With economic data relatively scarce this week, and earnings data slowing down at least for one day, all eyes were focused on the U.S. Treasury's $113 billion surplus in April -- it's largest in five years. A combination of higher payroll taxes and steady economic growth has spurred more tax collection for the Treasury, and helped calm fears that the government's budget deficit is getting out of hand.
While certainly good news from a macroeconomic perspective, it didn't have too much bearing on the broad-based S&P 500 today, which rose by 7.03 points (0.43%) to close at 1,633.70. In spite of the rather muted move, three companies rifled higher as we head into the weekend.
Generic drug producer Actavis (formerly Watson Pharmaceuticals) soared 12.2% after Bloomberg News reported that the company was in early stage talks to acquire Warner Chilcott , the company with a product line focused on women's health care. These talks have been confirmed now by Warner Chilcott, although both sides caution that a deal may not be reached. Warner Chilcott is incredibly cheap at roughly six times this year's earnings based on its current price, so Actavis could be getting quite a steal depending on its offer price. This is a situation I'd suggest shareholders watch closely.
Clothing retailer Gap lived up to its name today, "gapping" higher by 5.6% after announcing yesterday that its same-store sales for the five weeks of April rose a robust 7% compared to a 2% decline last year when the weather was significantly more favorable to consumers. The biggest boost came from its Old Navy segment, which delivered a 9% same-store sales gain compared to a 6% decline last April. Looking ahead, Gap expected first-quarter EPS to be in the range of $0.68-$0.69, which is significantly higher than the $0.56 the Street had been expecting. I'm still not a huge fan of Gap's inconsistencies, but these are tough figures to ignore.
Finally, orphan drug maker Alexion Pharmaceuticals added 6.1% following an outperform reiteration from research firm Zacks. It isn't hard to see why Zacks remains impressed with the company, as Soliris, its lone drug approved by the Food and Drug Administration, saw sales rise by 38%, to $338.9 million, in its most recent quarter, as non-GAAP net income jumped 49%. As for me, at approximately 32 times forward earnings, and with its entire product pipeline dependent on one drug, I'm not nearly as optimistic that it can head much higher.
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