Stocks fell sharply Wednesday morning but regained some ground in the afternoon. The Dow Jones Industrial Average (DJINDICES:^DJI) briefly dipped below 25,000 but recovered, and the S&P 500 (SNPINDEX:^GSPC) lost three-quarters of a percentage point.
Today's stock market
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Oil prices fell 3%, dragging down the energy sector; the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) tumbled 4.7%. Chinese internet stocks sold off, with the iShares China Large-Cap ETF (NYSEMKT:FXI) dropping 3.5%.
Constellation Brands increases its bet on marijuana
Constellation Brands, seller of wine, spirits, and beer brands such as Corona and Modelo, announced it is spending $3.9 million to increase its ownership stake in Canadian marijuana company Canopy Growth to approximately 38%. Canopy stock soared 30.4% to $32.11, but the news was a downer for investors in Constellation, with shares falling 6.1%.
Constellation is buying 104.5 million shares of Canopy at 48.60 Canadian dollars per share, or $36.94 at today's exchange rate, which is a 51.2% premium to yesterday's closing price. It will also receive 139.7 million new warrants, exercisable over the next three years, 88.5 million of which are exercisable at CA$50.40 ($38.30 at today's rate) and the rest at Canopy's stock price at the time. If Constellation exercises all of the warrants, it would own more than 50% of Canopy Growth.
Constellation is adding to its previous investment in the marijuana grower in part to develop cannabis-infused beverages, which it views as a tremendous growth opportunity. Canopy Growth plans to use the billions in proceeds to "strategically build and/or acquire key assets needed to establish global scale in the nearly 30 countries pursuing a federally permissible medical cannabis program, while also rapidly laying the global foundation needed for new recreational cannabis markets," according to the joint press release.
The deal will add to Constellation's already substantial debt load, but the company didn't want to pass up an opportunity to own a majority interest in one of Canada's leading marijuana producers -- a move that could end up looking pretty shrewd in the long run.
Investors put Macy's shares on the sale rack
Shares of Macy's tumbled 16% after the company reported second-quarter results, despite the fact that the company beat estimates and raised guidance. Net sales fell 1.1% from last year to $5.57 billion, but that was slightly better than the $5.55 billion analysts were expecting. Earnings per share came in at $0.53, comfortably ahead of the analyst consensus of $0.51.
Comparable sales, including licensed departments, were up 0.5%. A shift in the company's promotional calendar moved some sales into the first quarter, contributing to 4.2% growth in comps in that period. Without that shift, comps in the second quarter would have grown 2.9%. Overall for the first half, comparable sales were up 2.3%.
Macy's said that strong execution and a healthy consumer spending environment has led it to raise full-year guidance. EPS guidance for 2018 was raised $0.20 to a range of $3.95 to $4.15, and sales are expected to be between flat and a 0.7% increase, up from a previous forecast of a range between a decline of 1% and an increase of 0.5%. Comparable-store sales are expected to grow between 2.1% and 2.5%.
There was little to quibble with in Macy's report, but the stock had run up in response to the company's turnaround, more than doubling since its low point last fall. Investors may have simply decided to take some profits off the table.