Today's stock market
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Anticipation for the Federal Reserve's upcoming meeting boosted financials today, and the Financial Select Sector SPDR ETF (NYSEMKT:XLF) gained 1.2%.
As for individual companies, Northrup Grumman (NYSE:NOC) announced it is acquiring Orbital ATK (NYSE:OA), causing the stocks of both companies to rise, while Ubiquiti Networks (NASDAQ:UBNT) tumbled following an attack from a short-seller.
Northrop Grumman makes a major acquisition
Defense giant Northrop Grumman announced it was buying Orbital ATK, a supplier of components for missiles and satellites, for $9.2 billion in cash and acquired debt. Shares of Orbital ATK soared 20.2% and Northrop stock jumped 3.4% as investors cheered the deal.
Northrup expects to to make Orbital ATK its fourth business segment rather than breaking up the organization and integrating it into its existing businesses. The company expects the acquisition "to be accretive to earnings per share and free cash flow per share in the first full year after the transaction closes." It also foresees $150 million per year in cost savings by 2020.
"The acquisition of Orbital ATK is an exciting strategic step as we continue to invest for profitable growth," said Northrop Grumman Chairman and CEO Wes Bush in the press release. "Through our combination, customers will benefit from expanded capabilities, accelerated innovation and greater competition in critical global security domains."
Orbital ATK was formed by the 2015 merger of Orbital Sciences Corporation and ATK's aerospace and defense businesses, and brings to Northrup launch vehicles and propulsion systems, missiles and munitions, and components for satellites and spacecraft. It is expected to add at least $4.6 billion in sales to Northrop's $25 billion annual revenue.
Aerospace and defense stocks have been on a tear this year, and this deal adds new growth possibilities for Northrop, which had already been turning in a string of strong quarters.
Ubiquiti Networks gets slammed by a short-seller
Shares of network hardware specialist Ubiquiti Networks fell 7.9% today after Andrew Left of Citron Research released a report alleging that the company is a "fraud." The well-known short-seller based his accusations largely on operating metrics he says are "too good to be true," alleged irregularities in financial statements, the fact that Ubiquiti hasn't had a CFO for the last two years, and allegedly false claims about the size of its user community.
For its part, Ubiquiti declined to comment on the allegations, with CEO and founder Robert Pera only saying on social media, "I just put my head down and let the products and numbers speak for themselves. My apologies to those affected by these clowns."
The company is coming off a quarter in which it beat analyst expectations on both the top and bottom lines, with revenue growing 23.1% and earnings per share up 7.2%. The company's margins outshone those of the competition, fueling the short-seller's concerns that there are irregularities hidden behind them, but Ubiquiti Networks attributes its competitive advantage to its unique business model and a low cost structure that allows it to undersell the competition.
With 29% of the stock's float sold short, it's clear that there are other investors betting that Ubiquiti's success is not truly sustainable. But the allegation that the company's financials are "completely fraudulent" is such an extreme view that it led to selling today, and left long-term investors wanting to see more proof from Citron and a response from the company.
Jim Crumly has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ubiquiti Networks. The Motley Fool recommends Orbital ATK. The Motley Fool has a disclosure policy.