Additionally, steel producer Nucor (NUE) issued downside Q2 guidance stating that many of its customers have pulled back on orders due to market conditions.
Given the correlation these events have with the broader economy, one might assume that the stock market would be trading sharply lower. That is not the case, however, as the "bad news is good news" theme is back in play due to the likelihood that the Fed will keep a lid on interest rates.
M&A is another positive catalyst.
In the healthcare sector, Pfizer (PFE) is making waves with its $11.4 bln acquisition of Array Biopharma (ARRY). Consequently, healthcare is one of the outperforming sectors this morning, outpacing the market in general.
The other acquisition that is catching a lot of attention is Patrick Drahi's $57/share purchase of fine art and luxury collectible auctioneer Sotheby's (BID). The offer price represents a sizable 61% premium to Friday's closing price.
While BID is essentially a "one-off" company without a true comparable, the acquisition could be construed as a positive for other luxury stocks like Ferrari (RACE), Tiffany & Co. (TIF), RH (RH), and Capri Holdings (CPRI). In fact, each of those stocks are trading higher as of this report.
As for BID, going private seems to make sense for the company. Its business can be very uneven due to the timing of certain auctions. Also, the sale (or lack thereof) of one or two extremely expensive items can have a dramatic impact.
Consequently, its quarterly results are unpredictable which is why it oftentimes beats or misses estimates by a wide margin.
During its earnings calls, its CFO, Michael Goss, would frequently remind investors that its rolling six months results are a better barometer for evaluating its performance.
In the press release this morning, he said that being a private company would allow it to be more flexible in terms of pursuing its growth initiatives. In other words, BID no longer must worry about trying to meet analysts' and investors' expectations every three months.
This also looks like a good deal for BID's investors and Mr. Drahi. Prior to today's surge higher, the stock had been languishing, down about 35% yr/yr. The $57 purchase price puts most of its investors at least above water again.
For Mr. Drahi, he is paying a reasonable 2.5x estimated FY20 revenue for the company.
Key Takeaways: There are several crosscurrents moving the market this morning with acquisitions playing a major role. Patrick Drahi's acquisition of fine art auctioneer BID is providing some support to other luxury stocks and the consumer discretionary space in general.
The acquisition looks like a win-win in our view. Investors will receive an immediate and substantial increase on a holding that is probably better suited to be private anyways, while Mr. Drahi gains an iconic brand in the high-end consumer space and is paying a reasonable multiple in the process.