If you happen to follow any of the stocks I own, you might have noticed two big movers lately, in opposite directions — Exelixis moving up, and ABB Grain moving down.
In my opinion, neither one has huge implications, but both of these moves are because the company is raising money for future projects. In the case of ABB Grain, they sold a bunch of stock, diluting current shareholders by something like 10%, to raise money to build a massive new malting facility. This is part of their planning ahead to meet the needs of Asian consumers, who are large beer consumers, and the malted barley that Asian breweries are clamoring for.
Unfortunately, they chose to raise the money now but the new facility won’t be making money until 2011, so per-share earnings will be diluted for the time being. At a time when the stock is at a high as it was, it’s hard to argue against raising money in this way … though as a shareholder, sometimes you’d prefer that they use debt (which is, unfortunately, expensive right now). With the potential growth that ABB Grain has from the very low EPS numbers of the last couple years, during the poor harvests, I think that this might be glossed over in the months to come … but still, the shares are down 10%, which doesn’t feel good for anyone unless they were waiting for a sale to pick up shares.
Exelixis, being an unprofitable biotech company, is on the other end — they raised $150 million to help pay for clinical trials for their very deep but immature pipeline, and they get a nice share boost from it. That’s largely because this shows some confidence, and they needed that money to move forward and got it on decent terms. Also, everyone knew they would have to raise money or sell drugs, so this comes as no surprise (ABB Grain’s raising was a surprise to many, at least as to timing). And of course, if you have no earnings there’s no immediate risk of diluting those earnings …