Let’s take a look at some of the top stories around the markets February 4.
By Kris Rosemann
Shares of Ultimate Software Group (ULTI) jumped on the announcement of its agreement to be taken private by a consortium of investors led by Hellman & Friedman for $331.50 per share, or roughly $11 billion. We like the deal for Ultimate Software shareholders as it represents a material premium to both our fair value estimate for shares and its recent share price levels.
Microcap developer and manufacturer of energy solutions Maxell Technologies (MXWL) has agreed to be acquired by Tesla (TSLA) for $4.75 per share in stock. Shares of Maxwell will be exchanged for a fraction of Tesla stock that will be tied to a ratio of a volume weighted average price of one share of Tesla’s stock for the five trading days preceding the offer’s expiration divided by $4.75, which is subject to a floor set at 80% of a volume weighted average of Tesla’s stock as calculated prior to the signing of the deal. The deal is expected to close in the second quarter of 2019 or shortly thereafter, and we think Maxwell shareholders are receiving a fair price as it is just below the upper bound of our fair value range for shares. Maxwell brings Tesla a focus on and experience in efficient energy storage and power delivery solutions as the acquirer works to accelerate a large-scale transition to sustainable energy solutions.
Consumer staples giant Clorox (CLX) turned in better than expected fiscal 2019 second quarter results before the open February 4 as sales in the period advanced 4% on a year-over-year basis after factoring in a 3 percentage point headwind from currency exchange rates and a 4 percentage point boost from the April 2018 acquisition of Nutranext. Clorox’s gross margin expanded 70 basis points from the year-ago period thanks to price increases and cost savings more than offsetting higher manufacturing and logistics costs and commodity cost inflation. Earnings from continuing operations per diluted share fell 21% on a year-over-year basis to $1.40 due in part to a material one-time benefit from the implementation of US tax reform in the comparable period of fiscal 2018.
Clorox reiterated its guidance for fiscal 2019 for sales growth to be 2%-4% and diluted earnings per share to be in a range of $6.20-$6.40. The company expect gross margin to be roughly flat in fiscal 2019 as the aforementioned cost headwinds are offset by price increases and cost savings, and it continues to spend aggressively on advertising and sales promotions, which together are targeted at 10% of sales in fiscal 2019. Clorox is not alone in its quest to stave off margin pressures as other consumer staples firms have been working to address similar issues, “Consumer Staples Giants Fight Input Cost Inflation.” Shares of Clorox are trading above the upper bound of our fair value range, and its Dividend Cushion ratio hovers just above parity at last check.
Big tech companies continue to struggle with potentially slowing demand, “Here It Comes… Apple’s Shot Across the Bow,” with Sony (SNE) the latest to lower expectations for top-line performance. Shares of the Japanese firm faced material selling pressure Friday, February 1, after it reported lower than expected profits in its PlayStation business and lowered its annual revenue expectations for its fiscal 2018 (ends March 2019). Higher promotional and marketing costs weighed on its ‘Game & Network Services’ segment performance despite strength in game software sales as it works to drive volume of its PlayStation 4 console, and weaker demand for camera chips and mobile handsets were highlighted as top-line headwinds for the full fiscal year, both of which reflect mounting concerns surrounding smartphone market volumes. Shares of Sony are trading just above our fair value estimate as of this writing.
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Kris Rosemann does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.