Buffett’s Berkshire stock underperforms the most since 2009

Warren Buffett sought to reassure investors about Berkshire Hathaway Inc.’s long-term future on Saturday following an underwhelming year for the conglomerate’s performance.

The 89-year-old Buffett, Berkshire’s chairman and chief executive, is renowned for his long-term success as a stock investor and deal maker. But in recent years, Berkshire’s BRK.B, +0.51% stock performance has failed to beat the market.

Berkshire’s stock rose 11% in 2019 compared with a 31.5% total return in the S&P 500, including dividends—Berkshire’s biggest underperformance since 2009.

Buffett has long said that investors should focus on companies’ long-term performance and ignore shorter-term fluctuations in the stock market.

Some investors have agitated for Berkshire to spend more of its massive cash pile buying back shares or paying a dividend. They have also asked to hear more from Ajit Jain and Greg Abel, the two Berkshire vice chairmen who are leading contenders to succeed Buffett as CEO.

In his annual letter to shareholders released Saturday, Buffett mostly skirted the issue of Berkshire’s underperformance relative to the broader market. But he said shareholders should not be worried about the future of Berkshire after he or his 96-year-old business partner, Berkshire Vice Chairman Charlie Munger, die.

“Your company is 100% prepared for our departure,” Buffett said.

He also said that at Berkshire’s annual meeting in May, shareholders will be able to ask questions of Jain and Abel. That is a change from previous meetings, when any comments by Berkshire leaders besides Buffett and Munger have been rare.

“I’m so excited for that. I think it’s an absolutely terrific idea,” said Thomas Russo, partner at Gardner Russo & Gardner, a longtime holder of Berkshire shares. He said it would be helpful for shareholders to hear more directly from Jain and Abel about overseeing the day-to-day operations of Berkshire’s companies.

Berkshire increased its buybacks in the fourth quarter to $2.2 billion, bringing its total repurchases for the year to $5 billion, the company said. That still barely dented the company’s huge pile of cash, which totaled $128 billion as of Dec. 31, the company said Saturday, slightly down from a record $128.2 billion at the end of the third quarter.

In his letter, Buffett lamented the difficulty of finding attractively priced acquisition targets that are big enough to move the needle for Berkshire.

“The opportunities to make major acquisitions possessing our required attributes are rare,” he said.

Berkshire’s biggest deal in 2019 was a $10 billion investment in Occidental Petroleum Corp.’s bid to acquire Anadarko Petroleum Corp.

Some of Berkshire’s 60-odd subsidiaries completed acquisitions, but those deals tend to be small. Berkshire spent $1.7 billion on bolt-on acquisitions in 2019, the company said, up from $1 billion the prior year.

“I think there’s more capacity for buybacks,” said James Shanahan, senior equity-research analyst at Edward Jones. “It’s no doubt that the significant outstanding cash balances have been an extraordinary drag on earnings.”

The Omaha, Neb., conglomerate reported net earnings of $29.2 billion, or $17,909 per Class A share equivalent, up from a loss of $25.4 billion, or $15,467 a share, the year before. Berkshire’s earnings were mostly boosted by unrealized investment gains, while its results a year ago were dragged down by an unexpected write-down at Kraft Heinz Co.

Berkshire posted operating earnings of $4.4 billion, down from $5.7 billion a year earlier, due to lower results in insurance underwriting and some of Berkshire’s smaller operating businesses. Operating earnings exclude some investment results and Mr. Buffett has said they are more reflective of Berkshire’s performance than net earnings, which can fluctuate widely due to unrealized investment gains or losses.

Berkshire’s Class A shares closed Friday at $343,499, up 1.1% for the year. In contrast, the S&P 500 is up 3.3% this year.

Cathy Seifert, equity analyst CFRA Research, said she thought Buffett should have addressed Berkshire’s results compared with the index more directly. “It’s easy to say you’re not concerned about short-term performance,” she said. But “this short-term underperformance could turn into a longer-term underperformance.”

Berkshire runs a large insurance operation as well as railroad, utilities, industrial manufacturers and retailers. Its holdings include recognizable names like Dairy Queen, Duracell, Fruit of the Loom, Geico and See’s Candies.

Berkshire’s insurance business sits at the core of its moneymaking machine. Insurance brings in billions of dollars of “float,” upfront premiums customers pay and that Berkshire invests for its own gain. Berkshire also holds large stock investments, including in Apple Inc. and Wells Fargo & Co.

An expanded version of this story appears on WSJ.com.

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Berkshire Hathaway posts $29.2 billion quarterly earnings and holds $128 billion in cash as of Dec. 31

Berkshire Hathaway Inc.‘s earnings surged last year due to unrealized investment gains, but the conglomerate’s cash pile totaled $128 billion as of Dec. 31, the company said Saturday, slightly down from $128.2 billion at the end of the third quarter.

Warren Buffett, Berkshire’s chairman and chief executive, has for years lamented the challenge of finding acquisition targets that are large enough to move the needle for Berkshire BRK.B, +0.51%  and are reasonably priced.

While Berkshire has a long history of outperforming the stock market, the company has underperformed the S&P 500’s total return in recent years. The company’s stock rose 11% in 2019, the company said, compared with a 31.5% total return in the S&P 500, including dividends— Berkshire’s biggest underperformance since 2009.

“The opportunities to make major acquisitions possessing our required attributes are rare,” Buffett said in an annual letter to shareholders also released Saturday.

Nevertheless, he said, shareholders should not be worried about the future of Berkshire after the 89-year-old Buffett or his 96-year-old business partner, Berkshire Vice Chairman Charlie Munger, die. “Your company is 100% prepared for our departure,” Buffett said.

The Omaha, Neb., conglomerate reported net earnings of $29.2 billion, or $17,909 per Class A share equivalent, up from a loss of $25.4 billion, or $15,467 a share, the year before. Berkshire’s earnings a year ago were dragged down by an unexpected write-down at Kraft Heinz Co.

An expanded version of this story appears on WSJ.com

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Warren Buffett defends investments in stocks, which fuelled record Berkshire profit

Berkshire ‘fully prepared’ for his death

Warren Buffett on Saturday defended Berkshire Hathaway Inc.’s decision to invest heavily in the stocks of companies such as Apple Inc, while giving new details about how Berkshire Hathaway is prepared for his death, in an annual letter to shareholders.

The letter, widely read on Wall Street, came as Berkshire Hathaway posted record full-year earnings of $81.42 billion that nearly doubled its previous record from 2017, largely as a result of accounting rule changes that require the company to report paper gains and losses from its stock holdings with net income.

Despite those gains, Berkshire Hathaway’s stock has underperformed the broad U.S. stock market by gaining 11.7% over the last 12 months, compared with a 20.3% gain in the S&P 500 over the same time.

In his letter, Mr. Buffett focused on his company’s investments in the stock of companies such as Apple at a time when the conglomerate has struggled to find whole companies to buy, while also highlighting the growth of its core insurance businesses. Mr. Buffett noted that the returns in the insurance businesses were especially strong compared with the low yields on long-term U.S. Treasuries.

“If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments.”

The 89-year-old assured that Berkshire is prepared for the eventual departures of himself and vice-chairman Charlie Munger, 96.

“Charlie and I long ago entered the urgent zone,” he wrote. “But shareholders need not worry: Your company is 100% prepared for our departure.” He gave new details about what will happen to his shares in the company after his death, noting he expects it will take 12 to 15 years for his estate to fully liquidate his position in the company.

He wrote, “I myself feel comfortable that Berkshire shares will provide a safe and rewarding investment during the disposal period.”

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Coronavirus has slowed down elective surgeries in China, hurting device makers

Three of the world’s largest medical device makers warned investors that the COVID-19 outbreak has delayed and in some cases halted elective medical procedures — and that will likely cut into their earnings for the quarter.

Boston Scientific Corp. BSX, +0.28%, Medtronic PLC MDT, -0.51% and Smith & Nephew SNN, -2.30% separately said that delays in elective medical procedures in China will negatively impact their financial performance for the quarter. The warnings come at a time when the companies have each reported double-digit growth for their businesses in China.

“The business that we’re in is elective surgery for the most part,” Smith & Nephew CEO Roland Diggelmann said Thursday, according to a FactSet transcript of an earnings call. “Elective surgeries right now are not the focus of the Chinese authorities. They are very focused, and rightfully so, on containing the outbreak of the virus.”

See also: What Apple, P&G, Walmart and other U.S. companies are saying about the coronavirus outbreak

More than 74,000 people in China have been diagnosed with the novel coronavirus, which was first identified in December in Wuhan, a city in central China. At least 2,121 people have died in China, making it the most severely impacted of the 26 countries to have reported a case of COVID-19. Regions like Hubei Province, home to Wuhan, remain largely locked down, with many shops and restaurants closed. More than 30,000 health care workers from all over China have been deployed to Hubei Province to care for the patients there, China’s National Health Commission said this week.

“Almost no” elective surgeries have been performed in China so far in February, Diggelmann said. The device maker, which sells devices like hip and knee implants, generated 7% of its revenue from China last year. It is a rapidly growing market for Smith & Nephew, with revenue jumping 24% to $336 million in 2019, up from $270 million in 2018.

China also makes up 7% of Medtronic’s global business, generating about $2.14 billion for the company in fiscal 2019. It is home to Medtronic’s largest manufacturing and research facilities outside of the U.S. The manufacturer said it is not only seeing a slowdown in procedures, it is also facing a combination of closures and slowdowns in its factories there. The company expects to see a negative impact to its fourth-quarter financial results as a result of the outbreak. In the last quarter, the company’s China business grew 14%.

“A lot of physicians are being asked to actually go and help with the virus,” Medtronic CEO Omar Ishrak told investors on Tuesday. “Even now, even in places like Beijing and others, procedures are only just beginning.”

Boston Scientific Inc. derived about 4.6% of its $10.7 billion revenue from China in 2019. That market was expected to grow 20% year-over-year, from $500 million in 2019 to $600 million in 2020, according to remarks made by Boston Scientific CFO Daniel Brennan during a Feb. 5 earnings call. The company said then that it expects to take a $10 million to $40 million hit in the first quarter due to delayed elective procedures in China in February and March.

“The China dynamic adds some noise in 1Q but given the volatility of late, we think it’s prudent for management to bake in conservatism and, effectively, reset the bar,” analysts at Raymond James wrote in a Feb. 5 note about Boston Scientific.

Executives from all three companies say that they expect pent-up demand for surgeries to even out the slowed performance once the outbreak subsides.

“If someone needs an artificial hip, that demand will still be there in a couple of months’ time,” Diggelmann said. “The question, of course, is how quickly will the situation recover and what is the capacity in the system to then actually make up for this pent-up demand.”

Over the past three months, Boston Scientific’s stock dropped 0.25%; Medtronic’s gained about 1.77%; and Smith & Nephew’s is up 19.49%. The Health Care Select Sector SPDR Fund XLV, +0.06%, an exchange-traded fund, has gained about 6.39% over the past quarter.

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Will the shows go on? Coronavirus, MWC cancellation hang over tech conferences

For months, Metawave Corp. eagerly anticipated one of its most important events of the year: 20 one-on-one meetings with key business partners that would launch the San Diego-based startup’s business plans into 2020.

Those meetings were set at a private suite in Barcelona, Spain, to coincide with the influential Mobile World Congress convention. When that show was canceled due to fears about the COVID-19 outbreak, Metawave was forced to traverse the U.S. to make good on all of its MWC appointments.

“It was an inconvenience because it created more work for us in terms of travel,” Metawave Chief Executive Maha Achour told MarketWatch in a phone interview. “I’ll need to go to Silicon Valley and New York for meetings. The rest will be over Zoom ZM, -3.35% .”

Achour, whose company focuses on radar sensing for automated driving and wireless solutions for 5G deployments, was one of a handful of startup CEOs who agreed to broach the topic of the effects of MWC’s cancellation. Most declined to discuss their plans to make up for the lost week of face-to-face time with potential customers and partners.

And it could just be the beginning. On Thursday, AT&T Inc. T, -0.16% said fears of COVID-19 led it to pull out of RSA, one of the largest security conferences in the world, which takes place next week in San Francisco. International Business Machines Corp. IBM, -0.91% dropped out of RSA last Friday, the same day Facebook Inc. FB, -2.05% canceled a March marketing summit in San Francisco.

See also: What Apple, Walmart and other U.S. companies are saying about the coronavirus outbreak

RSA organizers, whose show in San Francisco next week is expected to draw more than 40,000 people, said the event will proceed as scheduled. A spokeswoman for the show referred to its website.

“Since our last update, the number of individuals, including those from AT&T Cybersecurity, who have canceled their registration is approximately 1.2 percent of the total number of expected attendees,” the organization’s website said, adding that 13 companies, including six from China and six from the U.S., have canceled so far.

The abandonment of a show as big as MWC — which draws more than 100,000 attendees from 200 countries — stings economically for the host city, mobile industry and entrepreneurs from across the globe who attend in hopes of doing deals. Indeed, companies who poured money into setting up elaborate booths and paid fees to exhibit are out of luck. In an email to MWC attendees on Wednesday obtained by MarketWatch, show` organizers GSMA said it was not granting refunds, citing a “force majeure” clause in its standard agreements with exhibitors and sponsors.

MWC’s cancellation bodes darkly for a slew of trade shows in coming months if the outbreak continues into the spring. Organizers of the international technology summit EmTech Asia last week announced the event, scheduled for March 24-26 in Singapore, had been postponed until August because of coronavirus concerns.

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The conference season especially kicks into high gear soon in Silicon Valley. The Game Developers Conference, planned for March 16-20 in San Francisco, is also proceeding, though without Chinese participants. On its website, show organizers said about 2% of planned attendees were from China and they were affected by the Trump administration’s temporary ban on foreign nationals who have been in that country within the past 14 days. Oculus Developers bowed out of the show late Thursday, citing public health risks related to COVID-19.

Then there is the mother lode of developer shows for tech giants: Alphabet Inc. GOOGL, -2.21%GOOG, -2.18% plans to host its Google Cloud Next conference April 6-8 in San Francisco, and Google I/O takes place in Mountain View, Calif., on May 12-14; Facebook hosts F8 in San Jose, Calif., on May 5-6; and Microsoft Corp. MSFT, -3.16% hosts Build in Seattle (May 19-21). Apple Inc.’s AAPL, -2.26% Worldwide Developers Conference follows in June in San Jose.

A Facebook spokeswoman said it is monitoring the situation closely but “there are no changes to F8 planned at this time.” Microsoft, which is attending RSA, is expected to proceed with Build. Google and Apple did not respond to email messages seeking comment.

We may see more shows go by the wayside or scale back, says Ralph de la Vega, the former AT&T vice chairman who consults startups and introduces them to larger companies at trade shows.

“It’s crazy to promote events with a world-wide attraction,” he said. “It was wise of Mobile World Congress to shut it down. You can miss an event and make up for it with video calls. For a company employee to be infected has a much-longer impact on a business.”

Click here: For the latest on the economic effects of COVID-19

Videoconferences and individual meetings cannot typically replace what a conference provides, however. MWC, RSA and private events help tech companies roll out their products and business strategies to kick off the year, offering a blueprint on where they are headed. Think of it as a nerdy State of the Union address.

“It’s a painful loss of investment for smaller companies who devoted a large percentage of their budgets to attend,” telecommunications analyst Roger Entner told MarketWatch in a phone interview. “Many of them go to shows with the idea of walking the show floor for a chance meeting with a $50 billion company or to see and feel the pulse of a conference.”

A hole in the tech conference calendar could also hinder the development of new technology. This year’s edition of MWC, for example, was expected to highlight new 5G phones from nearly every major Android vendor, as well as updates about the networks running the ultrafast connectivity and what it means for consumers and enterprises. Now, there are concerns about a slowdown in the spread of 5G.

“The delayed product releases that will occur as the result of this show, as well as the supply side challenges surrounding the coronavirus’ broader impact in China, could potentially delay the smartphone industry’s return to growth into 2021 if the current state of flux is not settled soon,” Futuresource Consulting analyst Stephen Mears warned.

Larger companies should survive with little to no repercussions. Samsung Electronics Co. Ltd. 005930, -1.33% and Cisco Systems Inc. CSCO, -1.18% are typically two of the biggest names at MWC, but they announced products before MWC, as is typical. Samsung announced new foldable and 5G phones at an event in San Francisco in early February, while Cisco shared its new products and services at a conference in San Jose in December.

See also: Samsung prices cheapest new Galaxy smartphones at $1,000

“It’s not really that big a deal for us,” Cisco Chief Financial Officer Kelly Kramer told MarketWatch in a phone interview.

But what about a startup without the resources of a Samsung or Cisco that can’t afford a Plan B?

They resort to remote meetings, as Light CEO Kaiwei Tang is doing. His company launched a simplified 4G phone in November and promoted it at CES. But after planned meetings with Rogers Communications Inc. RCI.B, -1.48% and Vodafone Group VOD, +0.30% fell through in Spain, he is speaking to them via phone and hopes to conduct more meetings at the South by Southwest show in Austin, Texas, next month.

“Mobile World Congress is where global carriers go. There is no real replacement,” Tang told MarketWatch in a phone interview. “I’m kinda sad they canceled it, but I understand it was the sensible move.”

Software company WalkMe last week announced the radical solution of a nine-hour virtual conference Feb. 26 in lieu of MWC that will let dozens of startups and large companies present their products online. In all, 120 have expressed interest in participating, including AppsFlyer and OpenLegacy Inc.

“We toyed around with the idea of presenting ourselves, but decided to invite others,” Rafael Sweary, co-founder and president of WalkMe, told MarketWatch in a phone interview. “We put $200,000 into a booth that won’t be used. This is a big thing that is difficult for everyone.”

Read: How the stock market has performed during past viral outbreaks

The cities that host these events could face problems as well. Facebook’s canceled marketing conference typically brings about $11 million in spending to San Francisco, with about 5,000 attendees expected to stay at 10 hotels, according to San Francisco Travel Association, which also lamented other losses. Mobile World Congress, by comparison, is estimated to be worth about $540 million to Barcelona and provides 14,000 part-time jobs for local workers.

“Naturally we are disappointed by [IBM’s] decision. A short-term cancellation will have an impact on hotels, restaurants, retail stores and attractions,” Joe D’Alessandro, president and CEO of San Francisco Travel, said in a statement.

Facebook and Apple hold their conferences at the San Jose McEnery Convention Center. According to Team San Jose, F8 and WWDC helped contributeto the more than $130 million that conferences and events brought to San Jose hotels, restaurants, shops, and attractions in 2018.

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National CineMedia stock soars 16% as ‘lights-down’ ad strategy boosts earnings

National CineMedia Inc. shares soared more than 16% Friday, after the cinema advertising network operator topped earnings estimates for the fourth quarter and surprised investors with a dividend hike.

Centennial, Colorado-based National CineMedia NCMI, +16.00% posted net income of $19.1 million, or 24 cents a share, up from $16.3 million, or 21 cents a share, in the year-earlier period, topping the 21 cents FactSet consensus. Revenue rose 7.1% to $147.2 million ahead of the $140.0 million FactSet consensus.

The company’s board approved an increase in its quarterly cash dividend to 19 cents a share from 17 cents last quarter. The new dividend is payable March 17 to shareholders of record as of March 3. The new annual dividend rate implies a dividend yield of 9.50%, compared with the implied yield for the S&P 500SPX, -1.15% of 1.80%.

The company said it now expects 2020 revenue to be up 1.2% to 4.5%, or a range of $450 million to $465 million, up from $444.8 million in 2019.

Wedbush analyst Michael Pachter raised his price target to $10 from $9 and reiterated an outperform rating on the stock.

“We have confidence that NCM can expand its reach into the premium national ad market, and that the assumptions we have long held will ultimately come to pass,” Pachter wrote in a note to clients. “Specifically, we expect NCM to recoup ad dollars lost from the expansion of reserved seating, to drive growth in its regional business, and expand national ad revenue with its premium ad spots.”

The company’s premium ad strategy offers advertisers the opportunity to book slots during the first minutes of “lights down,” or the start of the showtime when the lights in a cinema are dimmed and more cinemagoers are in their seats. The premium the company can charge for those slots helped offset a 9% decline in attendance per screen in the quarter, said Pachter.

“Later in 2020, we also expect NCM to benefit as available inventory on TV and social media becomes scarce around the 2020 Olympics and upcoming presidential election,” said the analyst. ”We also expect local revenue growth as contracts increasingly contain digital components, and as ads are pulled forward later in the pre-show.”

B. Riley FBR raised its stock price target to $9.00 from $7.50 on the report and reiterated a neutral rating.

“Heading into 2020, we would expect continued demand/CPM (cost per thousand impressions) strength from the “lights down” inventory and expect more visibility into platinum spot potential as the 2020-2021 upfront gets under way,” analyst Eric Wold wrote in a note.

The dividend hike is a surprising move and vote of confidence in the new ad strategy, he added.

In case you missed it: Champagne, filet mignon and a movie on the side: Theaters are taking high-end risks to lure customers

Separately, cinema chain operator Cinemark Holdings Inc. CNK, -12.50% also raised its quarterly dividend by 2 cents to 36 cents a share. But the company’s fourth-quarter earnings fell short of estimates, with per-share earnings of 22 cents lagging behind the 43 cents consensus. Revenue fell to $788.8 million from $796.8 million, also below the FactSet consensus of $799 million. The new quarterly dividend of 36 cents will be paid March 20, to shareholders of record as of March 6, to imply a dividend yield of 4.41%.

Cinemark had 6,132 screens in total at year-end and is planning to open 13 new cinemas and 150 screens in 2020.

Read now: AMC Theatres launches streaming service in latest blow to Netflix

Also in the sector, IMAX Corp. IMAX, -2.15% reported fourth-quarter earnings that beat Wall Street estimates. IMAX reported net income of $21.4 million, or 29 cents a share, in the quarter, compared with net income of $3.8 million, or 3 cents a share, in the year-ago fourth quarter. Revenue jumped 14% to $124.3 million from $109 million a year ago. Analysts surveyed by FactSet had expected net income of 28 cents a share on sales of $117.4 million.

IMAX said it hasn’t paid a dividend over the past two years, and currently has no plans to pay a dividend.

Cinemark shares were down 6%, and have fallen 17% in the last 12 months, while the S&P 500 SPX, -1.15% has gained 22%. IMAX shares were flat, but have fallen about 20% in the last 12 months.

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UBI, OBC want a new name for merged entity

PNB disagrees with the proposal

With Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank of India (UBI) set to merge, OBC and UBI have requested the Finance Ministry to consider a new name for the merged entity.

If the Ministry agrees to the request, then this will a departure from the precedent set by the merger of Bank of Baroda (BoB), Vijaya Bank and Dena Bank that took effect this financial year. In that merger, BoB, which was the transferee bank, retained the name. Vijaya Bank and Dena Bank were transferor banks.

Pan-India presence

In the case of PNB, OBC and UBI merger, PNB will be transferee bank. The other two banks are of the view that the name of the merged entity should reflect a pan-India presence and not have a localised name.

Hence, OBC and UBI have requested the Ministry to consider a new name.

However, the idea of a new name does not seem to have gone down well with PNB — the largest bank in the merger. The lender took to social media a few days ago to clarify there was no proposal to change the name of the bank.

Regulatory clearances

In fact, during the BoB-Dena-Vijaya merger, Dena and Vijaya also proposed a name change. However, many regulatory clearances are required for a name change, including from the Securities and Exchange Board of India.

Since the process would have been time-consuming, the Ministry refrained from approving a name change.

However, it is not unusual for Indian banks to change their name due to a merger, or otherwise. Most recently, after IDFC Bank and Capital First, an NBFC, merged, the name of the merged entity was IDFC First Bank.

Also, erstwhile Ratnakar Bank was renamed as RBL Bank and Catholic Syrian Bank is now known as CSB Bank.

The government expects all the mergers of public sector banks, which were announced in 2019, to become effective from April 1.

Apart from PNB, UBI and OBC, the government had also announced three other sets of mergers — Union Bank of India, Corporation Bank and Andhra Bank; Allahabad Bank and Indian Bank; and, Canara Bank and Syndicate Bank.

The government is yet to announce the scheme of amalgamation for these mergers for which Cabinet approval is required. Once the scheme of amalgamation is announced, there will be clarity on the name of the new entities.

In the case of the BoB, Vijaya and Dena merger, the scheme of amalgamation was announced in early January last year and the merger came into effect from 1 April, 2019.

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Dropbox stock surges toward best day on record as bulls say profit focus is a turning point

Dropbox shares are surging toward their best single-day performance on record on Friday as bulls say the stock has finally hit a turning point.

The cloud-storage company initially got a warm reception from Wall Street when it came public in early 2018, but the stock has languished in recent months amid questions about subscriber momentum.

Now the stock is on track to close above its initial-public-offering price of $21 for the first time since September after the company delivered quarterly earnings and forward-looking commentary that Deutsche Bank’s Karl Keirstead called “potentially thesis-changing.”

Shares DBX, +21.29% are up about 18% in Friday morning trading.

Among the highlights for analysts was Dropbox’s decision to raise its operating-margin and free-cash outlook for 2020 and over the long term.

“Bottom line, the narrative that Dropbox had material operating leverage potential was a key part of the bull case at the time of the IPO but simply hasn’t played out since then, as 2019 turned into an investment year,” wrote Keirstead, who has a buy rating and $30 target price on Dropbox shares. “Investors are likely to welcome this change in tone, especially with Dropbox arguing that it is not coming at the expense of top-line growth.”

Jefferies analyst Brent Thill also said that the biggest surprise for him was Dropbox’s new operating margin forecast, with the company now targeting 28% to 30% compared with a prior range of 20% to 22%, but he’s less confident that the company won’t be sacrificing top-line potential to get there.

“[W]e remain cognizant of the balance between growth and profitability,” Thill wrote. “The lack of growth catalysts keep us at Hold.” He has a $21 price target on the stock, up from $19 before the report.

Canaccord Genuity’s Richard Davis, an exasperated bull on Dropbox’s stock, hoped that this latest report will make bears “relent.”

“I can’t recall a time in over 20 years during which investors so disdained good execution for so long,” wrote Davis, who said that the company’s results were solid on “just about every metric” he looks at. “It is difficult to break momentum in software stocks in either direction, but perhaps today’s news is the first sign of a sustainable rally.”

Davis added that while Dropbox “is certainly not perfect,” its stock looks cheap “on any metric that we can come up with.” He rates the stock a buy with a $30 target price.

Opinion: The 5G rollout is already behind, and coronavirus could slow it even more

Still, the report wasn’t enough to sway Bernstein’s Zane Chrane, a bear on the stock.

“While [average revenue per user] is growing from price hikes and a shift to higher value products, our concern is that these may be less sustainable drivers of revenue growth than if sub[scriber] adds were consistent,” he wrote.

As for the company’s new long-term margin targets, he wrote that the move comes less than five months after Dropbox last gave a forecast on the metrics at its analyst day.

“The timing & magnitude of the change (and the [share repurchase authorization]), leads us to wonder if the company was under pressure from potential activists,” Chrane wrote. He has an underperform rating on the stock but bumped his price target up by a buck, to $19.

Even with Friday’s rally, shares are off 13% over the past 12 months as the S&P 500 SPX, -1.01% has risen 20%.

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Coronavirus update: more than 76,000 cases, 2,247 deaths, Coca-Cola warns on impact

The worldwide number of new cases of COVID-19 continues to slow even as the cases in South Korea nearly doubled overnight and China’s Hubei Province updated its figures to include a tally of cases diagnosed among prisoners.

COVID-19 is a novel coronavirus that was first detected in December in Wuhan, China. The outbreak has largely shut down Hubei Province, home to Wuhan, and slowed or halted factory production and consumer spending across parts of China.

There are now 76,767 confirmed cases of and 2,247 deaths, according to the latest figures from the World Health Organization (WHO). That is 1,019 new cases, compared with the 3,000 or so new cases that were being reported daily in early February. Hubei reportedly added 271 infections among prisoners to its tally, a move that prompted questions about whether there are other unreported virus cases in the country, according to The Wall Street Journal.

Outside of China, a cluster of infections in South Korea led to the diagnoses of 100 new cases overnight, bringing the total number of cases to 204 there. South Korea has reported one death. In the U.S., there are still 15 confirmed cases, though some U.S. nationals who had been on board the Diamond Princess cruise ship, which has reported 634 cases and 2 deaths, have been diagnosed with the virus.

Read our full recap of what U.S. companies are saying about COVID-19.

The travel industries have been particularly hard by the outbreak as dozens of countries have put into place travel restrictions. A new estimate from the International Air Transport Association predicts that COVID-19 may lead to $29.3 billion in lost revenue for airlines based on a scenario in which this outbreak has a similar impact on air travel demand to severe acute respiratory syndrome (SARS), also a type of coronavirus.

Air France-KLM AF, -2.43% said Thursday it expects to lose €150 million ($163 million) to €200 million as a result of the outbreak. “We have totally stopped operations to China for both the main and secondary cities,” CFO Frédéric Gagey told investors on an earnings call. Separately, the Empire State Realty Trust Inc. ESRT, -1.45%, which owns the Empire State Building in New York City, told investors that there are currently only six weekly flights between cities in China and New York City. Chinese tourists accounted for 3% of the company’s revenue in the first quarter of 2019.

The Los Angeles Tourism & Convention Board has said it expects to lose $921 million in direct spending from Chinese tourists in 2020.

Norwegian Cruise Line Holdings Inc. NCLH, -1.75%, which anticipates losing 75 cents from earnings per share in 2020 after canceling 40 cruises in Asia, told investors that customers began canceling cruises outside of Asia after the Diamond Princess, operated by Carnival Corp. CCL, -1.01%, was quarantined in Japan. According to WHO, 634 people on that ship have been sickened and two have died. Americans are largely now choosing to book cruises in Alaska and the Caribbean. “You don’t have to get on an airplane to get to the Caribbean ports,” Norwegian CEO Frank Del Rio said on an earnings call. “Those seem to be doing better than some of the more exotic or far-flung destinations.”

Here’s what companies are saying about the impact of COVID-19 on their businesses:

• Lululemon Athletica Inc. LULU, -1.92% said Friday that the majority of its 38 stores in China have been closed since Feb. 3. The yoga gear seller said it continues to “monitor the situation” and will provide an update on the expected financial and operational impact during its fourth-quarter post-earnings conference call in late March.

• The Coca-Cola Company KO, +0.13% said Friday it is still expecting to reach its full-year guidance though COVID-19 will likely weigh on first-quarter results. Coca-Cola said it currently estimates an approximate 2- to 3-point impact to unit case volume, 1- to 2-point impact to organic revenue, and 1- to 2-penny impact to earnings per share for the first quarter. The Chinese market makes up 10% of Coca-Cola’s global volume, the company said in January.

• ITT Inc. ITT, +3.85% on Friday updated its 2020 guidance, providing a downbeat outlook that included an estimated impact from the outbreak. For 2020, the manufacturer currently expects adjusted EPS of $3.87, and offered a wider range of $3.72 to $4.02, compared with the FactSet consensus of $3.99.

• Hormel Foods Corp. HRL, -1.14% expects its international business to have a “very difficult” second quarter as a result of COVID-19. The company said Thursday there has been a slowdown in sales in China, with many restaurants closed, but sales of pantry items like Skippy peanut butter and canned pork Spam have increased. “Similar to other companies in China, all aspects of our in-country supply chain are operating more slowly and at higher cost than normal,” CEO James Snee told investors.

• Domino’s Pizza Inc. DPZ, -1.61% said Thursday that fewer than 20 of its stores are closed in China and the outbreak is slowing down the openings of new stores in that market. Last year, Domino’s opened 80 net new stores in China.

Additional reporting by Steve Goldstein and Tomi Kilgore

Read more of MarketWatch’s COVID-19 coverage:

The World Bank has an insurance policy against virus outbreaks. Here’s why it hasn’t paid out

Opinion: The 5G rollout is already behind, and coronavirus could slow it even more

Will the shows go on? Coronavirus, MWC cancellation hang over tech conferences

30-year Treasury yield nears all-time low as coronavirus fears linger

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Kia recalls more than 200,000 vehicles over electrical problem that can cause fires

DETROIT — Kia is joining its affiliate Hyundai in recalling thousands of vehicles in the U.S. because water can get into a brake computer, cause an electrical short and possibly a fire.

The Kia 000270, -1.82%  recall covers nearly 229,000 Sedona minivans from the 2006 through 2010 model years. Also covered are Sorento SUVs from 2007 through 2009. Kia is telling owners to park their vehicles outside and away from structures and other vehicles until the problem can be fixed.

The company says in documents posted Thursday by the U.S. National Highway Traffic Safety Administration that moisture can get into the antilock brake control computer and cause an electrical short and possible fires. Kia has reports of seven fires, but no injuries. The problem can happen even if the engine is turned off.

The recall is another in a series of problems that the South Korean automakers have had with engine fires during the past few years. Past problems have triggered investigations by the U.S. road safety agency.

Dealers will install a relay in the main electrical junction box to stop power from going to the brake computer when the engine is off. The recall is expected to start April 10.

Earlier this month, Hyundai 005380, -1.14%  recalled nearly 430,000 small cars due to the same problem. That recall covered certain 2006 through 2011 Elantra and 2007 through 2011 Elantra Touring vehicles.

Both companies said the rate of fires is low, but Hyundai is not recommending that the cars be parked outside.

Hyundai said in documents that it has three reports of fires and no related injuries.

Last April, NHTSA opened two new investigations into fires involving Hyundai and Kia vehicles after getting complaints of more than 3,100 fires and 103 injuries.

The agency granted a petition seeking the investigations by the nonprofit Center for Auto Safety, a consumer advocacy group.

The investigations, one for Hyundai and the other for Kia, cover noncrash fires in almost 3 million vehicles from the affiliated auto makers. The probes cover the 2011 through 2014 Hyundai Sonata and Santa Fe, the 2011 through 2014 Kia Optima and Sorento, and the 2010 through 2015 Kia Soul. The complaints came from consumers and from data provided by both automakers.

NHTSA had previously said it would incorporate the noncrash fires into a 2017 investigation that examined recalls of Hyundai and Kia vehicles for engine failures. It opened the new probes “based on the agency’s analysis of information received from multiple manufacturers, consumer complaints and other sources.”

Engine failure and fire problems with Hyundais and Kias have affected more than 6 million vehicles since 2015, according to NHTSA documents. So far, Hyundai and Kia have recalled about 2.4 million vehicles to fix problems that can cause fires and engine failures.

In addition, the auto makers are doing a “product improvement campaign” covering another 3.7 million vehicles to install software that will alert drivers of possible engine failures and send the cars into a reduced-speed “limp” mode if problems are detected.

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