Evening Market Update

Stocks Gain Amid Heightened Corporate Deal Making

A number of M&A announcements and easing concerns over the political tensions in Egypt helped to put stocks in the green on the first trading day of the week. Headlining the corporate deals was Danaher reaching an agreement to acquire biomedical testing equipment company Beckman Coulter for roughly $6.8 billion in cash, while UK-based Ensco Plc said that it will pay $7.3 billion to purchase Pride International. In addition, Chesapeake Energy said that it hopes to raise over $5.0 billion by shedding some of its assets, without disclosing a buyer. In earnings news, Hasbro posted better-than-forecasted earnings, but Humana and Sysco Corp missed estimates. Treasuries finished mixed as the only item on the economic docket was consumer credit, which turned in its third-consecutive increase. 

The Dow Jones Industrial Average was 69 points (0.6%) higher at 12,162, the S&P 500 Index rose 8 points (0.6%) to 1,319, and the Nasdaq Composite gained 15 points (0.5%) to 2,784. In moderately light volume, 879 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. Crude oil fell $1.55 to $87.48 per barrel, wholesale gasoline added $0.01 to $2.45 per gallon, and the Bloomberg gold spot price rose $1.13 to $1,349.98 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was flat at 78.03.

In M&A news, diversified technology company Danaher Corp. (DHR $49) announced that it has reached an agreement to acquire biomedical testing equipment maker Beckman Coulter Inc. (BEC $83) for $83.50 per share in cash, in a transaction valued at about $6.8 billion. Shares of DHR and BEC were both higher. In other major M&A announcements of the day, UK-based Ensco Plc. (ESV $52) announced that it reached an agreement to acquire Pride International Inc. (PDE $40) for $41.60 per share in cash and stock, valued at about $7.3 billion. Shares of PDE were sharply higher, while ESV finished lower. Moreover, Chesapeake Energy Corp. (CHK $31) was higher after it announced that it has decided to sell its Fayetteville shale assets and equity investments in Frac Tech Holdings LLC, for proceeds expected to exceed $5.0 billion. CHK did not disclose potential buyers.

On the earnings front, Hasbro Inc. (HAS $46) reported 4Q EPS of $0.99, above the $0.92 consensus estimate of analysts surveyed by Reuters, with revenues declining 7.0% year-over-year (y/y) to $1.3 billion, roughly inline with the Street’s forecast. The toymaker saw revenues in the US and Canada fall 20% y/y, while its international unit revenues grew 12%, and the company said it had “strong performance in the emerging markets.” Shares overcame early losses and were higher, but gains were limited as the drop in US and Canada revenues was larger that expected, due to weakness in its games and puzzles unit and sales out of its boys categories.

Additionally, Humana Inc.(HUM $59) posted 4Q EPS of $0.63, including $1.02 per share in incremental expenses, which it is unclear if these charges were factored into the $0.81 that analysts forecasted. Revenues rose 9% y/y to $8.4 billion, matching the Street’s forecasts. The company said average membership for its Medicare Advantage plans grew 17% y/y, while its benefit ratio—a key industry metric showing benefit expenses as a percent of premium revenues—increased from 81.8% to 84.4%. HUM increased its full-year EPS outlook and issued full-year revenue guidance that topped the Street’s forecast, while its 1Q EPS outlook came in short of expectations. Shares were lower.

Meanwhile, Sysco Corp (SYY $28) said fiscal 2Q EPS ex-items fell 3.8% to $0.44, below the $0.47 that analysts were forecasting, on revenues of $9.40 billion, also short of the Reuters estimate which called for sales of $9.47 billion. The food distributor cited significant food cost inflation, which negatively influenced its customers’ budgets, as well as higher pension and fuel costs as the major contributors that impacted its operating earnings. Looking forward, the company’s CEO said it is highly focused on improving the execution of its business plan in the second half of the year. Shares were lower.

Economic calendar on the light side

Consumer credit was the only item on today’s economic docket, which came in the final hour of trading, showing that consumer borrowing rose by $6.12 billion during December, the third consecutive monthly increase and well above the forecast of $2.40 billion, after gaining a revised $2.02 billion in November. Revolving debt, which includes credit cards, rose $2.32 billion, marking the first increase since August 2008, according to Bloomberg, while non-revolving debt, which includes loans for cars and mobile homes, rose $3.78 billion, its fifth-consecutive monthly gain.

Treasuries finished mixed on the day with the yield on the two-year note rising 2 bps to 0.78%, the yield on the 10-year note increasing 1 bp at 3.65%, and the 30-year bond yield losing 2 bps to 4.71%. 
 
Europe posts level of sentiment not seen in over two years

Despite a report that showed factory orders in Germany—Europe’s largest economy—fell more than twice what economists were expecting, stocks across the pond finished at their best levels since September 2008, after a gauge on euro-zone investor sentiment improved by a larger-than-forecasted amount for February, hitting a mark not seen since September 2007. Also supporting sentiment in the region, concerns toward the political unrest in Egypt eased, as some semblance of normalcy became further evident with more shops and banks re-opening after being closed for two weeks during the height of the protests, and a stock market representative saying the nation’s market will re-open on Sunday.

Further east, Japan’s Leading Index advanced in December and Hong Kong’s Purchasing Managers Index (PMI) of business activity improved. Elsewhere, December retail sales in Australia rose by a smaller amount than economists had projected and India’s 2011 GDP showed a growth rate that matched economists’ expectations.

Tomorrow, the US economic calendar will remain dormant, however traders will get a few reports from overseas, including retail sales out of the UK, France’s trade balance, German industrial production, housing starts from Canada and Japan’s trade balance and bank loans.