Transcript: Nightly Business Report – March 13, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Chip flip. The red hot
semiconductor sector cools. And the White House blocks what would have
been the biggest tech deal ever.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: New prognosis. CVS
(NYSE:CVS) and Aetna (NYSE:AET) shareholders approve their merger, paving
the way for a new era in health care, impacting everything from coverage to
costs.

HERERA: Remodeling returns. Which projects pay you back big?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
March 13th.

GRIFFETH: And we bid you good evening, everybody.

These days, it seems that as tech goes, so goes the market. That`s exactly
what happened today. The tech sector which was up double digits this
quarter, three times the gain of the S&P 500, today fell sharply. The
NASDAQ snapped its seven-day win streak, brought the major indexes down
with it at the same time.

The Dow when all was said and done, dropped 171 points today to close just
above 25,000. The NASDAQ lost 77 and the S&P 500 fell by 17.

Within technology, the focus today was on the semiconductor sector. The
White House late yesterday, you may have heard, blocked Broadcom`s hostile
take over of Qualcomm (NASDAQ:QCOM) for national security grounds. And
that sent today`s chill through the roof that investors had been flocking
to in the meantime.

Dominic Chu picks up our story for us from here.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Companies tied to the
computer chip industry had been on an absolute tear as of late. One of the
bigger exchange traded funds that tracks these types of stocks, the VanEck
Vectors Semiconductor ETF, ticker SMH, is already up 15 percent this year
and up around 44 percent over the last 12 months.

It includes some of the biggest names in the business, including Intel
(NASDAQ:INTC), Nvidia, Texas Instruments (NYSE:TXN) and Micron. And some
experts think the upside momentum can continue.

KATE WARNE, EDWARD JONES: There is a lot of growth opportunities for all
of them. If you think about the Internet of Things, where more things are
connected, think about autos, where more and more semiconductors are being
used in order to connect how the deal works and even without driverless
car, we are just seeing a lot more technology be embedded into a variety of
different products. I think that`s a growth opportunity for all of the
semiconductor companies.

CHU: Computer chip stocks have been one of the bigger driving forces
behind the bull market leader coming from the tech sector. Of the five S&P
500 companies that have seen their stocks at least double over the course
of the past one year, two are tied to chips. Micron, with a market value
of around $70 billions has gained around 137 percent. Nvidia is worth
around $150 billion and has gained a whopping 145 percent in that span.

But there are reasons for caution.

WARNE: Many investors probably need to pull back on tech not because the
opportunities aren`t good but because prudent portfolio management says
never let one sector get above 20 percent of your portfolio.

CHU: The technology sector is organize arguably the most important part of
the market making up around a quarter of the entire S&P 500`s market value.
While stocks like Apple (NASDAQ:AAPL), Alphabet, Facebook (NASDAQ:FB), and
Microsoft (NASDAQ:MSFT) get much of the attention, these chip stocks could
be one of the big indicators for whether the overall bull market can
continue.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: As bill mentioned, the White House blocked Singapore-based
Broadcom`s hostile takeover of Qualcomm (NASDAQ:QCOM) citing national
security concerns. The $117 billion bid would have made it the biggest
tech dealing in history. That sent both stocks lower in trading today.

David Faber has Moore on this failed merger.

(BEGIN VIDEOTAPE)

DAVID FABER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was an unexpected
end to a hard fought takeover battle in which Broadcom (NASDAQ:BRCM) has
been trying for months to acquire Qualcomm (NASDAQ:QCOM). In steps the
Committee for Foreign Investment in the U.S. about a week or so ago and
last night, well, they delivered the order that will stop the deal. The
president also signing that order. And so it becomes a presidential decree
saying that Broadcom (NASDAQ:BRCM) cannot, under any circumstances acquire
Qualcomm (NASDAQ:QCOM) because, according to the U.S. government, there are
national security concerns involving Broadcom`s potential acquisition of
Qualcomm (NASDAQ:QCOM) such that the national security of the U.S. might be
compromised by that deal.

As I said, it was a deal long in the making and it was very much unclear
whether Broadcom (NASDAQ:BRCM) would succeed regardless. But when CFIUS
stepped in a week ago right before the company was about to hold its annual
meeting, it changed the entire landscape. Since then, Broadcom
(NASDAQ:BRCM) did not seem to do itself any favors. In fact, yesterday, we
reported on a letter from CFIUS saying that you`ve already violated the
interim order we issued on March 5th three different times. Well, if trust
is the thing at issue here, violating that trust didn`t do them any help.

One key question now, has the U.S. government created a national champion
in Qualcomm (NASDAQ:QCOM)? A company that is key in rolling out 5G or the
next generation of wireless services not just here in the U.S. but
potentially around the globe and that is in competition with China`s
Huawei, a company that does business around the globe, but not here in the
United States.

For NIGHTLY BUSINESS REPORT, I`m David Faber.

(END VIDEOTAPE)

HERERA: The tech sector could also be impacted by a report late today.
According to “Reuters”, the White House is looking to impose tariffs on $60
billion of Chinese imports targeting technology and the telecom sectors
among others.

GRIFFETH: Well, we have a lot to talk about now with Daniel Flax. He is
talking about the semiconductor sector and what it will mean for the
overall technology industry itself. He is a senior research analyst at
Neuberger Berman.

Daniel, good the see you. Thanks for joining us tonight.

DANIEL FLAX, SENIOR RESEARCH ANALYST, NEUBERGER BERMAN: Good to see you
both. Thanks, Bill.

GRIFFETH: Where to begin?

First of all, just why have the chip stocks been so hot? What`s going on
these days that has people driving into them?

FLAX: What`s underway, Bill, and it`s been going on for the past several
years is that these semiconductor companies are finding their way into lots
of different and new markets besides the traditional ones such as personal
computers and smart phones. And so, whether it`d be on the factory floor
or within automobiles, there are a whole wave of new areas that these
semiconductor companies are able to grow in, and we think that is likely to
be sustained well into the future.

HERERA: One of the things that I have noticed is the push into artificial
intelligence and virtual reality. So, there are actually not just in tech.
They are in entertainment. They have really broadened out the base.

FLAX: I think that`s right, Sue. Part of what`s going on is that there is
enormous compute power that is available in the cloud. And you then have
software on top of it which is able to do tremendous things around
analytics. And if you take a company like Google (NASDAQ:GOOG), for
example, or Alphabet, they are really a leader in artificial intelligence.

And helping to push the boundaries of what`s available by analyzing data
and delivering solutions and outcomes to their users. And that`s very
exciting.

GRIFFETH: All right. Now what about this late word of the possibility of
$60 billion of tariffs on Chinese imports that could affect technology?
How vulnerable for example, are the chip stocks to those possible tariffs?

FLAX: I think in the shorter term, Bill, they are vulnerable given that
these are global companies with global supply chains. Obviously, customers
all over the world. What I suspect will happen is as we see what some of
the new regulations — how they evolve, these companies, which have
responded to changes, adverse changes in the past — I suspect you will see
them do that again over time.

So, it could absolutely lead to some short-term disruption, but medium
term, I think they`ll be able to figure out a way to get around or really
operate in that new environment.

GRIFFETH: Daniel Flax from Neuberger Berman, thanks again for joining us
tonight. Appreciate it.

FLAX: Thank you.

HERERA: To economic news. Inflation rose slightly last month. Consumer
prices were up 0.2 percent in February which was in line with expectations.
Today`s report tempered concerns that inflation is heating up and appears
to keep the Federal Reserve on its expected path of interest rate
increases. Policymakers are scheduled to meet next week.

GRIFFETH: In Washington, President Trump fired his top diplomat today.
Secretary of State Rex Tillerson, who as you know formerly served as
ExxonMobil`s CEO. He will stay on through the end of the month. Some on
Wall Street see the move as nothing more unanimous a game of musical chairs
at the White House. Others, though, say Tillerson`s firing, along with the
blocked Broadcom (NASDAQ:BRCM)/Qualcomm (NASDAQ:QCOM) merger could result
in increased tensions with China. The president has nominated, by the way,
the CIA chief, Mike Pompeo, to be the next secretary of state.

HERERA: There is a closely watched special election being held in western
Pennsylvania today to fill the seat vacated by Republican Tim Murphy who
resigned last fall. The district has voted Republican in recent elections
and is home to a number of a large — a large number, I should say, of
steelworkers.

John Harwood is in Scott Township, Pennsylvania, tonight.

John, good to see you as always.

So, how has the president — how has the president`s decision on steel
tariffs possibly impacted this race?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: No sign of it so far,
Sue. Both candidates have embraced the tariffs. Conor Lamb, the Democrat,
with a little more equivocation than his Republican rival, Rick Saccone.
But it does not appear to have changed the late momentum in the race that
Conor Lamb has developed.

Rick Saccone in this very, as you noted, Republican area, had built a large
lead in the polls early in the race. Conor Lamb has been coming back. In
the last surveys we`ve seen, Lamb is slightly ahead. If he wins this race
tonight, it will be a huge upset that will send shockwaves through the rest
of the chain for Congress this fall.

GRIFFETH: All right. What about — there is tariffs. What about the
other T, tax cuts? Does that necessarily benefit the Republican Saccone?

HARWOOD: Republicans have been counting bill for tax cuts to save their
majorities in the fall campaign given all the political turbulence around.
They started advertising heavily in the early part of the race on tax cuts,
but it`s notable that late in the race, they have moved away from that
message, gone after Conor Lamb, the Democrat, on crime and immigration.
So, that suggests Republicans don`t have a great deal of confidence in the
tax issue in this race. We`ll see how it plays out in other races across
the country.

HERERA: Do we have any idea on turnout? Has it been normal, heavy, light?

HARWOOD: Well, in the school right behind me, the poll workers tell me
that they have had an unusually heavy turnout. About half of the
registered voters have shown up so far. Polls are still open for a while
longer tonight. So, that indicates that all the tens of millions of
dollars that have been spent in this race have had at least some effect in
arousing and getting voters out today.

HERERA: All right, John. Thanks so much. John Harwood in Scott Township,
Pennsylvania.

HARWOOD: You bet.

GRIFFETH: All right. Let`s take a look at some of today`s upgrades and
downgrades.

And we begin with J.P. Morgan lowering its price target on General Electric
(NYSE:GE) to $11. The firm citing concerns over the outlook for GE`s free
cash flow and earnings. The analyst maintained his underweight rating and
GE shares fell more than 4 percent today to $14.43.

Jeffreys, meanwhile, raised its price target on Amazon (NASDAQ:AMZN) to
$1850. The firm says that Amazon`s market cap to swell to that magical $1
trillion mark by the year 2022. The analyst cites Amazon`s aggressive push
to expand its advertising business. Amazon (NASDAQ:AMZN) shares, though,
fell with the rest of the market today. It was down a fraction at $1,588.

HERERA: Well, J.C. Penney was initiated with an underperform rating at
Credit Suisse. The analyst there says the retailer could close more stores
and is facing margin pressure. The price target is $2.50. J.C. Penney
closed up nearly 1 percent, though, at $3.28.

Guggenheim calls T-Mobile the best idea in the telecom sector. The firm
cites T-Mobile`s growth outlook, its conservative guidance and its share of
the handset market. The analyst has a buy rating on the stock and an $80
price target. T-Mobile shares were up a fraction to $64.98.

GRIFFETH: Still ahead, the former CEO of Aetna (NYSE:AET) and the head of
the Cleveland Clinics discuss the rapidly changing health care industry and
their vision of the future.

(MUSIC)

GRIFFETH: CVS (NYSE:CVS) and Aetna (NYSE:AET) shareholders today approved
the drugstore chain`s $69 billion acquisition of the insurer. This merger
is expected to close in the second half of the year assuming that, by the
way, it`s okayed by regulators. In just a moment, we are going to talk
about how this merged company could usher in a transformation of the entire
health care industry. In the meantime, shares of CVS (NYSE:CVS) fell by 1
percent today. Aetna (NYSE:AET) shares rose a fraction.

HERERA: The health insurer Centene (NYSE:CNC) is making an investment in
RX Advance, which is a cloud-based pharmacy benefit manager. Pharmacy
benefit managers negotiate with the big drug makers to get better prices on
prescription medications. The size of the deal not disclosed but the
investment comes days after Cigna made a $52 million offer to buy express
scripts. Both deals are pat of a bigger wave of consolidation in the
health care industry.

GRIFFETH: And let`s talk about that. What will this wave of consolidation
in the industry mean for the future of health care, both for providers and
for patients?

We have two prominent visionaries with us tonight, both industry veterans
here to share their thoughts. Ron Williams is the former Aetna (NYSE:AET)
CEO. He`s now chairman and CEO of RW2 enterprises. And Toby Cosgrove is
former president and CEO of the Cleveland Clinics, where he is now
currently executive adviser.

It`s great to see you both. Thank you for joining us.

TOBY COSGROVE, EXECUTIVE ADVISOR, CLEVELAND CLINIC: Thank you, Bill.

RON WILLIAMS, CHAIRMAN & CEO, RW2 ENTEPRISES: Thank you for having me.

GRIFFETH: Ron, let me start with you. Here`s what puzzles me about the
Aetna (NYSE:AET)/CVS (NYSE:CVS) deal. It seems their motivations are at
odds with each other. Let`s face it, when you raise drug prices, it`s
better profitability for the drug companies and the drug retailers. But
the insurance companies would seem to want lower prices, they want to cover
less of the price of those particular drugs.

How is this merger going to transform and make health care better for
customers?

WILLIAMS: Well, I think the underlying idea in my mind — I have to say
I`m not an insider. I have no inside information related to the
transaction. It`s really not about pricing. It`s about creating more
value in the health care delivery system.

And if we look at chronic patients, only about 50 percent of the
prescriptions written for patients who have diabetes, hypertension,
cardiovascular disease — only 50 percent of those prescriptions are
filled. And of the 50 percent that are filled, in total about 20 percent
of the patients are truly compliant with their medication regimen. If you
can actually increase medication adherence and compliance, you can reduce
health care costs fundamentally. You can create more value in terms of
lower premiums and improved quality.

So, I think the pricing angle is looking at it through the wrong lens.

HERERA: Would you agree with that, Toby? And weigh in on what Ron just
mentioned. It seems as though getting patients under that one umbrella
with an Aetna (NYSE:AET)/CVS (NYSE:CVS) merger might actually form more
compliance with the regimen that they are assigned.

COSGROVE: Well, I hope they do see more compliance. But what we are going
to see in the future as far as health care is concerned.

You are going to see major changes, increasing emphasis on keeping people
well and the people who are sick are going to be treated differently. They
are going to have different disease, more chronic disease. They are going
to be taken care of in different locations, more outpatient than inpatient.

And they are going to be looked after by a different group of people. It`s
not going to be just doctors. But it`s going to be physicians assistants
and nurses.

So, the whole industry is changing. The diseases are changing. The
treatments are changing and we have to drive the efficiency and the value
to have an affordable healthcare delivery system. We hope this is going to
be one of the steps in that direction.

GRIFFETH: Toby, I`m curious. Your thoughts on the proposed what do you
want to call it alliance that Jeff Bezos has put together with Warren
Buffett and Jamie Dimon at J.P. Morgan. They don`t know what kind of
business they want to get into, but they just want to know that they can
bring costs down and improve services.

What do you think they are going to do?

COSGROVE: Well, I must say, I similarly don`t have much insider
information on this. But if you look at the potential is, you`ve got Jeff
Bezos who clearly has a delivery system and service for drugs and certainly
a lot of I.T. that he can use. Certainly, Berkshire knows about handling
risks through GEICO. And I can imagine that they can do something as far
as a mutual insurance company. And certainly there is plenty of economic
acumen with J.P. Morgan.

I`m delighted to see, actually, the private sector step in the way that
they have because I think they are going to bring fresh ideas, fresh
approaches and new energy to the private sector and hopefully continue to
drive us in new ways and to be very innovative.

HERERA: You know, Ron, picking up on Bill`s thought, one of the things
that Mr. Bezos said, and also Warren Buffett said when they formed that
alliance is they feel the use of technology will ultimately be the main
driver to bring down costs, to bring up efficiencies, and therefore
streamline what has been a very onerous health care system. Would you
agree with that? Is technology is ultimate answer? Or no?

WILLIAMS: Well, I think technology as an empowering tool for physician is
one of the answers. I think technology to empower patients and give them
better data and better decision-making. I agree with Toby that these are
intellectual giants in terms of Amazon (NASDAQ:AMZN), the ability for
Berkshire and the ability for J.P. Morgan to collaborate and bring their
respective strengths and be able to really help patients, help physicians,
help hospitals.

Exactly how it`s going to work I don`t think anyone knows.

GRIFFETH: Right.

WILLIAMS: But I would say that there is huge opportunity. The health care
system really needs disruption, needs continuity. And the use of data,
analytics, decision support tools can be a very important attribute in
increasing value.

GRIFFETH: Ron, before we let you both go, I can imagine the people
watching, it`s pretty simple. They want to pay less. They want a simpler
situation when it comes to their relationship with their insurance company,
and the relationship therefore with their doctor. Is that where we are
headed? Are our expectations off base here?

WILLIAMS: Well, I think the only thing I would add is that the patient and
consumer themselves has to become a more active participant in the delivery
of the health care. I think that they really do want and need a simpler
relationship through the whole system.

Our system is not really a system. It`s a patchwork of activities. And a
lot of the consolidation you are seeing is really efforts to integrate that
system in a way that it can create more value and hopefully provide more
assess, more affordability for the patient.

GRIFFETH: We could have done all 30 minutes on this tonight, gentlemen,
but we must go at this time. Thank you both for your insights.

Ron Williams, former CEO of Aetna (NYSE:AET), now at RW2 Enterprises, and,
of course, Toby Cosgrove, the executive adviser at Cleveland Clinics.
Thank you both.

WILLIAMS: Thank you.

COSGROVE: Pleasure.

HERERA: Holiday sales disappoint at Dick`s Sporting Goods (NYSE:DKS). And
that`s where we begin tonight`s “Market Focus”.

Despite seeing strength in its online sales, the retailer reported a drop
in same store sales and weaker than expected revenue but earnings edged
past estimates. The shared finished up nearly 1 percent to $32.88.

DSW (NYSE:DSW) reported weaker than expected sales but it delivered a
profit beat and improved margins. The shoe retailer also gave upbeat
forecasts for the year and it increased its quarterly dividends 25 percent
to 25 cent a share. DSW (NYSE:DSW) shares jumped 10 percent to $21.71.

GRIFFETH: United Continental says that revenue this quarter has been
improving across all regions. The airline also gave earnings guidance for
the year that was in line with expectations. Shares of United rose
fractionally to finish the day at $72.60.

And industrial distributor HD Supply saw a rise in sales and a smaller than
expected loss. The company also gave upbeat guidance for the whole year
and said it was providing employee bonuses thanks to tax reform. Shares of
HD climbed 3 percent today to $38.09.

HERERA: Coming up, how to get the biggest bang for your renovation buck.

(MUSIC)

GRIFFETH: Today`s pricey and competitive housing market means more
homeowners are staying put. They are remodeling instead of moving. And
that`s great news, of course, for names like Home Depot (NYSE:HD) and
Lowe`s.

But what will your investment get you?

Diana Olick takes a look for us tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Emma Chanlett-Avery
has a vision for her amily of four.

It`s getting there. She and her husband are enlarging the kitchen, adding
a family room, and an upstairs master suite. More space was paramount even
if the cost outweighs the return.

EMMA CHANLETT-AVERY, HOME REMODELER: It was balance because we always had
the possibly of resale in our mind. But we think we are going to be here
for a while. Mostly we were focusing on the things that would make our
life here with our family better or more comfortable.

OLICK: Homeowners are staying in their homes longer today than in the
past, upgrading and remodeling more. And some projects nearly pay for
themselves. Garage door replacement will give you 98 percent of your
investment back, according to “Remodeling Magazine`s” annual cost versus
value report. It asks real estate agents how much a renovation would add
to the sale of a home selling in the same year. Manufactured stone veneer
came in second. And a steel door ranked third. Other high returns, a deck
addition and a minor kitchen remodel.

JUSTIN SULLIVAN, IMPACT CONSTRUCTION PRESIDENT: Things like kitchens,
bathrooms, you are probably going to get 60 or 70 cents on dollar for those
types of investments. And then thing that are more decorative. Generally
speaking, you`re going to get a little bit less on those.

OLICK: Doing a simple remodel or upgrade will give you a better return
than an addition or something fancy. That`s a big change from last year.
Why? Because the cost of labors and materials are both skyrocketing. And
that shifts the equation. Of course, value can be subjective depending on
how long you plan to stay.

SULLIVAN: If you are going to live in a place for 10 or 15 years and raise
a family, you are still going to get that money back, plus the intrinsic
value of living there, enjoying the additional space.

OLICK: As with everything in real estate, location matters. If home
prices are rising faster in your market, then remodeling returns will be
higher. But no matter where you are, remember, before you pour your life
savings into it, your dream kitchen may not be someone else`s.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And before we go, here`s another look at the day on Wall Street.
The Dow dropped 171 points. The NASDAQ was off 77. And the S&P 500 fell
17.

And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.

We want to remind that you that this is the time of year your public
television station seeks your support.

GRIFFETH: I`m Bill Griffeth. And we do thank you for your support. Have
a great evening, everybody. We`ll see you tomorrow.

END

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