Top US Stocks: Merck, Acceleron and Philip Morris

Merck to buy Acceleron, the US bans the import of PMI’s IQOS, Apollo Global strikes a deal with Mitsubishi Chemical, Facebook could face a hefty fine in Russia, CarMax delivers record sales, Bed Bath & Beyond disappoints, and Olaplex upsizes its IPO offering.

Merck and Acceleron

Merck has agreed to buy Acceleron Pharma for around $11.5 billion, just days after Acceleron revealed it was looking for a buyer willing to pay a premium for the business.

The deal is worth $180 per Acceleron share and Merck has taken the plunge so it can bolster its pipeline of new drugs, with Acceleron focused on drugs that help regulate and repair cell growth. Its lead drug candidate, sotatercept, is aiming to provide treatment for pulmonary arterial hypertension, which is a life-threatening blood vessel disorder. Acceleron also owns REBLOZYL, a treatment for anaemia in certain rare blood disorders that has already been approved in the US.

‘Acceleron’s innovative research has yielded an exciting late-stage candidate that complements and strengthens our growing cardiovascular portfolio and pipeline and holds the potential to build upon Merck’s proud legacy in cardiovascular disease,’ said Merck.

The deal should close before the end of 2021. Notably, other pharmaceutical firms, including Accelron shareholder and partner Bristol-Myers Squibb, had been touted as potential buyers before Merck made its move.

 

Philip Morris International

The US International Trade Commission has halted the import of the IQOS heated tobacco device made by Altria and Philip Morris International after making a ruling in a case brought by rival RJ Reynolds Tobacco, according to reports in the Wall Street Journal.

The case will now move to administrative review, which the report said will last around two months. Notably, the ruling will need to be signed off directly by president Joe Biden and Philip Morris is set to appeal the decision.

 

Apollo Global Management

Apollo Global Management said funds managed by its affiliates have struck a deal to buy the thermal and emission control materials business from Mitsubishi Chemical Corp for JPY85 billion, equal to around $759 million.

Apollo said the business is a global leader in the space, providing products such as heat-protective equipment to industrial businesses and automakers to help reduce the emissions in traditional and hybrid vehicles, while also working on new solutions for electric vehicles.

It is the second investment made by its private equity fund in Japan this year following the acquisition of Showa Denko’s aluminium can and rolling business. The deal should close by the end of March 2022.

 

Facebook

Facebook is poised to be hit with a major fine in Russia that could be equal to up to 10% of its annual revenue in the country, according to reports from the Vedomosti daily yesterday.

The report said the state communications regulator Roskomnadzor said the social media platform’s repeated violations could see it fined 5% to 10% of its revenue in Russia, which is estimated to be around $165 million. That comes after the regulator asked Facebook and others to remove content. There is thought to be around 17 different administrative cases filed against Facebook alone in Russia, but a fine of this level would dwarf those that have been issued so far.

The move comes only one day after reports that Russia had threatened to block Google’s YouTube after it removed the state-backed news channel RT’s German-language channels from its platform.

 

CarMax

CarMax delivered record revenues in the second quarter of its financial year thanks to the boom in demand for used cars, but said earnings dipped after being flattered by cost-savings last year.

Net revenue jumped over 48% year-on-year to $8.0 billion in the three months to the end of August, with volumes rising 20%. It said retail used unit sales were up 6.7% to a record 231,797 vehicles with comparable sales up 6.2%. Wholesale units soared over 41% to 188,098 vehicles, marking a new quarterly record. Notably, it said it also bought 364,263 cars in the period, up 59% from last year, with around 188,000 of them being purchased from consumers.

Net earnings per diluted share fell to $1.72 from $1.79, when it was flattered by drastic cost-cutting during the pandemic.

 

McCormick

McCormick reported higher revenue and profits in the latest quarter but warned it is starting to feel the widely-reported pressures on supply chains and logistics.

The company, known for supplying herbs and spices, said sales were up 8% in the third quarter to the end of August to $921.9 million. Sales were running 17% ahead of pre-pandemic levels. Earnings per share edged up to $0.79 from $0.76 while adjusted EPS was up 5% to $0.80. However, the company warned it was experiencing cost pressure like the wider industry due to ongoing problems in the supply chain, but said it expects to navigate through the challenges.

McCormick said annual sales should be up 12% to 13% from last year, having been tightened from its previous target range of 11% to 13%. EPS is expected to be in the range of $2.80 to $2.85 compared to the $2.78 delivered in 2020.

 

Bed Bath & Beyond

Bed Bath & Beyond missed expectations, posted a sharp decline in sales and turned to a loss as fears over the coronavirus hit traffic to its stores and supply chain issues raised costs and weighed on profitability.

Net sales plunged 26% in the three months to late August to $1.99 billion from $2.69 billion the year before. Core sales were down 11% and comparable sales edged down 1%. It turned to a net loss of $73 million from a $218 million profit the year before. The firm flagged that it generated positive cashflow during the quarter, helping bolster its $2 billion of liquidity.

President and CEO Mark Tritton said the results missed expectations because of ‘external disruptive forces’ toward the end of the quarter. It said traffic at its stores slowed significantly in August as fears about the Delta variant increased in key states like Florida and Texas, while supply chain problems have also caused higher costs.

Bed Bath & Beyond said it is aiming to deliver net sales of $1.96 billion to $2.0 billion in the third quarter, but said this only reflects core sales. It said its adjusted gross margin margin will be in the range of 34% to 35% (from 34% in Q2) as a result of the supply chain pressures, with adjusted Ebitda to come in around $80 million to $85 million.

 

Chesapeake Energy

Chesapeake Energy is set to unveil its chief financial officer Domenic Dell’Osso Jr as its next chief executive, according to reports from Reuters.

Citing unnamed sources, the report said Dell’Osso plans to take the CEO role from chairman Mike Wichterich, who took over as interim CEO after Doug Lawler left in April. Dell’Osso has been with the business since 2008 and has held the top finance role since 2010.

 

Virgin Galactic

Virgin Galactic said it has been cleared to fly FAA-licensed spaceflights after regulators examined problems with its Unity 22 spaceflight, specifically with air traffic control clearances and real-time mission notifications.

The FAA has now accepted the corrections Virgin Galactic has introduced to rectify the issues. The company is now focused on getting ready for Unity 23.

 

Olaplex

Haircare products firm Olaplex said it has upsized its initial public offering ahead of shares starting to trade publicly today.

The company said it is offering 73.7 million shares at $21 each, all of which are being sold by existing shareholders – meaning the firm will not raise any new funds. The company previously said it was aiming to sell 67 million shares at between $17 to $19.

 

Analyst Recommendations: G1 Therapeutics and Tyson Foods

G1 Therapeutics was downgraded to Neutral from Overweight by JPMorgan and had its price target cut to $20 from $24, citing a lack of catalysts and a poor outlook for sales of Colesa.

Tyson Foods had its price target raised to $84 from $79 by JPMorgan on hopes of improved profitability thanks to favourable beef and chicken markets.

Cintas has its price target raised to $385 from $375 by Credit Suisse after beating expectations in the first quarter.

Generac Holdings had its price target raised to $515 from $500 by Canncord Genuity following the launch of its new ecosystem of hardware and software.

 

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