion, topping estimates of US$7.31-billion.
Sales at its consumer health unit, which the company is in the process of spinning off, rose 7.4 per cent to US$3.85-billion, surpassing estimates of US$3.62-billion, powered by price hikes to offset the impact from inflation.
Meanwhile, J&J swung to a loss of 3 US cents per share for the first quarter due to a one-time charge related to the second bankruptcy filing for its talc liabilities.
The company has said it would take a charge of US$6.9-billion related to the bankruptcy.
On an adjusted basis, the drugmaker posted first-quarter earnings of US$2.68 per share, beating estimates of US$2.50.
J&J expects to earn between US$10.60 and US$10.70 per share on an adjusted basis this year, compared with its prior forecast of between US$10.45 and US$10.65.
With files from staff and wires