Stocks climbed on strong earnings reports and positive comments on the economy from the Fed Chairman Jerome Powell. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) had moderate gains.
Today's stock market
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The financial sector led the market, with the Financial Select Sector SPDR ETF (NYSEMKT:XLF) rising 1.6%. Transportation stocks also had a big day; the iShares Transportation Average ETF (NYSEMKT:IYT) jumped 2.3%.
As for individual stocks, United Continental Holdings (NYSE:UAL) gained altitude after the company beat profit expectations, and Cara Therapeutics (NASDAQ:CARA) fell following the announcement of a secondary offering.
United Continental soars on profit gains
Shares of United Continental took off, rising 8.8% after the company announced second-quarter results that beat profit expectations despite rising fuel prices. Revenue increased 7.7% to $10.8 billion, about in line with expectations. Adjusted earnings per share jumped 17% to $3.23, while analysts were expecting only $2.65.
Passenger revenue per available seat mile (PRASM) grew 3%, which was at the upper end of the company's guidance of 1% to 3% and was boosted by a 4.3% increase in international PRASM. Cost per available seat mile (CASM) was driven higher by 6.6% due to a 35.3% increase in fuel expense, but the company did a good job containing expenses it could control. CASM, excluding fuel, special charges, third-party business expenses, and profit sharing, fell 0.4%.
Gains in unit revenue were made in spite of a 4.3% increase in available seat miles. Adjusted pre-tax margin was 10.4%, down from 13.2% in the period a year earlier due to higher fuel costs, but still above the midpoint of the company's guidance of 9% to 11%.
Looking forward, United raised full-year EPS guidance by $0.25 to a range of $7.25 to $8.75. Unit revenue in Q3 is expected to accelerate to 4% to 6% growth.
United's strategy of aggressively expanding capacity seems to be working without setting off a fare war, and the company's efforts to cut costs are being successful, resulting in healthy gains for the stock today.
Cara Therapeutics announces a secondary offering
Shares of Cara Therapeutics dropped 8.2% after the biotech announced a secondary offering of its stock. The company will be offering 4,500,000 shares on the open market, as well granting the underwriters an 30-day option to buy 675,000 more. The total 5,175,000 shares would represent a dilution of the stock by 15.8%.
Cara Therapeutics is developing Korsuva, a drug for pruritus, or severe itching, and the proceeds will be used to advance its research and clinical programs. In May, the company announced a partnership with Vifor Fresenius Medical Care Renal Pharma Ltd. to develop and market injectable Korsuva for pruritus associated with chronic kidney disease (CKD) in hemodialysis patients, giving Cara $50 million up front, potentially $470 million more in milestone and regulatory payments, and $20 million in proceeds from an equity investment. Vifor will have the right to market Korsuva under license for that indication outside the U.S., Japan, and South Korea.
The proceeds from today's announced offering will allow the company to fund efforts to advance the drug for indications for which it owns full rights, including a pill form for CKD-associated pruritus in pre-dialysis patients, and for pruritus in patients with chronic liver disease and skin conditions.
Cara is taking advantage of a huge gain in its stock price to set itself up to accelerate efforts to advance its drug development program. It shrewdly did the same thing the last two times its stock rose over $18, in August 2015 and April 2017, and this time, it may have enough resources to get the drug across the finish line.