Transcript: Nightly Business Report – June 17, 2019

GRIFFETH:  — Technology companies aren`t cheap, but they face some very  big political head winds in Washington when we talk about the antitrust  investigations that are going on that go after some of the big FAANG stocks  right now, right?  

PAUL MEEKS, THE WIRELESS FUND LEAD PORTFOLIO:  That`s true.  It will be  interesting to see what happens with these ongoing investigations, the FTC  and the Department of Justice, with at least four of the major tech  companies and both of the major social media companies.  But the way I look  at this is, particularly the FTC investigation — this is something that`s  been going on for a long time.  I don`t think that that is new news.  

As it pertains to the Department of Justice, something more new, something  more interesting, something that we have to be wary of, but I also think  it`s a lot of pressure going into the presidential election in the next  couple years, where all of — both sides of the aisle are interested in  showing their strength versus these companies.  

I don`t want to say it`s much ado about nothing, but I do think that once  we get through with this, there won`t be that many changes and far less  consequential than some people think right now.  

HERERA:  So, given the broad swath that we`ve talked about here, where are  you still finding compelling value in the tech sector?  

MEEKS:  So, Sue, what I`ve done is I do think you need to play some defense  in the near term, and so, I have a little bit higher cash than usual, and  I`ve been hiding in a couple of, I call them tech-ish names, that are more  secure and stable.  And these are companies like the payment processors —  MasterCard (NYSE:MA), Visa (NYSE:V), PayPal.  I even bought some Disney  (NYSE:DIS) recently with its video streaming entree, and trying to stay  away from some of the big, cyclical companies, particularly those that are  tied up in the geopolitical mess.  

HERERA:  On that note, Paul, thank you so much.  Paul Meeks — 

MEEKS:  Thank you.  

HERERA:  — with the Wireless Fund.  

GRIFFETH:  We have deal news today.  

Pfizer (NYSE:PFE) bought Array BioPharma (NASDAQ:ARRY) for more than $10  billion.  The acquisition beefs up the drugmaker`s portfolio of cancer  treatments just as it faces an increase in generic competition for some of  its popular drugs.  Shares of Array soared by 56 percent today.  Pfizer  (NYSE:PFE) gained a fraction as well.  
Meg Tirrell has more for us tonight.  

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Pfizer (NYSE:PFE) is  making a $10 billion bet in an area known as precision medicine, the idea  that identifying the drivers of disease can lead to more effective  treatment.  Array BioPharma (NASDAQ:ARRY) makes targeted cancer drugs, an  approach that`s garnered increasing attention from investors in  biotechnology.  

MICHAEL CALDWELL, DRIEHAUS CAPITAL MANAGEMENT:  We think that targeting the  root cause of disease is the best way to approach drug development.  

TIRRELL:  Big pharmaceutical companies agree.  Pfizer`s acquisition of  Array is just the latest focused on targeted therapies for cancer.  Earlier  this year, Eli Lilly (NYSE:LLY) purchased Loxo Oncology for $8 billion.   And GlaxoSmithKline acquired Tesaro for $5 billion.  

In Array, Pfizer (NYSE:PFE) gets a pipeline of experimental medicines for  different kinds of cancer, as well as a combination of drugs approved to  treat a form of melanoma.  That combination also has potential in other  cancers, something Driehaus Capital Management`s Mike Caldwell said drew  his firm to the stock.  

CALDWELL:  What got us really excited was their data in colorectal cancer,  which is a market that they will have a best-in-class profile as well  because right now there are no competitors there and nobody that`s on their  heels.  So that`s a market bet that Pfizer (NYSE:PFE) will be able to own  that`s substantial and where Array`s data are really compelling.  

TIRRELL:  The deal also spurred speculation about more acquisitions of  biotech companies, driving up shares of others developing targeted cancer  drugs like Lupert (ph) Medicines and Mirati Therapeutics.  
And while the precision medicine approach isn`t a cure-all, Pfizer`s  investment in the space, according to Caldwell, is evidence of its promise.  

HERERA:  A number of disappointing economic reports to tell you about.  A  key gauge of manufacturing activity in the New York region saw a record  decline in June and fell into negative territory for the first time in two  years.  Any reading below zero indicates a contraction in activity.  The  report suggests that business sentiment around tariffs is starting to sour,  particularly because manufacturers tend to be extra sensitive not just to  the actual implementation of tariffs, but also to the threat of new ones.  

GRIFFETH:  Meanwhile, sentiment among the nation`s homebuilders dipped in  June.  That industry is still plagued by some familiar concerns like the  high cost of construction materials and a continued lack of skilled labor.   Trade issues also don`t help.  Tariffs are adding to the cost of lumber,  and that`s been going up anyway.  The latest survey also cited excessive  regulation for the downturn in confidence.  

HERERA:  And those tariffs are one of the reasons why the nation`s  executives are feeling less optimistic about the economy.  
Dominic Chu breaks down the latest survey that measures CEOs` moods.  

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Business leaders in  America are losing confidence in the outlook for business in America.   That`s according to a new survey released by the chief executive group,  which asks hundreds of CEOs across the country about their concerns and  challenges, and the month of June saw CEO confidence fall to the lowest  level since December of last year.  

Three hundred and eighty-four CEOs representing various-sized businesses  collectively feel less confident about future conditions.  One of the  biggest reasons for the drop in confidence has to do with heightened trade  tensions between not just the U.S. and China but also because of the recent  issue surrounding trade relationships with Mexico.  That drop in confidence  is also showing up in what CEOs think will happen with their company  financials in the coming year.  While nearly three-quarters of survey  respondents felt like they would see an increase in sales and profits when  May numbers were collected, this month those numbers dipped.  
The same themes bear out when it comes to how much they expect to spend on  things like hiring and investing in buildings and production facilities.   Only around half expect to hire more workers or spend more on capital  expenditures.  The good news is that much of the drop in optimistic is due  to the uncertainty around trade and tariffs.  If those overhangs were to  work towards eventual resolutions, CEO confidence may very well see a  turnaround.  

GRIFFETH:  Time to take a look at some of today`s “Upgrades and  Downgrades”.  

We begin with shares of Disney (NYSE:DIS).  They were cut to inline from  outperform at Imperial Capital.  The analyst cited the stock`s big run-up  this year so far, saying shares are now what he calls at a record multiple.   Price target, $147.  That stock fell a fraction today to $140.97.  

Dow Inc. was downgraded to market perform from outperform at BMO Capital  Markets.  The analyst says the global trade issues and weaker growth  worldwide will make 2019 a challenging year for this material science  company.  Price target: $52.  Shares fell 3.5 percent today to $49.35. 

HERERA:  Deere was upgraded to outperform from neutral over at Baird.  The  analyst cites higher prices for some crops, which should help drive farms  and equipment demand.  The price target is $175.  The stock rose more than  1.5 percent to $154.37.  

Keurig Dr. Pepper was upgraded to outperform from market perform at BMO  Capital Markets.  The analyst cites a potential for earnings growth.  The  price target is $34.  Shares were up nearly 5 percent to $30.04.  
GRIFFETH:  Still ahead, Boeing (NYSE:BA) and Airbus go head to head.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A grounded 737 MAX and  a new airplane from Airbus.  The two stories dominating this year`s Paris  air show.  I`m Phil LeBeau in Paris.  That story coming up on NIGHTLY  BUSINESS REPORT.

GRIFFETH:  There are reports tonight suggesting that the FAA will soon  begin certification flights to test the changes Boeing (NYSE:BA) made to  the 737 MAX flight control system, but Boeing (NYSE:BA) says those flights  have yet to be actually scheduled.  

Meanwhile, the future of the MAX has been in focus at this year`s Paris Air  Show, where aviation companies historically book some big orders.  This  year, that`s exactly what Airbus did, but Boeing (NYSE:BA) did not.  
Phil LeBeau is there.  

LEBEAU:  The roar of planes soaring above the Paris air show could not  drown out the two big stories swirling on the tarmac — the changing  fortunes of Airbus and Boeing (NYSE:BA), more specifically, the 737 MAX and  whether Boeing (NYSE:BA) can get the grounded plane recertified and back in  service by early September, or whether it will be closer to the end of the  year.  

DENNIS MUILENBURG, BOEING CEO:  Well, certainly we expect to have that  happen before the end of the year, as we`ve said.  I can`t give you a  specific timetable.  That will be governed by the regulators.  We`re  keeping our airline customers very much in the loop so they know exactly  what`s going on.  

LEBEAU:  What many are unclear about is exactly how much the grounding of  the max will hurt Boeing`s business long term, and by extension, hundreds  of companies building parts for the plane.  

KEN HERBERT, CANNACORD GENUITY:  The primary issue that everybody`s focused  on, whether it be the OEMs, not just Boeing (NYSE:BA), but also Airbus,  because it`s an interesting issue, and then it`s obviously hanging over  every supplier and every discussion and every investment people are looking  at.  That`s the biggest issue, certainly.  

LEBEAU:  The other big story in Paris is the new Airbus A-321 XLR, a  longer-range, narrow-body plane, designed to connect smaller cities that  are farther apart.  Air Lease Corps, which leases hundreds of airplanes to  airlines around the world, is buying the first batch of XLRs scheduled to  start flying in 2023.  

JOHN PLUEGER, AIR LEASE CORP.:  There`s huge demand there, and the great  advantage of the 321 XLR to an airplane is not having to fly a wide-body on  some of these city farers that really don`t demand it.  

LEBEAU:  The launch of the XLR, while questions swirl around the 737 MAX,  means Airbus will easily rack up more orders than Boeing (NYSE:BA) in  Paris.  

But overall, there will be far fewer new airplanes ordered at this year`s  show, the fewest in three years, as airlines wait to see when the MAX will  get back in the air.  

HERERA:  Today, shares of Boeing (NYSE:BA) rose more than 2 percent, but  the stock is down 16 percent since the deadly Ethiopian airline crash in  March.  The 737 MAX was grounded worldwide shortly after.  

GRIFFETH:  Going once, going twice, sold!  Sotheby`s hits the block.  
That`s where we begin tonight`s “Market Focus” with BidFair USA.  That`s a  private group controlled by French media entrepreneur and art collector  Patrick Drahi.  He bought the auction house for more than $3.5 billion.  If  approved by shareholders, Sotheby`s will return to private ownership after  31 years, as a publicly traded company.  And shares soared more than 58  percent today to $56.13.  

C&J Energy and Keane Group have agreed to a merger of equals in a deal  valued at nearly $2 billion.  That merger will create a diversified oil  field services company with more than $4 billion in annual revenue.  C&J  energy rose 20 percent to $12.87, while Keane rose 7 percent to $7.48.  
And at that Paris air show, General Electric (NYSE:GE) notched a $20  billion engine order from India`s budget carrier IndiGo, a company jointly  owned by G.E. and France`s Safran will make engines that power nearly 300  Airbus aircraft for IndiGo.  Shares of G.E. fell more than 1.5 percent to  $10.05.  

HERERA:  Grubhub is teaming up with Dunkin` Brands (NASDAQ:DNKN) to allow  people to order online at 400 Dunkin` stores in New York City through  Seamless, which is GrubHub`s New York brand.  After the Big Apple  (NASDAQ:AAPL), that service will then expand to Boston, Chicago, and  Philadelphia in the coming months.  Grubhub climbed more than 2 percent to  $72.01.  Dunkin` rose a fraction to $80.50.  

The Chinese e-commerce company Alibaba is proposing an 8 for 1 stock split,  a move designed to increase flexibility in raising capital.  Under the  proposal, the number of ordinary shares would increase from $4 billion to  $32 billion.  A vote will be brought up at Alibaba`s annual meeting next  month.  The shares were up more than 1 percent to $159.91.  

A Lockheed Martin (NYSE:LMT) executive says he`s not concerned that the  proposed merger of Raytheon (NYSE:RTN) and United Technologies (NYSE:UTX)  would affect the F-35 program.  Greg Ulmer, the program manager for the F- 35 fighter jet, believes the merger will also not put pressure on the  company`s profit margins.  The shares dropped a fraction to $348.69.  

GRIFFETH:  A health care start-up wants to shake up and simplify part of  the very complicated health care system, and its mission sounds very  similar to the ones set forth by the joint venture between Berkshire  Hathaway (NYSE:BRK.A), J.P. Morgan and Amazon (NASDAQ:AMZN).  
Bertha Coombs has the story.  

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Collective Health  has administered health plans for tech neighbors like Activision,  Pinterest, and Uber, for the last five years.  With a new $200 million  investment led by tech venture firm Softbank, the start-up aims to build  its business with midsized and large self-insured employers beyond Silicon  Valley.  

ALI DIAB, COLLECTIVE HEALTH CEO AND CO-FOUNDER:  To establish new local,  regional, and national network partnerships, work with provider systems.  

COOMBS:  And build out its technology infrastructure, which weaves together  health benefits all on one platform, making it more efficient to navigate  for employers and workers.  

DIAB:  Providing our members with much more intelligent, machine-learning- powered navigation capabilities, understanding their health care needs  often before even they know what they need.  

COOMBS:  Early investor Mohamad Makhzoumi says, like employers, investors  are looking for health technology firms that make benefits more cost- efficient.  

MOHAMAD MAKHZOUMI, NEW ENTERPRISE ASSOCIATES:  Digital health has been the  fastest growing subcategory in all of venture for the last seven years.   You know, more money is flowing, capital inflows into private digital  health companies in 2019 than in 2018, 2017, 2016 combined.  

COOMBS:  Arguably, one of the biggest investments in the last year has been  Amazon (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRK.A) and J.P. Morgan`s  formation of Haven, a new venture trying to use technology to reimagine  employer health care, but analysts say Softbank has a record in investing  in tech unicorns valued at more than $1 billion, which can dominate in  their businesses.  

MARC ALBANESE, CB INSIGHTS:  I think it was also fair to assume that it  would take a long time to get there, and you know, now is the time to make  an investment and to make a stake now, put a stake in the ground.  

COOMBS:  The 6-year-old start-up sees plenty of room for both.  

DIAB:  It`s an encouraging sign that they`re trying to do a lot of the same  things that we have been doing.  

COOMBS:  In fact, Collective Health would like to work with Haven and its  founding firms.  For them, the real competition is about disrupting the  traditional insurers.  

HERERA:  You probably have heard by now that Gloria Vanderbilt passed away  today.  And what a life she lived.  Yes, she was the great, great  granddaughter of the fabled rail titan Cornelius Vanderbilt, and she was  forever known as the poor little rich girl when her adult relatives waged a  highly publicized custody battle over her in the 1930s.  

But she also made her own mark in business, most famously with her Gloria  Vanderbilt jeans, which helped usher in the designer jeans craze of the  1970s.  It was the beginning of a $100 million fashion empire.  Beyond  that, Vanderbilt published poetry, short stories and novels.  She wrote  four memoirs, all of them best-sellers.  Gloria Vanderbilt was 95 years  old.  

HERERA:  A group within the treasury department is recommending mandatory  financial literacy courses for college students.  The report also suggests  that financial aid letters should itemize attendance costs.  The group says  such practices are especially important now because Americans have loaded  up on $1.5 trillion in student loan debt.  

GRIFFETH:  Here we go again.  A number of companies will be making their  Wall Street debuts this week, and one of them is a company called Slack.   This company`s software is used by businesses to help employees  communicate.  And just as it aims to shake up instant messaging, it`s also  going public in a nontraditional way, through something called a direct  listing, as opposed to a more common IPO.  
Leslie Picker explains.  

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A direct listing  differs from the more traditional initial public offering in three major  ways.

One, no underwriters.  In an IPO, underwriters will find investors, market  the shares, and help set a price based on demand.  Direct listings,  instead, involve financial advisers, usually from the same Wall Street  firms.  These bankers provide advice about the process and help with the  discovery of the opening price.  

Financial advisers cost less than underwriters.  Spotify`s direct listing  costs about a third of what the company would have spent on an IPO, saving  the company about $100 million.  

Two, no cash.  Instead of raising money, the primary purpose of a direct  listing is to create a public market for a stock by allowing early  investors and employees to sell and newer investors to buy.  

Three, no road show.  Traditional IPOs require executives to spend two  weeks on the road, visiting with investors to pitch the deal and drum up  demand.  The direct listings generally require just one day, really, just a  few hours for executives to webcast the pitch for any investor who wants to  tune in.  

HERERA:  And before we go, here`s a look at the final day`s numbers on Wall  Street.  The Dow rose 22 points.  The Nasdaq added 48.  And the S&P 500 was  up two.  

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

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  See you tomorrow.  


Nightly Business Report transcripts and video are available on-line post  broadcast at The program is transcribed by ASC Services II  Media, LLC. Updates may be posted at a later date. The views of our guests  and commentators are their own and do not necessarily represent the views  of Nightly Business Report, or CNBC, Inc. Information presented on Nightly  Business Report is not and should not be considered as investment advice.  (c) 2019 CNBC, Inc.

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