On The Fly

Disney's (DIS) Han Solo origin tale "Solo: A Star Wars Story" is opening this weekend, and expected to top the box office with a three-day total around $105M-112M, and a four-day Memorial Day weekend total of around $130M-136M. The "Star Wars" spin-off, starring Alden Ehrenreich as Han Solo and Donald Glover as Lando Calrissian, already earned between $13M-$15M in Thursday night previews, according to Deadline. The estimated opening weekend totals for "Solo" lag behind previous "Star Wars" spin-off "Rogue One," but "Solo" has stronger competition at the box office in the form of 21st Century Fox's (FOX, FOXA) "Deadpool 2" and Disney's "Avengers: Infinity War." The R-rated "Deadpool 2," starring Ryan Reynolds as the titular anti-hero merc with a mouth, is expected to earn $53.5M over the three-day weekend and $67.5M over the four-day weekend, its second at theaters. "Infinity War," which is in its fifth weekend at theaters, is expected to add $17.5M over the three-day weekend and $22.2M over the four-day weekend. Publicly traded companies in the space include Comcast (CMCSA, CMCSK), Lionsgate (LGF.A, LGF.B), Sony (SNE), Time Warner (TWX), and Viacom (VIA, VIAB).

Shares of PayPal (PYPL) are in focus after the company held its annual analyst day on Thursday and revealed plans to work more closely with Google (GOOG, GOOGL) to implement transaction services as well as roll out a dynamic checkout button. The company, which is seeking to gain a competitive edge against its fintech peers, also updated investors on its plan to monetize Venmo, saying that as of this month, 11% of active monthly Venmo users have used some type of monetized transaction. Several analysts were bullish on PayPal shares following the event. ANALYST COMMENTARY: In a research note on Friday, Credit Suisse analyst Paul Condra said he remains "bullish" on the PayPal story and is positive on the stock following analyst day. The analyst said he found PayPal's tone to be "very positive" at the event with several new initiatives and products, including the deeper relationship with Google, progress on Venmo monetization, the new cash card and efforts to expand its integrated platform. However, Condra noted that the market could have a negative reaction to management's decision to withdraw total payment volume guidance. He maintained an Outperform rating and $93 price target on shares. Nomura Instinet analyst Bill Carcache said he left PayPal's analyst day "incrementally more bullish" on the company's growth opportunities. The improved three-to-five year growth outlook, which coincides with the timing of eBay (EBAY) exclusivity termination, should alleviate fears surrounding the downside risk, he told investors in a research note titled "Best Days Are Still Ahead." The analyst reiterated a Buy rating on PayPal with a $100 price target. Oppenheimer analyst Glenn Greene raised his price target on PayPal to $90 from $85 following the "upbeat" Investor Day, saying he is "incrementally more positive" following the event. Despite the pending eBay drag in 2020, PayPal raised its long-term guidance and suggested earnings power approaching $5 per share in 2022. Management also plans to spend $1B-$3B per year on growth M&A and return 40%-50% of free cash flow to shareholders, he noted. The analyst also said the company's recent acquisition of iZettle better positions it with in-store and omni-channel merchants and seems to offer significant cross-sell potential. Greene maintained an Outperform rating on PayPal shares. In addition, Craig-Hallum analyst Brad Berning reiterated a Buy rating and $93 price target on PayPal following the event, commenting that PayPal is "playing a fundamentally different sport" and that it is paving the way for mobile commerce, or M-Commerce, with its "frictionless" consumer experience and its ability to "connect all the dots" for consumers. Cantor Fitzgerald analyst Joseph Foresi raised his price target for PayPal to $93 and maintained an Overweight rating on shares, saying that PayPal is working to be everyone's pay source and remains focused on delivering functionality to its customer base. The analyst noted that the company is forming connection though products, partnerships and peer-to-peer and there remains opportunity in underserved and unbanked markets. Additionally, Wedbush analyst Moshe Katri reaffirmed an Outperform rating and $90 price target on PayPal, saying he sees a "host" of growth/scale catalysts, including "explosive" transaction growth in the mobile payments space, incremental revenue growth from Xoom and the ability to monetize its P2P engine Venmo. Katri believes that over time, given its recent agreements with Visa (V) and MasterCard (MA), PayPal will be able to scale and expand margins. PRICE ACTION: PayPal is down 1% to $80.68 in morning trading.

Shares of Herbalife Nutrition (HLF) plunged in morning trading after Icahn Enterprises (IEP), its largest shareholder, disclosed in a regulatory filing that it is tendering about a quarter of the shares it currently owns. ICAHN LOOKS TO SELL PART OF HERBALIFE STAKE: In a regulatory filing, Carl Icahn's Icahn Enterprises said it is tendering up to 11.4M Herbalife shares, or about a quarter of the 45.7M shares it currently owns. ICAHN COMMENTARY: "For almost six years, we have been one of Herbalife's strongest, most loyal supporters; we stood by the company through a half-decade long short-selling campaign; and we never sold a share, even after our investment doubled," said Icahn Enterprises Chairman Carl Icahn. "But, given that our Herbalife investment has become an outsized position, representing approximately 24% exposure to total NAV, it is only prudent for IEP to reduce its exposure. IEP's investment in Herbalife is a quintessential example of our activist investment strategy," he continued. Icahn also said "We believe Herbalife's business is stable, the short-sellers have largely exited, and the company is well-positioned for the future." Icahn Enterprises first acquired Herbalife shares in late 2017, and said since then, almost $7B of value has been created for Herbalife investors. WHAT'S NOTABLE: In February, Bill Ackman's Pershing Square hedge fund closed out its well-publicized short position. This also ended the high-profile feud with Carl Icahn, who was bullish on the stock. Speaking on CNBC on March 1, Icahn said he thought Ackman would get out of his Herbalife short position sooner, while adding that he put up a "good fight." Icahn also pointed out that he has not sold "one single share" of Herbalife as of that time. PRICE ACTION: Herbalife is down 7.2% to $50.00 in morning trading.

Icahn Enterprises (IEP), Herbalife's (HLF) largest shareholder and one of the company's longest-standing shareholders, reported that yesterday IEP tendered its Herbalife shares into the company's self-tender offer. Of the shares tendered, at most only 11.4M could possibly be purchased in the tender, which would still leave Icahn Enterprises as the company's largest shareholder with at least 34.3M shares, Icahn stated. Carl Icahn added: "For almost six years, we have been one of Herbalife's strongest, most loyal supporters; we stood by the Company through a half-decade long short-selling campaign; and we never sold a share, even after our investment doubled. But, given that our Herbalife investment has become an outsized position, representing approximately 24% exposure to total NAV, it is only prudent for IEP to reduce its exposure. IEP's investment in Herbalife is a quintessential example of our activist investment strategy...We are very proud of our activism at Herbalife and the value we have created for all shareholders. From our first Herbalife share purchase in late 2012 through yesterday, almost $7 billion of value has been created for all Herbalife shareholders. We believe Herbalife's business is stable, the short-sellers have largely exited, and the Company is well-positioned for the future. On behalf of all shareholders, I congratulate Michael Johnson, John DeSimone, Rich Goudis and all the other members of management, all the employees and all the distributors who have stood by, and steered, this Company so effectively over the past six years." Following the announcement, Herbalife shares are down $4.17, or 7.75%, to $49.66 in pre-market trading.

HIGHER: Amarin (AMRN), up 3.6% after announcing a settlement agreement that resolves Amarin's previously reported Vascepa patent litigation as it relates to Teva Pharmaceuticals' (TEVA) abbreviated new drug application... BioMarin (BMRN), up 3% after it received approval from the FDA for Palynziq Injection. UP AFTER EARNINGS: Foot Locker (FL), up 15%... Deckers Brands (DECK), up 4%. DOWN AFTER EARNINGS: Gap (GPS), down 7.5%.... Hibbett Sports (HIBB), down 12%... Zoe's Kitchen (ZOES), down 29%... 8x8, Inc. (EGHT), down 9%... Autodesk (ADSK), down 5%... Splunk (SPLK), down 3%. ALSO LOWER: Cincinnati Bell (CBB), down 1.5% after Morgan Stanley analyst Simon Flannery downgraded Cincinnati Bell to Underweight from Equal Weight.

In a research note to investors, Morgan Stanley analyst Katy Huberty raised her price target for Apple (AAPL) to $214 as she believes App Store growth is sustainable and take rates are defensible. Further, Huberty argued that Services margins have room to expand as the market undervalues the tech giant's Services business. 'EMERGING POWER' OF SERVICES: Morgan Stanley's Huberty raised her price target for Apple to $214 from $200, while reiterating an Overweight rating on the shares. The analyst told investors that the iPhone maker's App Store growth is sustainable and take rates are defensible. Furthermore, Huberty believes Services margins have room to expand and the market is undervaluing the Services business, which is "fast becoming" Apple's primary growth driver. As device replacement cycles extend and device installed base growth slows to single digits, Services will pick up the "growth baton" and account for about 67% of Apple revenue growth over the next five years, she contended. While the analyst acknowledged that iPhone data points remain relevant to the Apple thesis, she believes investors should focus on understanding the drivers and growth trajectory of the Services business. Huberty highlighted that some investors argue that the fastest growing but lowest margin businesses within Apple Services - Apple Music, iCloud and Apple Pay - will drive negative mix shift away from higher margin, more established businesses like the App Store, such that Services margins are close to peak levels. However, Huberty disagrees, saying that the App Store is growing off a much larger revenue base, at $12B, and therefore contributes the largest portion of incremental growth going forward. With App Store generating the second highest operating margin within Services, she forecasts Services margins expanding 500bps through 2021, with the App Store accounting for 45% of Services operating profit growth over the next five years. Overall, Huberty thinks Apple is a "structurally different" company today than it was just five years ago, with a larger cash balance and a Services business that accounts for about 15% of revenue and 22% of gross profit dollars this year. By 2022, Services will account for 27% of Apple revenue and just under 40% of gross profit dollars, she added. PRICE ACTION: In morning trading, shares of Apple have slipped about 0.6% to $187.30.

Shares of L Brands (LB) are in focus in morning trading after the company, which owns the Victoria's Secret, Bath & Body Works, La Senza and Henri Bendel brands, cut its outlook for fiscal 2018 profit. Following the earnings report, Wall Street analysts were generally bearish, with one pointing to 10 "points of concern" in the first quarter. EARNINGS: After the market close on Wednesday, L Brands reported Q1 adjusted earnings per share of 17c, missing analysts' estimates of 18c, though its revenue of $2.63B came in slightly ahead of the $2.59B consensus. Comparable sales for Q1 increased 3% vs. last year, it said. L Brands previously forecast Q1 EPS of 15c-20c. Looking ahead, the company now sees fiscal 2018 EPS of $2.70-$3.00, lower than its earlier estimate of $2.95-$3.25 and the $3.14 analysts were forecasting. L Brands sees second quarter EPS of 30c-35c, also below analysts' estimates of 45c. In presentation slides, L Brands forecast both Q2 and FY18 comps to be up low single digits. Sales in Q2 are expected to be about 5 points higher than comps, while sales growth for FY18 is expected to be about 2-3 points higher than comps. 'NOT SATISFIED': In earnings commentary posted to its website, L Brands said growth in operating income at Bath & Body Works over last year was more than offset by a decline at Victoria's Secret. "We are not satisfied with this result and are very focused on improving performance at Victoria's Secret," it stated. "The cumulative impact of the exit of swim and apparel and the discontinuation of the catalogue and promotional offers drove a reduction in customer traffic, and the organizational changes were disruptive. The PINK business was also impacted by these changes, with sales growth decelerating." The company also said it experienced sales and margin pressure in the business as a result of its efforts to grow the bralette, Sport and beauty categories through "aggressive" trial. 'POINTS OF CONCERN': In a research note to investors this morning titled "The Terrible 10... Points Of Concern In 1Q," Jefferies analyst Randal Konik reiterated his belief that Victoria's Secret is "broken," PINK "is breaking" and Bath & Body Works "is peaking." Konik, who sees continued downward earnings revisions and free cash flow compression going forward, believes a dividend reduction "could be a wakeup call for current holders." Analysts at Piper Jaffray and Bernstein cut their price targets on L Brands to $30 and $47, respectively, as the company's guidance reflects a "challenging" competitive landscape and continued problems at Victoria's Secret. PRICE ACTION: L Brands is up 1.7% in morning trading to $34.63 per share.

HIGHER: Babcock & Wilcox (BW), up 17.5% after Steel Holdings disclosed it is prepared to acquire all shares of the company it does not currently own for a price in the range of $3.00-$3.50 per share in cash... AcelRx Pharmaceuticals (ACRX), up 13% after announcing the acceptance of its New Drug Application resubmission for DSUVIA by the FDA... Idera Pharmaceuticals (IDRA), up 5% after reporting a clinical trial collaboration and supply agreement with Bristol-Myers Squibb (BMY) to clinically evaluate the combination of the company's TLR-9 agonist IMO-2125 with BMS's therapy Yervoy. UP AFTER EARNINGS: Williams-Sonoma (WSM), up 11%. DOWN AFTER EARNINGS: Best Buy (BBY), down 5%... NetApp (NTAP), down 4.5%... L Brands (LB), down 6%. ALSO LOWER: Petrobras (PBR), down 11% after announcing diesel price cuts at its refineries and following media reports of regulator scrutiny of its gas operations... Karyopharm (KPTI), down 3% after the stock was downgraded to Neutral from Outperform at Wedbush... Recro Pharma (REPH), down 50% after receiving a Complete Response Letter from the FDA regarding the New Drug Application for IV meloxicam.