Decemb december k putting together two companies that in terms of programming are similar. Its not like were going from one network that does reality or that type of programming to sports or lots of scripted work or whatnot this is putting those two things together the question is are you better off putting those two together or in this new age of media trying to go into scripted gore into a premium thing scripted. Scripted. But this has been bandied about. For a long time they were two sort of theyre not like outliers that deserve to get together. If it was going to happen, would put these together for scale thats where the synergistic value is some analysts would question this how much more power does a discovery scripps together have in terms of carriage agreement Going Forward . How much value proposition, if you want this channel you have to take this channel that was more scripps problem than a discovery problem zaslav yesterday admitted we are managing through the new times, daunting for all Media Companies, but the oldtimes were great the dual revenue of the cable, advertising. We will deal with what we have to deal with now in this new environment. But the old days were great. Its tough its tougher now tougher to grow, tougher to set yourself apart and Everything Else talking to him about we got this on facebook, this on snap, any of it making money some day you know, a lot of eyeballs. A lot of eyeballs. But its not the business. Maybe it will be eventually. This is why its tougher. This is why facebook or more snap or twitter could ultimately have create a cablelike model where they actually end up having a carriage no guarantee. This is not something that Mark Zuckerberg is preexposed to becky is not just off today shes working on assignment. Her birthday, she didnt tie one on, right . On assignment she fsh shes not just off, oh, my head when we say joe kernen is off its so bad where you cant sleep. You need to sleep, but the hangover god, i wish i could sleep. God, i cant even sleep. You feel that, right no i try not to. Not during the week i know what you mean. Other deal news, mccormick is buying Reckitt BenckiserFood Division for 4 4. 2 billion that move adding products like franks red hot, cattlemans Barbecue Sauce and french mustard to the portfolio the deal coming three months after Reckitt Benckiser put its food unit up for sale. And another deal to tell you about. Tower operator crown castle buying privately held lighttower for 7 7. 1 billion in crashash. It helps expand the fiber footprint in the northeast i wish i had thought about the Tower Business a private company, 7. 1 billion . Here we are. Another mistake blah, blah, blashgs h, letst up some towers 7 billion cash are two guys splitting that . I think private equity at this point could have been us. Could have been get your amex card out. We could all go in together. Lets check on the markets and where we stand yesterday record highs for the s p as well as the nasdaq. Nasdaq on a winning streak here. Looking to add to that up by 21 in the premarket dow jones lose being 4 points. S p losing about 2 in ashark its been greia, itss across the board the biggest gains in shanghai, up 1. 4 . Over in europe, the session gets underway green arrows except for spain. That is down by a half percent the crude picture influenced by inventory numbers, but still within the range 46. 56 the trade on wti, brent higher by just 22 cents at 49. 06. Harkening back to what we were talking about at the top with all these snaps and facebook, et cetera, news out from our Parent Company, Nbc Universal. Nbc news is launching a show on snapchat it will post two news shows each weekday lasting three months a piece nbc assembled a staff of 30 people for the show that will be shot at the newsroom in 30 rock. It will sell ads and share revenue with snap. You may or may not know, Nbc Universal made a strategic investment in snap at its ipo which included a partnership to create more for the snapchat platform and one of the big numbers out last night andrew or melissa, in the tech arena, ibm. Is that still thats tech absolutely. Servers, sure what chltwhat call that. You look at the last 21 quarters it is tech but its old tech. Legacy, mainframe theyre dealing style with trying to 21 quarters. You figure the business would shrink revenuewise. You pointed out theyre trying to weed out Ginni Rometty would say we are trying to get out these empty calories we want higher value calories. You saw that chart. Did you check out the tax rate yeah. One of our friends sent it to us, said they already had tax reform yes cut Corporate Taxes down to much theres the revenue. I said i was going to figure out how many years 21 quarters was i did not do that yet. I figure its five times four, five years lets talk to someone. The tech giant reporting a drop in Revenue Growth for the 21st straight quarter not a drop in Revenue Growth its an actual drop in revenues. Right . Mmhmm. Not a drop in Revenue Growth. Its a drop in revenues. We can say it. Ibms first Quarterly Report since Warren Buffett announced selling a third of the stake in the company. Joining us is james kissner. Does the explanation that the company has put forth 21 times does it still hold watt er you may know i have an underperform rating. I look at this quarters results, not a lot changed it was consistent with history. They missed revenue expectations, adjusted down 3 though they beat optically on the bottom line. Taxes really helped. If you back that out, thats 18 cents. Then in addition to that, looking at the ip income stream, thats been thats not a sustainable revenue stream thats been elevated as well if you back that out, we think the sustainable earnings power is 2. 60, below the 2. 74. We think the Earnings Quality continues not to be impressive yeah. Could anyone have managed this environment better than Ginni Rometty . Was she dealt a hand where shes playing the best cards that she can . I think the company missed some opportunities if they had been aggressive and acquired sales force years ago, that might have been something they could do. At this point the ship has sailed i think they admitted a couple years ago that the transition to the public cloud, amazon, azure, they expected a sloer trawer transition and they got caught flatfooted. Given the market developments, they didnt play their hand optimally. How do they keep lowering the tax rate at ibm . Thats complicated accounting they themselves say they cant forecast these discrete items. I might quibble with how they choose to flow those through reported earnings. Its a big complex company things change quarter to quarter. Because they flow those tax changes through the operating eps, its hard to predict. We think thats reflecteding poor Earnings Quality. A lot of Companies Might choose to pro forma that out. Thats how they report it. Lets be clear, the tax rate on ibm now is mid single digits, which is greatly lower than the vast majority of the other Companies Paying out if you jack that tax rate back up to what it has been historically, lets say for argument sake 15 , what does that do to earnings . They said if you back this discrete benefit out it was back close to 15 that was the book rate they call it the underlying tax rate. Backing that out, there was 18 cents of benefit from that they reported 297, they get you closer to 274 of consensus if you back that 18 cents out like we said, we think the Earnings Call here, if you back out income as well, its below the street you have yun perfohave under, too, right thats correct. So do you i like the way that works if the market goes up a lot, ibm can keep going up. This will not be as good as the market can i ask you where you think the stock should be . What you think fair value for ibm given the way its being run and given the future environment, what is it . Is 150 fair . O our rating is an absolute rating good for you. Yeah. Our price target is 125. Wow thats nine times earnings, just given the earnings trajectory, the poor Free Cash Flow yield that is 6 . Thats not attractive for a company that had declining earnings heres the thing james, anybody out there trying to short this stock over the past several years has gotten burned, in part because its been a dividend story, its been a Share Buyback story. Buffet got into the stock. So those who were playing this fundamental game they havent lost money im saying if you you havent lost money. Youve not made money they paid out the dividend, too. If you bought that company and shorted it even when it was 190, its 150 today, you have still not made money youre right. My question is when you think about if youre long you havent made money either. I agree with that actually youre probably you probably have not you havent made money but you havent lost money thats the funny part about this stock. My question for james, when you think about it going to 125, what kind of timeline do you think thats on . If youre a short does that make sense right now . We have a oneyear target thats when we think it will happen most clients that do short stocks are net neutral or net long theyre long other things. They make money on the spread. I would say a big chunk of the performance last year is all cheap stocks, value stocks, dividend stocks rallied. James, before we before we let you go just being generous about this if you look at the Free Cash Flow, it grew 2 2. 6 billion, up 23 from a year ago. Up 136 from last year do you look at that and say theres a good sign there . What about the potential of watson part of me desperately wants to believe watson is going to save the day one day. Okay. In Free Cash Flow, its lumpy. Cash flow is important for the company. But theyre guiding flat for the total year that reflects a modest mid single digit Free Cash Flow yield. Watson, we wrote a 50page piece last week on this. We spent a lot of time on it we think that watson is not going to Movement Needle the whole Cognitive Software market for Artificial Intelligence was 1. 5 billion last year. That will grow as we spoke to a lot of industry contacts and customers, and competitors, they all had the same sort of comment, ibm is an expensive solution they expect a lot of Consulting Services to be attached. Theres a ton of competition out there. Looking at the war for ai talent amazon has ten times the job listings that ibm does we think it will not move the needle the competitive environment does not favor them here. We dont think watson is the saving grace to ibm. Its nice you give credit to watson he doesnt give a crap for you he has know emotion. Some think theres a lot more to it youre clinging to your humanity you need to let that go. Hes a machine you wont get any type of if he takes over the world youre sucking up to a computer kiss up to the computer now you always cover your bases got to kiss the ring. With watson youre right, he can turn off your life support. Hes probably listening now. Hes always listening, hal. Theres a reason hal was ibm, go one letter back, hal james can tell you that. Hes worried about what watson will do to him. Yeah. If he goes after anybody, it will be you, james, 125 price target. Political news to bring you. President Trump Holding a lunch meeting with gop senators in a lastditch effort to repeal obamacare. Eamon javers has the latest from washington tough day for republicans yesterday on healthcare as it became clear they wouldnt have the votes in the senate to pass the repeal and replace effort theyve been working on. The white house trying to regroup today. They invited all republican senators to a lunch that will happen at about 12 30 this afternoon at the white house to plot out next stops. The president had the opportunity to talk to the media a lit yesterd a little yesterday here is is how he described healthcare as it all went down im certainly disappointed. For seven years ive been hearing repeal and replace from congress ive been hearing it loud and strong when we finally get a chance to repeal and replace they dont take advantage of it thats disappointing im very i would say im disappointed in what took place. It will go on. Well win. Well win on taxes well win on infrastructure and lots of other things the president suggested yesterday that the best course of action at this point might be to let obamacare fail. Then he suggested that the democrats might come to him to want to renegotiate. He said he is not going to own this political defeat. He wont own the failure of obama care politically and republicans are not. Some reporting yesterday afternoon about a second encounter between President Trump and Vladimir Putin, the russian president in germany at the g20 a week or so ago heres what we know about that meeting which was not previously disclosed by the white house it occurred at a private dinner guring tgu i during the g20 for World Leaders and their spouses only trump was not accompanied by staff, it was him, Vladimir Putin and the russian translator the russian translator was the only other person on a staff level who participated in that conversation as far as we know the president suggesting the reporting on this is much to do about nothing. In a tweet he says fake news story of secret dinner with putin is sick. All g20 leaders and spouses were invited by the chancellor of germany. Press new. Thats not exactly correct the press did not know the president had an encounter with Vladimir Putin at the dinner theres conflicting reports about how long it was, ranging from just a few minutes to nearly an hour in the scrutiny of the Vladimir Putin and donald trump relationship, a second encounter between them at the g20 is of interest other World Leaders were reportedly surprised by the interaction and it was plain to those leaders that putin and trump were spending quite a bit of time together well wait and see what the house has to say about that for the rest of the day today. Okay. Eamon javers three meetings now is that what were up to yeah. We know there was the encounter that went long at the g20. Then there was this one. There was an initial handshake meeting. So thats three encounters at the g20 that we know of. That different than the meeting i heard ian bremer talking about . This is the one the second one at the dinner that was by bremers account, an expert on International Affairs and involved in think tanks, reported this yesterday for the first time putin and rose had this nearly hourlong encounter as he describes it the white house not giving us an indication of how many minutes it was there is no official u. S. Government readout of this normally if theres a pullaside at the g20 or a formal encounter, we will get something from the state department about why they were pulled aside, what the objective was. In this case we dont have any of that. Okay. Eamon javers, great to see you you bet coming up, housingings repo market agenda and United Airlines posted an Airlines Beat but theres a warning about Third Quarter revenue. Oscar munoz will join us at 8 00 a. M. Eastern time. Stay tuned its so. Quiet. Is it, too quiet . Its awful. Yeah. Feel at home, pretty much wherever you are. Tmobile is americas best unlimited network. Welcome back to squawk box. Joining us now is karen calf kne cavanaugh and sam stovall yesterday we saw another record high for the nasdaq. Whats interesting is this morning bank of America Merrill lynch said the nasdaq is the most crowded trade but thats the trade that keeps working where do you stand on this conundrum . It is a crowded trade were seeing a wide spread between the best performing sector, technology and the worst, and youre finding people are placing heavy bets one area over the other technology is doing well from an earnings perspective double digit growth, expectat n expectatioexpectatioand were not looking at overvaluation in tech today as we did back with the tech bubble. Take out the f. A. N. G. Stocks, s p earnings would be about 6 lower. Thats just a few stocks, not the entire sector. Karen are you concerned about the financials and how they performed . We are expecting Morgan Stanley earnings later this morning. So far whenever we have gotten the reports no matter what earnings have been, for the most part theyve been good with the exception of a couple lines of misses within various earnings reports, the stocks trade lower. What you said is correct. The financials are beating and were seeing positive growth, especially in the banks and in the capital markets. The Consumer Finance is under pressure overall the earnings are good. So investors are reacting negatively to that i think financials are a great spot to be in. We have not seen tax cuts. We have not seen the trump agenda taking place. When we do, i think financials are going to be a great spot lets assume the trump agenda doesnt happen its hard to trade on the promise of policy, especially in an environment which were seeing now taking that out, all the reasons that have lined up, ccar with 90 billio