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Automakers recall 1.7 million cars with fatal airbags

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Stephanie Erdman testifies at a Senate Committee on Commerce, Science, and Transportation hearing on defects with Takata Corp. airbags in Washington, D.C. on November 11,  2014

Pete Marovich | Bloomberg | Getty Images

Stephanie Erdman testifies at a Senate Committee on Commerce, Science, and Transportation hearing on defects with Takata Corp. airbags in Washington, D.C. on November 11, 2014

Subaru, Tesla, BMW, Volkswagen, Daimler Vans, Mercedes and Ferrari are recalling about 1.7 million vehicles to replace potentially deadly air bag inflators made by Takata of Japan.

The inflators can hurl shrapnel into drivers and passengers. At least 23 people have died from the problem worldwide and hundreds more were injured.

The moves, announced Friday by the U.S. government, are part of the largest series of automotive recalls in U.S. history. About 10 million inflators are being recalled in the U.S. this year, with as many as 70 million to be recalled by the time the whole mess ends late next year.

Takata used the chemical ammonium nitrate to create a small explosion to inflate the air bags. But the chemical can deteriorate over time due to high humidity and cycles from hot temperatures to cold. The most dangerous inflators are in areas of the South along the Gulf of Mexico that have high humidity.

The recalls, which began in 2001, are being phased in over time and managed by the U.S. National Highway Traffic Safety Administration.

Many of the recalls are limited to specific geographic regions in the U.S. Owners can check to see if their vehicles have been recalled by going to https://www.nhtsa.gov/recalls and keying in a 17-digit vehicle identification number.

In the latest round, Subaru is recalling 826,144 vehicles, including various Forester, Legacy and Outback models from 2010 to 2014. Mercedes is recalling 288,779 vehicles from model years 2010 to 2017. Volkswagen is recalling 119,394 vehicles, including Audi and Passat models from 2015 to 2017. BMW is recalling 266,044 vehicles from 2000 to 2004 model years and the 2007 to 2015 model years.

The recalls also include 159,689 vehicles from Daimler Vans spanning model years 2015 to 2017. Tesla is recalling 68,763 Model S vehicles from 2014 to 2016 and Ferrari is recalling 11,176 vehicles of various models ranging from 2014 to 2018 model years.

As of December, automakers have recalled 50.36 million inflators and replaced 27.2 million of them. That leaves more than 23 million yet to be replaced, according to the NHTSA website.

Ford, Honda, Toyota, and Fiat Chrysler already released their 2019 Takata recalls totaling more than 5 million vehicles.

The recalls forced Takata to seek bankruptcy protection and sell most of its assets to pay for the fixes.



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Booming rally in small-cap stocks reaches historic proportions

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Traders and financial professionals work ahead of the opening bell on the floor of the New York Stock Exchange (NYSE), January 14, 2019 in New York City.

Drew Angerer | Getty Images

Traders and financial professionals work ahead of the opening bell on the floor of the New York Stock Exchange (NYSE), January 14, 2019 in New York City.

Small caps’ snapback is flashing an ominous signal.

The Russell 2000 has rallied 16.5 percent in 2019, the third best start to a year since the index’s inception. However, small caps’ future is bound to be bleaker if history is any guide. According to Jefferies, in the previous five best starts to a year, small caps suffered weaker-than-average performance in the following three months and squeezed out only a 1.2 percent gain for the rest of the year.

“Can’t draw up a better start to new year than this, however we need a pullback,” Steven DeSanctis, a Jefferies strategist, said in a note on Sunday. “We’d like the market to take a breather.”

He added that earnings have shown strong double-digit growth, but small caps still trail large company earnings, and the outlook for first and second quarter is “in the red.”

Small-cap stocks dipped into bear market territory when recession fears triggered a massive sell-off in December. Now, the group is up 24 percent since Christmas Eve, but the strong comeback might be overlooking the poor earnings outlook. Wall Street is now foreseeing a 2.9 percent decline in small-cap earnings in the first quarter, according to FactSet. In addition, the China trade uncertainty is clouding the road ahead.

“If the U.S. does not get a trade deal done with China over the next few weeks, a recovery in earnings growth is unlikely, as companies put off capex until 2020,” DeSanctis said. “This is one of the biggest risks for the market and explains why we have not raised our Russell 2000 year-end target of 1550.” The index is currently trading at around 1,569.

Growth stocks are seen beating value stocks in the small-cap world given the earnings growth, DeSanctis pointed out.

“The next two quarters should be weak and even down year-over-year for Small and Large caps. We think this supports our Growth over Value theme. [Growth stocks] do look better with the price to book and price to sales ratios double digits below average,” he said.

The strong rally coupled with downward earnings revisions have also made small caps expensive again in a short period of time. The Russell 2000 is trading at 19.8 times forward earnings.



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Papa John’s to struggle despite activist, analyst downgrades to sell

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A customer enters a Papa John's restaurant in Louisville, Ky.

Luke Sharrett | Bloomberg | Getty Images

A customer enters a Papa John’s restaurant in Louisville, Ky.

Papa John’s investors will be disappointed in the near term as sales struggle, according to one Wall Street analyst.

Stifel’s Chris O’Cull downgraded the stock to sell from hold on Monday and wrote that the company’s recent promotions suggest the embattled pizza maker is struggling to compete for customers in the face of low-price deals at rivals Dominos, Pizza Hut and Little Caesars’. But for the restaurant chain to bolster sales, the analyst believes it will need to commit to subsidizing franchisees, a direct threat to earnings over the next few years.

“In order for Papa John’s to drive transactions we believe it will need to commit to an everyday low price menu that will probably hurt franchisees’ profits until consumer perception of its value changes,” O’Cull wrote in his note. “These offers are clearly designed to drive transactions, but to be successful they must increase transactions enough to offset the dollar impact of the discount, otherwise the results lower store margin percentage and dollars.”

Stifel reduced its 2019 earnings per share estimate to 80 cents from $1.20 (well below the Wall Street consensus estimate of $1.19) and cut its price target to $35. The new price target represents 22 percent downside from Friday’s close of $45.26.

The downgrade comes about two weeks after the company announced a $200 million investment by activist hedge fund Starboard Value. Papa John’s said Starboard CEO Jeffrey Smith will become its chairman following the fund’s investment in the form of a convertible stock purchase of 11 to 15 percent.

Activist investors typically accumulate stakes in companies they believe are undervalued and encourage executives to adopt changes they think will boost returns for shareholders. Such demands can range from board seats and CEO replacement to an entire sale of the business.

Papa John’s stock was unchanged in premarket trading Tuesday morning.



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UAE announces IDEX weapons deals as Middle East arms spending climbs

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Attendees walk the floor at IDEX, the International Defence Exhibition and Conference, in Abu Dhabi in 2015.

Markus Matzel | ullstein bild | Getty Images

Attendees walk the floor at IDEX, the International Defence Exhibition and Conference, in Abu Dhabi in 2015.

The United Arab Emirates announced about $1.35 billion in defense deals with local and international companies on the opening day of IDEX 2019, the International Defence Exhibition and Conference, in Abu Dhabi on Sunday.

Of the 33 deals announced Sunday, 18 were domestic and 15 were with foreign firms, the latter accounting for just under $1.1 billion of the total, an IDEX spokesperson said during a news conference.

American companies took the greatest share of foreign sales, at about $490 million. Led by Raytheon, Lockheed Martin and Hesco, the deals will provide missiles, new radar systems capabilities and defensive shelters for the UAE military, respectively. Others notching sales to the country included France’s Thales, Australian firm EOS Defense and Germany’s Rheinmetall Electronics.

The deals with 18 domestic firms highlight the small Gulf country’s investment in developing its own defense manufacturing industry as part of a drive to diversify its economy away from oil.



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