estimize:

Shake Shack Inc (SHAK) Consumer Discretionary - Hotels, Restaurants & Leisure | Reports May 11, Before Market Opens

Key Takeaways

• The Estimize consensus is looking for earnings per share of 14 cents on $63.63 million in revenue, 1 cent higher than Wall Street on the bottom line and right in line on the top
• Shake Shack’s menu expansion, limited time offerings and successful new store openings have helped drive same store sales
• High operating expenses and rising beef prices are likely to weigh down margins and profitability this quarter
• What are you expecting for SHAK? Get your estimate in here!

Shake Shack is scheduled to announce its second quarter results tomorrow, after the market closes. Shake Shack is arguably the new face of the fast casual sector following Chipotle’s tumultuous year. After going public last year though, the stock has largely suffered. Investors have been skeptical on whether growth prospects can live up to the company’s lofty valuation. In the trailing four quarters both earnings and revenue growth has greatly decelerated, reassuring the market’s doubts. Estimates suggest that tomorrow’s report will follow the slowdown from recent quarters.

The Estimize consensus is looking for earnings per share of 14 cents, up 54% compared to the same period last year. That estimate has increased 7% since Shake Shack’s most recent report in May. Revenue is anticipated to come in 31% higher at $63.63 million, a marked slowdown from prior quarters. Shares of the burger chain are up nearly 7% year to date but have declined over 40% in the past 12 months.
With just over 100 locations worldwide, the burger chain garners an immense amount of media attention for its innovative and limited time offerings. The recent launch of the Chick’n Shack at all domestic locations was a key driver of traffic and comparable shack sales. Continuing with its menu innovations, Shake Shack has introduced new promotional items including the Crispy Peking Chicken and the Roadside Double. This quarter the company is expecting to post same shack sales of 5.5% as these new menu items gain traction.

Shake Shack has certainly cashed in on its cult following and popularity in the United States. However, the ongoing slowdown along with weaker consumer spending are poised to take its toll. Shake Shack is still in expansion mode which has resulted in high operating expenses associated with opening new stores. Additionally, higher wages and rising beef prices since the beginning of the year are likely to pressure margins and profitability in the second quarter. If these factors contribute to a miss tomorrow afternoon, expect the stock to trend downward.
Do you think SHAK can beat estimates? There is still time to get your estimate in here!

Photo Credit: Lucas Richarz

thefatpitch:

The trend in equities continues to be higher, even a very short term basis. As equity prices move higher, volatility is compressing. That, on its own, is not bearish, as volatility can stay low for months as equities grind higher. But it’s noteworthy that volatility has popped higher in each of the past seven Augusts. Combined with an unusually tight trading range in SPX and an extreme in the volatility term structure, short term traders should be on alert for a pop higher in volatility. That may well correspond with SPX approaching its next “round number” milestone at 2200.

This week, the major US equity indices - SPX, NDX and COMPQ - all traded at new bull market highs. Moreover, RUT has traded at a new 12-month high. None of these, nor the DJIA, has closed below its 50-dma since late June. All are trading above their rising 5, 10, 20 and 50-dmas. The trend for US equities remains higher, even on a very short term basis.

As always, the first sign of a weakening trend will be consecutive closes below the 5-dma, which will then flatten or inflect downwards. As of today, that is not the case for any of the US equity indices.

In our last update, we shared several studies related to trend, breadth, sentiment, macro and corporate reports that supported higher equity prices in the month(s) ahead. That continues to be the case. Read that post here.

But there were also reasons to be on alert for a retracement of recent gains in August.  This post elaborates further on some of these reasons with a focus on volatility.

The CBOE volatility index, Vix, which measures implied volatility in the stock market over the next month, has been under 12 the last 4 days and also intermittently under 12 over the past month. This is unusually low volatility.

On its own, a very low Vix is not necessarily bearish: forward returns in the SPX are no different than when the Vix is above its median of 18.6 (data from Mark Hulbert).

That is not to say that the SPX will necessarily rise. A low Vix can correspond with a short term top in SPX, too. But the relationship is too inconsistent to be a useful bearish predictor on its own. Note in the charts below that Vix can stay persistently very low while SPX continues to rise. A pop higher in Vix is inevitable, but timing that pop can be problematic. Vix was persistently very low for half a year at the end of 2006 and into 2007, for example.

The low Vix now corresponds with an unusually tight trading range in SPX. The 20-day Bollinger Bands on SPX have not been this tight since September 2014. In the next month, SPX dropped about 8%. Similar cases have also preceded large drops in SPX greater than 5% (red arrows). But, again, the relationship is inconsistent: tight Bollinger Bands have also resolved with minor drops in SPX (under 2%) and preceded a significant move higher over the following months (green arrows).

August can be a quiet month for trading. In the past few days, the full-day volume in SPY has been lower than on the half-day of Christmas Eve.

So its interesting that in each of the past 7 years, Vix has popped higher in August at some point (lower panel). That pop typically wakes the equity market up and leads SPX lower (top panel). Note in the chart below, however, that Vix popped higher in 2012 without any noteworthy adverse reaction from SPX until mid-September.

The volatility term structure, which compares one month volatility (Vix) to three month volatility (Vxv) is now also at an extreme. Over the past several years, when Vix trades at less than 80% of Vxv (lower panel), SPX has moved sideways or lower over the next 1-2 weeks; if SPX moved higher, those gains were given back before long (upper panel).

What does all of this imply? Traders with a short term time horizon should be on alert for a pop higher in volatility. “On alert” means watching for the trend in equities to weaken with consecutive closes below a short term moving average. This is key, since volatility can stay persistently low as SPX grinds higher. But the volatility term structure suggests the gains in SPX since last Thursday will likely be given back, and the pattern in August is for Vix to pop higher. That is also the pattern following very tight Bollinger Bands in SPX.

All of this is taking place as SPX moves to within 1% of the next “round number” milestone of 2200. A reminder: SPX has had a consistent tendency to react as it approaches each new “round number” milestone for the first time. The smallest reaction (2%) was in 2013 at 1800. Most often the reaction is more than 3%. The last two were 10% (at 2000) and 6% (at 2100). A move to the Bollinger middle band now implies a correction of about 4%.

ophirgottlieb:

Twitter Innovation Takes Hold

BREAKING
Twitter innovates yet more as it just announced a new advertising approach called Instant Unlock Card. The company also made a point to note that this new ad product is not available on Alphabet (NASDAQ:GOOGL) or Facebook (NASDAQ:FB) – in not so many words.

STORY
The company describes the new advertising product like this:

“
Conversational ads contain compelling images or videos that include call-to-action buttons with customizable hashtags.

The new Instant Unlock Card builds on this by incentivizing users to Tweet by offering access to exclusive content ” Source: Twitter Official Blog
The new move was brought to our attention by Business Insider. Twitter is quick to point out that “These formats are exclusive to Twitter.” The first real shot at Facebook and Google we’ve seden in a while.

The company claims that during beta tests brands saw an average 34% earned media rate. “That means for every 100 paid impressions, an advertiser receives 34 earned impressions!”

In what reads as one of the best Twitter blogs in a while, the company gives the reader some real meat to the bone. AMC wanted to make a big impression at Comic Con and tried the new Instant Unlock Card that made the trailer exclusively available through that product. Here’s what Suzanne Park, VP of Marketing, AMC had to say:

“
In a crowded environment, this powerful new feature helped us give fans at Comic-Con and beyond what they were hungry for – more of ‘The Walking Dead.’ ” Source: Twitter Official Blog
Twitter went further, describing the success of none other than Coca-Cola. Katie O'Gorman, the director of social center for Coca-Cola North America said, “Twitter was a great partner in helping us think differently and use the technology in a truly ownable way.”

Business Insider did a great job expanding on the analysis when it wrote:

“
And while the ad formats are promoting video content at the moment, we expect that in the future this offering will be used to promote sales and promotions from retailers.

Target, for example, could also use the ad format to provide Twitter users with a secret code that gives them early access to an online sale of their latest clothing line. ” Source: Twitter Official Blog
And that’s where the innovation really takes hold. Twitter (NYSE:TWTR) had a prolific quarter of deal making for streaming online video and live events including every major professional sports franchise in the United States and in the U.K. with Wimbledon the English Premier League.

Twitter is now going further, diversifying its bet on the future and innovation appears to be taking hold.

The author is long shares of Twitter

WHY THIS MATTERS
Facebook and Google just crushed earnings and nearly all of their business comes from advertising. But that world is changing dramatically toward video. It turns out that there is one technology company that will power this revolution, regardless of whether it’s Facebook, Google, Twitter, or whomever that will end up with the largest audience.

It’s identifying trends and companies like this this that allows us to find the ‘next Apple’ or the 'next Google.’ This is what CML Pro does. Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution and break the information advantage the top .1% have.

Each company in our 'Top Picks’ is the single winner in an exploding thematic shift like artificial intelligence, Internet of Things, drones, biotech and more. In fact, here are just two of the trends that will radically affect the future that we are ahead of:



That chart plots the growth in 4G usages worldwide and how it will grow from 330 million people today to nearly 2 billion in five years. This is the lifeblood fueling every IoT and mobile device on the planet and CML Pro has named the single winner that will power this transformation. Then there’s cyber security:



Market correction or not, recession or not, the growth in this area is a near certainty, even if projections come down, this is happening. CML Pro has named the single best cyber security stock to benefit from this theme.

These are just two of the themes we have identified and this is just one of the fantastic reports CML Pro members get along with all the visual tools, the precious few thematic top picks for 2016, research dossiers and alerts. For a limited time we are offering CML Pro at a 90% discount for $10/mo. with a lifetime guaranteed rate. Join Us: Get the most advanced premium research delivered to your inbox along with access to visual tools and data that until now has only been made available to the top 1%.

beyonddevices:

One of the data sets I maintain is a database on the major cable, satellite, and telecoms operators in the US and their pay TV, broadband, and voice subscribers. As such, each quarter, I dig through those numbers and churn out a bunch of charts on how those markets are performing, and one of the posts I do each quarter is a cord-cutting update. Here’s the update for Q2 2016.

TL;DR: Cord-Cutting Continues to Accelerate

This is going to be a longish post, in which I’ll dive into lots of the detail around what’s really happening in the US pay TV market. But the headline here is that cord-cutting continues to accelerate, a trend that’s been fairly consistent for quite some time.

Here’s the money chart, which shows the year on year growth or decline in pay TV subscribers across all the publicly traded players I track:

As you can see, the trend is very clear, with a consistent pattern from mid 2014 onwards of worse declines each quarter (except Q4 2015), culminating in this a loss of around 834,000 pay TV subscribers at the end of Q2 2016 compared with the end of Q2 2015. As discussed in more detail below, these numbers include the positive growth Dish has seen from its Sling TV product, which has added around 800,000 subscribers over the past year or so. Without those subs, the picture looks even worse.

Read on for more in-depth analysis of these numbers and the trends behind them. Reporters who would like further comment or anyone who would like to know more about our data offerings can reach Jan Dawson at jan (at) jackdawresearch.com or (408) 744-6244.

Avoiding false trends with a proper methodology

I’ve lost track of how many headlines I’ve seen over the last couple of years which posit that cord cutting is somehow slowing down off the back of a small number of providers’ quarterly results. This poor analysis is usually based on several key mistakes:

• Focusing on quarterly net adds rather than annual changes – this is problematic because the pay TV industry is inherently very cyclical, historically doing much better in the fourth and first quarters of the year, and doing worse in the late spring and summer months, reported as part of Q2 and Q3. You have to compare the same quarter in subsequent years to see the real trends.
• Focusing on one or two big players, instead of the whole market. One of the key trends that’s emerged in recent quarters is that the larger and smaller players are seeing quite different trends, so fixating on the large players alone is misleading.
• Focusing on one set of players, such as the cable companies. Though “cable TV” is often used as a synonym for pay TV in the US, it’s not a useful one when it comes to doing this kind of analysis. Cable, satellite, and telecoms players are seeing divergent trends when it comes to pay TV growth, and you have to look at all sets of players to get the full picture.

On that basis, then, I focus on year-on-year change in subs, and try to cast the net as wide as possible when it comes to players. My analysis includes all the major publicly traded cable, satellite, and telecoms (CST) providers in the US, of which there are now 17 in my data set, ranging from AT&T/DirecTV at over 25 million subs to Consolidated Communications, with just 112,000. The only major player now missing from this analysis (following the acquisition of Bright House by Charter) is Cox, which has around four million subscribers. In some of the charts below, you’ll see estimates for Cox included.

Trends by player type

So let’s stark to break down that chart I showed at the beginning, to see what’s happening behind the scenes. First off, here’s a chart that shows the year on year subscriber growth trends by player type: cable, satellite, and telecoms:

This chart illustrates perfectly why focusing on just cable operators is utterly misleading – they’ve actually been having a better time of things over the past two years, but largely at the expense of the major telcos, who have seen plunging growth during the same period.

A tale of two groups of cable companies

It gets even more interesting when you break cable down into two groups, large and small companies:

As you can see, what’s really been happening is that the four largest publicly traded cable companies have been doing much better over the last two years, while the smaller ones have if anything been doing worse. A large chunk of that improvement by the large companies comes from Time Warner Cable’s impressive turnaround during 2014 and 2015:

However, Comcast has also had a meaningful improvement over that same period, moving from 200k net losses year on year to positive net adds in the last two quarters. Legacy Charter has also had a slight improvement, while Cablevision has been largely static.

AT&T and Verizon have shifted focus elsewhere

The rest of the market is dominated by two large satellite companies and two large telcos, but the story here is really about the shift in focus away from TV by the telecoms guys. In AT&T’s case, it’s about a shift towards satellite-delivered TV, while in Verizon’s case it’s about slimming down its wireline operations and shifting focus from TV to broadband.

The transformation at AT&T over the last two years has been dramatic. Since the announcement of its plans to acquire DirecTV in May 2014, AT&T has seen plunging net adds in its U-verse TV business, while post-acquisition net adds at DirecTV have been skyrocketing:

This is part of a conscious strategy at AT&T to shift its TV focus to the platform with better economics, in addition to its cross-selling and bundling of DirecTV and AT&T wireless services. The net impact is still a loss of subscribers across its TV business as a whole – around 250k fewer subs at the end of Q2 2016 than Q2 2015 – but the economics of the subscribers it’s keeping are way better than for the subs it’s losing.

Dish is suffering, despite Sling TV

The other major satellite provider, Dish, is seeing worsening rather than improving trends, despite its ownership of over-the-top TV service Sling TV. It reports Sling TV subscribers as part of its overall pay TV numbers, through they’re markedly different in many of their characteristics, but even so it’s seen subscriber losses increase dramatically this quarter. The chart below shows Dish’s reported subscriber losses in blue, and adds estimated Sling TV subscriber growth in dark gray to show what’s really happening to traditional pay TV subs at Dish:

As you can see, the year on year change in traditional pay TV subs at Dish looks a lot worse when you strip out the Sling subscriber growth. The company lost almost a million pay TV subs on this basis over the past year, a number that appears to be rapidly accelerating.

Of course, we’re also including Sling subscribers in our overall industry numbers, so it’s worth looking at how industry growth numbers look when we strip out the same Sling subscribers from the overall pay TV numbers (with the Sling reduction this time shown in red):

As you can see, the picture here worsens quite a bit too, going from a roughly 800k loss to a 1400k loss over the past year. The trend over time is also even more noticeable and dramatic.

Broadband may be the salvation for some

We’ve focused this analysis on pay TV exclusively, but many of these players also provide broadband services, and these services have grown to the point where they now rival the total installed base for pay TV. Indeed, a number of the larger cable operators now have more broadband subscribers than pay TV subscribers. This is another area where the larger cable operators are outperforming their smaller counterparts, as shown in the chart below:

Besides those smaller cable operators, the other company that will fare worst from cord cutting is Dish, which we’ve already discussed. Though it has a few hundred thousand broadband subscribers, it’s not remotely competitive in this space on a national basis, and as TV subscribership continues to fall, it will struggle to make up the difference in other areas, increasing pressure for a merger or acquisition that will allow it to tap into the broadband market. DirecTV, of course, now has the AT&T U-verse and wireless bases to bundle with.

Recent M&A leaves six large groups in control

Lastly, I want to touch on the recent merger and acquisition activity. We’ve already mentioned AT&T and DirecTV, but there have also been two other bits of consolidation: the creation of the new Charter from the combination of Charter, Time Warner Cable, and Bright House; and the acquisition of Cablevision and Suddenlink by French company Altice. It’s interesting to consider the scale of the groups formed by these various mergers in the context of the rest of the industry – these are now the six largest publicly-traded groups in the US pay TV market:

AT&T comes out on top, bolstered enormously by the DirecTV acquisition, while Comcast remains close behind despite not having been involved in the recent mergers (despite its best efforts). The new Charter comes in third, Dish in fourth, and then Verizon and Altice are way behind with a very similar number of subscribers a little under 5 million. After that, in turn, the companies get much smaller, with Frontier next at 1.6 million pay TV subs (including over a million recently acquired from Verizon), with no other publicly traded companies with over a million subs. And of course privately-held Cox is again excluded here, but would come in around the same size as Verizon and Altice.

This is a market increasingly dominated by large players, and that’s a trend that’s likely to continue, with Altice publicly suggesting that it intends to roll up more of the smaller assets. The four largest groups already own 78 million of the roughly 91 million owned by the publicly traded companies we’re tracking here, and the six large groups have 87 million between them. The rest of the market is becoming less and less relevant all the time, and as we’ve already seen has been suffering worse from cord cutting too.

Cord Cutting Continues to Accelerate in Q2 2016 was originally published on Beyond Devices

jeffhirsch:

At the close of trading yesterday, DJIA was up 6.3% year-to-date. S&P 500 was up a similar 6.7% and NASDAQ was up 4.1%. At these levels of performance DJIA and S&P 500 are slightly above average compared to past election years while NASDAQ is roughly in line with historical averages for this time of the year. Barring some disastrous exogenous event, the worst-case Eighth Year of Presidential terms scenario appears to be off the table.

Now that the 8th Year scenario is highly unlikely let’s turn attention towards the more likely typical election year pattern for the remainder of the year. Although August is typically a weak month, this is not the case in election years. Since 1952, DJIA and S&P 500 have averaged gains of 0.8% and 1.0% respectively in election-year Augusts. NASDAQ is even stronger, up 2.9% on average since 1972. However, once August ends and September arrives, back-to-school and back-to-work time, weakness does creep back into the picture.

Looking at the above three charts, an interim top is seen at the beginning of September for DJIA and S&P 500. NASDAQ strength tends to last slightly longer, until about mid-month September. Weakness then tends to persist until early- or mid-October before the market rebounds to close out the year on a positive note.

jlfmi:

An index tracking “average stock performance” just achieved an important milestone, surpassing its 2015 all-time high.

In what is not our first and, apologetically, likely not our last Olympic metaphor, a key broad market index has rallied from the brink of defeat just 6 weeks ago back into the winner’s circle. The index is called the Value Line Arithmetic Index (VLA) and it tracks essentially the average performance of a universe of approximately 1800 stocks. So it is a solid gauge of the health of the broad U.S. equity market. We last mentioned the index amidst the Brexit aftermath in early July. During the immediate post-Brexit reaction, the VLA suffered a wicked decline along with most areas of the equity market. In the process, it temporarily broke below the post-2009 Up trendline that had supported it for 7 years, outside of January and February of this year. However, as we mentioned in the July post, by the end of that week, the VLA had staged a furious rally to again reclaim the top side of the trendline.

And while that week marked the comeback that put the VLA back into the race, yesterday was perhaps the finish line (at least, in this analogy), as the index finally made it back to all-time highs, surpassing its April 2015 peak.

Why is this important? First, it underscores one of the themes we have consistently alluded to since early on in the post-February rally: strong market participation, or breadth. One of our firm’s investment philosophies is to try to align our investment posture with that of the broad market of stocks rather than just a narrow, cap-weighted, large-cap average, for example. Therefore, various measures of breadth are very important in our risk assessment of the market.

Along those lines, market breadth has remained stellar all throughout the post-February rally. This condition has provided the cover to maintain a much higher level of equity exposure during this summer’s rally. This is in particular contrast to last summer’s historic internal deterioration in the face of the large cap rally.

Secondly, we have long held that the action of the past 16 months or so has been part of a cyclical topping process in the stock market. Consistent with that thinking is the notion that the post-February rally would be a “bear market” rally. That is, while it may be a substantial bounce, it would not result in a new up-leg in the overall market, outside of a select few areas. Included in those select few areas, as we have been suggesting during most of the rally, would likely be the large-cap averages and defensive sectors. And those market segments have indeed gone on to new highs.

However, we have also seen other areas move to new highs recently including assorted cyclicals and, now, broad market averages like the VLA and the Wilshire 5000. Additionally, we saw the NYSE Advance-Decline Line move to new highs in April and it continues to make new highs. These are important developments in that they suggest, at a minimum, that any substantial damage of a cyclical nature is at least not imminent. Furthermore, while the decline from summer 2015 into early 2016 had looked like a potential kickoff to a cyclical bear market, that does not appear to be the case now.

So this means we are throwing in the towel on the notion of a “topping process” and a “bear market rally”, right? Not necessarily. Our view is that the evidence, from last year’s internal deterioration to longer-term, excessive “background” metrics, etc., still suggests we are in the midst of a sort of transitional topping process. Furthermore, other broad market averages are still well below their former highs. These include the NYSE Composite as well as our favorite broad market measure, the Value Line Geometric Composite (VLG). The VLG, which we have mentioned on many occasions, is the sister index to the VLA and measures the “median” stock performance of the same 1800 stock universe. Presently, the VLG is still 8% below its 2015 highs.

Even if the interpretation of a topping process is accurate, however, such a process can be a lengthy, drawn-out affair. And recent positive developments, like the move to new highs by the VLA, suggest that the end to such a potential process is not nigh.

_____________

More from Dana Lyons, JLFMI and My401kPro.

The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

marketexclusive:

Here’s an interesting one. ABLYNX N.V. NPV (OTCMKTS:ABLYF) is a relatively under the radar Belgian biotech company with a focus on what are called nanobodies. We will get into these in a little more detail shortly. The company just reported data from a phase 2 trial, and the data sets up some compelling evidence of efficacy and safety. As we have said, Ablynx is relatively under the radar, and so markets are yet to respond to the data. As such, this serves up an opportunity to get in and take advantage of the inefficiency. With this in mind, here is a look at the drug and the technology in question, and a look at what the data tells us about the drug’s chances of approval in Europe.

The drug is called vobarilizumab, and it’s an anti IL-6R nanobody. In order to understand how these sorts of drugs work, it is first important to understand the way antibodies work.  Antibodies in our body bind to antigens with the goal of doing one of two things. The first, tagging the antigen for attack by the wider immune system, and the second, directly influencing the antigen’s actions – i.e. stopping it from replicating etc. We have been creating antibodies as therapeutic candidates for a long time now, but they have their limitations. Primarily, the limitations revolve around their size. What we have now discovered, is that llamas and camels have antibodies that are composed of just heavy chain immunoglobulin, as opposed to the combination of heavy chain and light chain immunoglobulin found in human antibodies. From these heavy chain llama antibodies, it is possible to derive nanobodies, which are essentially the active ends of the antibody in question, chopped off the antibody for use on their own. It remains active, but it is something like 1/10 of the size of the antibody, and this has a number of benefits. First, it is able to bind to receptors on antigens that would otherwise be hidden from larger antibodies (these are called deep pocket receptors). Second, it is much more suited for oral administration because the small size makes it far easier for the bloodstream to absorb the drug.

Vobarilizumab is one of these nanobodies, and it targets the receptor IL-6.  This receptor is associated with inflammation, and so by stopping it from becoming active, the drug is theoretically able to negate to the inflammation associated with (and the root cause of) rheumatoid arthritis.

So that’s the science out of the way, what did the data tell us?

The trial is looking at the drug compared to placebo, and using an industry standard measurement to assess the difference in response across the patients. The measurement is called ACR, and specifically, ACR 20, ACR 50 and ACR 70. We don’t really need to go into too much detail about how the scores are calculated – all that is really important to understand is that ACR 20 refers to a 20% improvement from baseline in symptoms of rheumatoid arthritis, ACR 50 refers to 50% improvement and ACR 70 refers to a 70% Improvement.

Across the trial, 79% of individuals recorded ACR 20, 51% of individuals recorded ACR 50, 43% of individuals reported ACR 70 at week 24.  Coupled with a reported excellent safety profile, these data strongly support an efficacy hypothesis, and are a big step towards getting the drug approved in Europe.

The global rheumatoid arthritis market is crowded with a range of drugs and therapies, a large number of which are the first generation antibody therapies we had discussed in this article, but as yet, an IL-6 receptor target nanobody is yet to reach commercialization. If Ablynx can bring its candidate to market, it will be first in class, and have a considerable advantage from an efficacy and safety standpoint over the currently available treatments.

By 2021, analysts expect the total global market to reach $15.2 billion. If the company picks up a European approval, an FDA campaign will be next, and success across the campaign would open up the potential for Ablynx to go after these double-digit billion dollars.  As things stand, the company has a market capitalization of a little over $700 million. One to watch moving forward.

ABLYNX N.V. NPV (OTCMKTS:ABLYF) Is Trying To Use Llama Blood As A Rheumatoid Arthirtis Treatment, And It’s Working was originally published on Market Exclusive

johnmauldin:

George Friedman is one of the top editors at Mauldin Economics. Here’s a great read from him that I recommend.

BY GEORGE FRIEDMAN

The controversy over the Trans-Pacific Partnership has grown in the US. Right now, both presidential candidates oppose it.

Donald Trump opposes most multinational agreements, including noneconomic ones. He believes they do more harm than good.

Some think these treaties put poor countries at a disadvantage. Others say they transfer jobs to low-wage countries. This enriches multinational corporations but hurts local workers.

The question of free trade has become a pivotal issue… one that transcends ideology.

The argument for free trade

The idea that free trade (trade without tariffs or regulation) is better than protectionism has dominated since WWII. Bilateral and multilateral free trade agreements have risen since then.

The issue is whether it is still reasonable.

The best argument for free trade was made by David Ricardo in the early 19^th century. It was based on the theory of comparative advantages. It assumed that every nation had at least one product in which it had some edge over other countries. Focusing on this industry would maximize the nation’s income.

Plus, free market gives you access to a wider range of goods at lower prices. So, opening your own market has perks—even when you don’t sell anything.

This is a solid argument in theory. The problem is reality.

Most nations, including the US, took protectionist steps prior to WWII.

The surge in the American economy after the Civil War moved it into the top tier of global economies.

Some have said that the US would have surged further without tariffs. That is doubtful. At most, they made no difference. But I’m certain they were vital to growth.

The problem with free trade

The argument for free trade has several problems.

First, in order to trade, you must make products that others need. If your markets aren’t protected, more advanced countries will offer better quality products at lower prices.

As a result, you’ll be unable to develop industry or purchase even low-cost goods. This, in turn, prolongs underdevelopment and poverty.

A protectionist policy is a must as a nation begins its industrial revolution… or else that revolution fails. The US did this in the 19^th century.

But today’s free trade agreements lock out poor economies, and lock in advantages to advanced economies. This is the left-wing argument.

The (surprisingly) right-wing argument is that free trade doesn’t work when booming emerging economies like China take advantage of temporary low wages and their own protectionism. These developing countries use free trade to destroy some sectors in advanced countries.

So it is possible for both sides to be right.

In the short run, free trade could wreck a certain economic segment. In the long run, this might be resolved. The wealth of nations might grow… but it might not grow equally. And time and the distribution of benefits pose a political problem.

The politics of free trade

“Political economy” was a term used by classical economists like Ricardo and Adam Smith. This was not loose terminology.

Both understood that political agreements—such as creating corporations—are a catalyst for growth. They also knew that a nation is not a homogenized whole. Growth without distribution will fail.

Assume that free trade would create a 20% annual growth rate in a country but would ruin main sectors of the economy. The nation’s net worth would increase, but who benefits from the growth?

Aggregate numbers show that free trade is wonderful. Breaking down those numbers, you’d find that from a political standpoint you have created two classes: beneficiaries and victims of free trade.

The free trader might say that’s life: losers are losers. The losers would say that the winners live in a fantasy world if they think that they’ll be allowed to maintain that situation.

People who think that it is possible to pursue self-interest only in economic life are mistaken. Having established self-interest as a moral absolute, it is likely to spread to other parts of society.

The long-run argument for free trade

Here’s the long-run argument for free trade. Over time, the pain caused by free trade will lead to huge benefits that will be equitably distributed. This is a strong case. The issue is this: how long is the long run?

Assume that an industry moved to another country. This eliminated jobs in one place and created them in another lower-wage place. The wealth of the nation might increase. However, the former employees might be devastated.

Assume that it would take a generation for the benefits of increased national wealth to create new industries based on new inventions. While that’s not a long time for a country, it is for an individual. And a personal disaster affecting large numbers of people is a political problem.

The US practiced protectionism throughout the 19^th century. It decided tariffs on two bases.

One was economic: what industries should be protected to increase the nation’s wealth? The second was political: what are the political consequences of these decisions and the ensuing probability that the politicians making the decisions would get re-elected?

There is no answer to this in principle. Those who support free trade demand that the government intervene when another country “cheats.” They also define free trade for their benefit.

But protectionists shift their stance on what should be protected at any given time and to what degree.

The balance is shifting to protectionism

Each side views free trade based on its interests. Each uses the state to shape the economic landscape so that it benefits.

Since 2008, the political balance between the free traders and the protectionists has shifted. A significant sector of the population believes that free trade has hurt it.

This sector wants an end to expanding free trade or a redefinition of its terms.

The argument that it is beneficial overall has little impact. A CEO would oppose a shift in trade policy if it hurt his business, no matter the national good.

Individuals take the same stand.

The balance between free trade and protectionism has been a major political issue in the US since its founding. But now, free trade must demonstrate its worth, not just assert it.

The system is moving toward protectionism.

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bidnessetcnews:

Valeant stock soared on second quarter results yesterday

After two straight disappointing quarters, Valeant Pharmaceuticals Intl Inc (VRX) finally gave investors something to be glad about in the latest earnings call on August 9. The company stood by its full-year guidance it provided in June after a series of prior cuts, easing fears that it can trigger breach of the covenants covering almost $31 billion in debt. Following the earnings call, the stock surged more than 25%, posting its biggest intraday gain since its IPO.

Why The Earnings Were Not That Bad

CEO Joseph Papa said he plans to increase the company’s debt cushion by renegotiating covenants with lenders, the second such amendment since April when Valeant convinced holders of over half its loans to loosen restrictions and extend regulatory filing deadlines after the company triggered default notices on late financial report filing. Mr. Papa said that an increased cushion will let investors look past the company’s debt load and focus more on its fundamental strength and pipeline.

He also said Valeant is looking into sale of assets worth over $2 billion in revenue for about $8 billion to pay off debt. “This excludes our core assets,” Mr. Papa said. “We don’t have a plan to sell them – we are exploring our strategic options with some bankers we’ve asked to help us.” The company listed Bausch & Lomb eyecare unit, dermatology, Salix gastrointestinal and consumer over-the-counter business among its core assets and disclosed it has received unsolicited interest in several of these as well. At the same time, he said in an interview with CNBC that he is “very confident” that Valeant can get “fair market value” for its non-core assets alone. Having paid off $1.29 billion in debt this year, the company hopes to cut the burden by more than $5 billion over the next 18 months. Moreover, he announced a “new strategic direction” for the beleaguered company in an effort to reinvent it as the “new Valeant.”

“We are setting the company on a new path with new strategic imperatives,” Mr. Papa said during the earnings call. A key part of his plan include replacement of Valeant’s top attorney and head of public relations, which follows the removal of former longtime CEO Michael Pearson - some of the company’s top executives whose images were tarnished from last year’s plethora of scandals. Valeant will also be reorganized by business units instead of geography, with Branded Rx, Bausch & Lomb/ International and US Diversified products comprising its three parts.

Valeant also shrugged off rumors regarding a possible termination of its distribution contract with Walgreens Boots Alliance. Mr. Papa said in the earnings call that the company is “very pleased” with the deal, adding that they “still have challenges, but we’re making progress.”

In June, Valeant admitted to losing money on sales of some of its medicines through the Walgreens deal. The deal was struck to replace Valeant’s former mail-order pharmacy called Philidor Rx Services, which was used to distribute most of its expensive dermatology products. In October, the company was accused of having curiously close ties with Philidor and using the pharmacy to aggressively push expensive drugs onto health insurers in the presence of cheaper alternatives. Valeant consequently severed ties with Philidor and conducted an internal investigation of the relationship earlier this year, uncovering a $58 million revenue misstatement related to it in the company’s financial statements.

Troubles Still Exist

While Valeant helped settled a lot of investor fears in its second quarter earnings call, new ones have come to light. Despite yesterday’s bull-run, shares still trade almost 90% lower than August 2015 peak of $262.52. Both the company’s earnings and sales for the quarter missed analysts’ expectations. Adjusted earnings per share (EPS) came in at $1.40, compared to the consensus estimate of $1.47. Sales fell 11% year-over-year (YoY) to $2.42 billion, missing expectations of $2.46 billion. Valeant’s flagship derma revenue fell 55% compared to the same quarter last year, while ophthalmology declined 25% and Neuro dropped another 11%.

Moreover, the gastrointestinal unit saw flat sequential sales. While the company did not provide key product sales, its star irritable bowel drug Xifaxan saw a 28% YoY growth in prescriptions although the treatment is nowhere close to reaching the $1 billion mark Valeant predicted for this year. Furthermore, revenue from developed markets declined 14% compared to the same quarter last year, largely due to lower drug pricing. Valeant had come under fire last fall over the steep price hikes it applied on its acquired drugs, particularly the heart meds Isuprel and Nitropress, which were raised by 525% and 212%, respectively. Since then, Valeant has agreed to expand discounts on these drugs and formed a committee to monitor prices.

As Evercore ISI analyst Umer Raffat noted, Valeant’s business needs to improve tremendously in the second half for it to reach its reiterated 2016 guidance. The company expects full-year sales of $9.9-10.1 billion and adjusted EPS of $6-7. Wells Fargo analyst David Maris said it is “increasingly unlikely” for Valeant to meet the guidance with the latest financial results. He further added: “More importantly, investors should watch what we expect will be 2017 consensus lowering as analysts try to reconcile the new guidance with a low growth outlook.”

Moreover, Mr. Maris shed doubt on the company’s ability to meet its debt covenants next year. “Valeant paid interest expense of approximately $434 million in the quarter and generated adjusted EBITDA of approximately $1,087 million. This is an interest coverage ratio of just 2.5x, which is significantly below the 3.0x covenant requirement for 2Q17 on a trailing 12-month basis,” he wrote.

He noted that Valeant has not issued a cash flow statement or balance sheet with its press release, making it difficult to determine the quality of cash flows. “If we want to consider quality, let us first start with net income, which was negative (-$676 million) in 1H16versus $44 million for 1H15. However, cash flow from operations was approximately $1 billion in 1H16 versus approximately $900 million in 1H15,” he said, adding that: “Overall, the business trends are weak, debt is high, key management are leaving, the SEC and other investigations continue, and VRX is a price driven model in a payor market that has gotten smarter, in our view.”

estimize:

SHAK: For its cult following and immense popularity, you would think Shake Shack would be doing better. The stock is down over 40% from a year earlier as the market casts doubt on its ability to sustain accelerated growth. Rapid expansion and menu innovation have been key to driving sales and comps, but it has also put pressure on margins. Don’t expect these growing pains to subside as Shake Shack continues in its maturation process. Additionally rising labor costs and higher beef prices could put pressure on profitability this quarter.

RDEN: Almost two months ago Revlon agreed to purchase Elizabeth Arden for $419.30 million in cash, a deal that unites two well known cosmetic brands. On the surface, the deal appears to be a bargain for Revlon, capturing a growing company at just one times sales. Elizabeth Arden has also made significant strides in recent quarters. Last quarter featured positive year over comparisons, breaking a long streak of negative growth. The company reached this point by growing its fragrance portfolio and implementing cost cutting initiatives. The biggest question mark this quarter won’t likely be earnings, but how management views the future under the Revlon umbrella.

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