Dell May Be About To Spinoff Its Stake In VMware & Shares Are Climbing

Plus, the White House is considering new tariffs on $3.1 billion of goods from the EU, the IMF again slashed its economic forecast for 2020, a trio of states in the northeast have imposed a 14-day quarantine for travelers from states in the U.S. that are seeing spikes of coronavirus cases, and Peloton got an upgrade.

Stocks were down to start Wednesday with the Dow dropping 654 points, or 2.5%. The S&P 500 fell 2.45%, while the Nasdaq slid 2.1%.

The White House is weighing new tariffs on $3.1 billion of exports from France, Germany, Spain, and the U.K., for products including olives, chocolate, beer, gin, and trucks. The American Trade Representative is seeking to impose the new tariffs alongside increased duties of up to 100% on products including aircrafts, cheese, and yogurt. The move is part of a wider reaction from the U.S. in relation to a long-standing dispute with the European Union over subsidies to large civil aircraft manufacturers including Airbus, and comes as the EU weights whether to keep the door shut to American travelers this summer due to the U.S. having the most coronavirus cases in the world with cases continuing to climb. “Talks between the U.S. and EU aimed at reaching agreement over a range of trade issues have slowed down in recent months, and a quick deal no longer seems likely,” said Clayton Allen, an analyst at Height Securities.

The International Monetary Fund slashed its economic forecast again today, warning that public finances will deteriorate significantly as governments attempt to combat the fallout from the coronavirus crisis. The IMF now estimates a contraction of 4.9% in global gross domestic product in 2020, down from the 3% fall it estimated in April. “The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said in its World Economic Outlook update. IMF chief economist Gita Gopinath said in a virtual press conference, “A high degree of uncertainty surrounds this forecast with both upside and downside risks. On the upside, better news on vaccines and treatments and further policy support could trigger a faster recovery. On the downside, further waves of infections can revers increased mobility in spending and rapidly tighten financial conditions, triggering debt distress.”

The U.S. recorded its third-highest total of new coronavirus cases on Tuesday, and so far today, Florida has reported another record spike in cases of the deadly virus while Texas’ governor is urging people to stay home amid a surge in cases in that state. New York, New Jersey, and Connecticut have teamed up to impose a 14-day quarantine on travelers from regions with spiking COVID-19 infection rates. “We worked very hard to get the viral transmission rate down. We don’t want to see if go up because a lot of people come into this region and they can literally bring the infection with them,” said New York Governor Andrew Cuomo in a press conference with New Jersey’s Phil Murphy and Connecticut’s Ned Lamont. “Because what happens in New York happens in New Jersey and happens in Connecticut.” Cuomo added that travelers coming from states with a high infection rate will be subject to the quarantine. “As of today, the states that are above that level are Alabama, Arkansas, Arizona, Florida, North Carolina, South Carolina, Washington, Utah, Texas,” Cuomo said. “That’s as of today. The states themselves can change as the infection rate changes and we will update daily what states are above that infection rate.”

Dell Technologies shares are up more than 7% this morning following reports that it is considering options for its $50 billion stake in VMware. The Wall Street Journal initially reported that the company is looking at either buying out the minority stake of VMware that it doesn’t already won, or selling its share of the software company. Dell currently owns 81% of VMWare, though a spinoff of the stake could finally eliminate a VMware “albatross” that has been causing the stock to trade at a discount, according to Wedbush analyst Daniel Ives, though Ives noted that it’s unclear if the report is “another head face for investors.” Ives added, “If Dell did not own VMware we believe this would add $15 to $20 per share right out of the gates as we expect a positive knee jerk reaction on this news with investors digesting the reports.”

And Peloton shares gained nearly 4% in early tracing after hitting a record close on Tuesday. Cowen analyst John Blackledge boosted his price target on the stock from $54 to $70 – around 30% higher than the price as of this writing. “Ultimately, we think PTON benefits from a unique amalgamation of technology, premium hardware, and software together, and a comparison to prior fitness focused companies is largely flawed analogy,” Blackledge wrote in a note. “Putting these attributes together, we believe Peloton’s powerful brand is synonymous with the burgeoning connected fitness category, driving high retention/low churn, network effects, and leverage over time. Meanwhile, the pandemic has created a virtuous cycle driving both increased hardware demand as well as a surge in engagement and lower monthly churn levels.”

Stocks We’re Watching

Penn National Gaming (NASDAQ: PENN): Penn National Gaming shares gained as much as 19% yesterday after CEO Jay Snowden said the company has resumed operations at 30 out of 41 of its gaming and racing properties across 13 states, and said that the rest of the properties will open in the “coming weeks.” Snowden said in a press release last week, “As the nation’s largest regional gaming operator, we are excited and grateful to have reached this important milestone of reopening more than 70 percent of our properties across the country. We are continuing to work closely with our regulators and state and local leaders to prepare for the eventual reopening of all of our remaining properties. I want to thank our state regulators, as well as our Corporate and property management teams who have worked tirelessly over the last several months to get us to this point.”