Today's stock market
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As for individual stocks, Takeda Pharmaceutical (NASDAQOTH: TKPYY) announced it is considering a purchase of Shire (NASDAQ: SHPG), and RH (NYSE:RH) soared on a strong earnings report.
Takeda ponders a huge acquisition
Japanese pharmaceutical company Takeda disclosed that it was considering a bid for rival Shire, sending U.K.-based Shire's American depositary receipts (ADRs) soaring 12.2% while Takeda's stock slipped 2.6%. Takeda issued a press release yesterday, which said that the deal is still in the "preliminary and exploratory" phase and that no approach has yet been made to Shire's board.
Takeda sees acquiring Shire as a way to grow its position in its core therapeutic areas of oncology, gastroenterology, and neuroscience. It also like Shire's strong position in rare diseases and thinks a deal could expand its presence in the U.S. Takeda has been growing through acquisition in recent years, picking up Millennium Pharmaceuticals in 2008, Nycomed in 2011, and Ariad Pharmaceuticals last year, but a purchase of the $44.6 billion Shire would be its biggest deal yet by far.
Shire issued a press release today acknowledging Takeda's announcement and confirming that it has not yet been approached by the company. Shire is listed on the London exchange, and under U.K. takeover rules, Takeda has 28 days to make a formal announcement of its intention to make an offer or to state it will not make an offer.
Shire itself has been growing market share through an strategy of acquisition, including the purchase of Baxalta in 2016, but its share price has languished despite being relatively cheap. Today's news is the latest indication of increased deal activity brewing in the drug industry.
RH furnishes evidence of a profit turnaround
Shares of luxury furnishings retail chain RH jumped 22.5% after the company reported fourth-quarter results that missed on the top line, but beat profit expectations by a mile. Adjusted net revenue grew 13% to $670 million and adjusted earnings per share increased 149% to $1.69. Analysts were looking for EPS of $1.55 on sales of $673 million.
RH attributed the strong profit to a successful transition to a membership model, which has allowed the company to streamline operations and reduce inventory by 30% since last year. Ninety-five percent of RH's core business was generated by members.
The company also forecast that the strong profit performance will continue into 2018 and sales growth will accelerate in 2019. For this year, RH expects adjusted gross margin to increase 260 to 340 basis points, leading to adjusted EPS of $5.45 to $6.20, compared with Wall Street expectations of $5.53. Guidance for Q1 EPS is a range of $0.95 to $1.05, while analysts had been expecting only $0.58. RH gave a forecast of 2019 revenue growth in a range from 8% to 12%, compared with 5% to 7% growth this year.
Investors were impressed with the bottom line that RH has achieved, which seems to demonstrate that the company's turnaround efforts are succeeding. With shares selling at a bargain 16 times the midpoint of the company's guidance for the current year even after today's run-up, there could be more room for gains if the company can deliver on its outlook.