As we've noted recently, not even a brick wall can seemingly stand in the way of the S&P 500 (^GSPC -0.46%) surging to new all-time highs. Yet again, the S&P 500 clocked a new record closing high and, once again it did so despite largely mixed economic data.
Decisively in the positive column was a huge drop of 27,000 in weekly initial jobless claims to a seasonally adjusted 300,000. This essentially follows an increase by roughly the same amount during the previous week. Fewer initial jobless claims would indicate that people are having an easier time finding work and hanging onto their jobs. It bodes well for hiring, the unemployment rate, and the prospect that business growth will continue.
Pending home sales figures provided a neutral ground for investors, with April's totals showing an increase of 0.4%. By comparison, this uptick missed economists' expectations; however, it does mark the second-straight month that pending home sales have increased following a steady nine-month decline. Higher mortgage rates were mostly to blame, and the potential for rising rates once QE3 is completely wound down continues to be a sticking point that investors will want to monitor.
Finally, the second-estimate of first-quarter GDP fell through the floorboard. Initial estimates had pegged Q1 GDP growth at a paltry 0.1%, hurt by the polar vortex that crippled businesses around the country. The second estimate was revised significantly lower to a decline of 1%, which was even below the most bearish of Wall Street estimates. Recent data would seem to indicate that this was a weather-related dip and not an endemic problem with U.S. growth, but only Q2's data will truly tell the tale.
By day's end, the S&P 500 had blasted higher by 10.25 points (0.54%) to close at a fresh all-time high of 1,920.03.
Topping the charts, once again, with a gain of 17.7% was meat-products producer Hillshire Brands (HSH.DL), which has incited a potential bidding war between Tyson Foods (TSN -0.70%) and Pilgrim's Pride. Earlier today, Tyson Foods made a $6.8 billion offer (inclusive of debt), or $50 per share, for Hillshire Brands, a $5 premium to Pilgrim's Pride's buyout offer from earlier in the week. Similar to Pilgrim's Pride's offer, Tyson Foods' bid is contingent on Hillshire Brands abandoning its offer to buy Pinnacle Foods for $4.23 billion. Pilgrim's Pride, in response, notes that it will look at its options and update investors shortly.
Source: Nakeva Corothers, Flickr.
On one hand, I understand why Tyson and Pilgrim are making bids for Hillshire, as a more diverse product line rife with brand-name products will help lessen the severity of cyclical swings within the industry, and potentially give food producers better pricing power and cost savings. On the other hand, the premium being applied to Hillshire Brands seems ludicrous at 26 times forward earnings, and close to 13 times trailing EBITDA. I've said it before and I'll say it again -- especially with Hillshire shares higher than Tyson's offer price -- investors should consider taking these gains and heading for the exit.
Source: Gaby Av, Flickr.
Apparently, consumers really do "love that chicken at Popeye's" as Popeyes Louisiana Kitchen (PLKI) shot higher by 14.5% after delivering better-than-expected first-quarter results. For the quarter, Popeyes produced 16% year-over-year revenue growth to $70.1 million, as global same-store sales increased 4.5%. Domestic same-store sales dipped ever-so-slightly from the prior-year period, to 4.3% growth from 4.5% growth, but international same-store sales expansion more than made up for it. EPS for the quarter topped Wall Street by $0.01 per share at $0.46. Looking ahead, Popeyes bumped up its EPS forecast by $0.01 to $1.58-$1.63 from $1.57-$1.62, and reiterated its intentions to open 180 to 200 stores this year. While it's hard to argue against these solid results, investors still need to be able to look past the new store openings and realize they're paying 22 times forward earnings for a company growing organically by 4%-5% per year. Popeyes' current price seems pretty fair to me, but I believe it also likely limits its upside potential.
Lastly, struggling electronics retailer RadioShack (RSHCQ) vaulted higher by 9.9% following word that a trader purchased more than $600,000 worth of Radioshack's October call options with a strike price of $1.50. In English, this simply means that someone out there is willing to make a sizable bet that RadioShack will trade well in excess of $1.50 per share by October's options expiration date, and clearly investors like that premise.
Source: Nicholas Eckhart, Flickr.
Of course, there's much more to the RadioShack story than just a single options trade. Same-store sales in its latest quarter tumbled 19%, with its loss widening to $191.4 million as online competition and a lack of image branding has crippled the company. In my personal opinion, I would use any uptick in RadioShack shares to consider hitting the exits. This company doesn't have the look of one that can be saved, and I question its ability to adapt to changing consumer trends over the long term.
