Back to top

Press Releases

The Zacks Analyst Blog Highlights: Actavis, Warner Chilcott, Bill Barrett, Linn Energy and Forest Oil

 ZacksTrade Now


For Immediate Release

Chicago, IL – May 22, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Actavis, Inc. , Warner Chilcott plc , Bill Barrett Corp. , Linn Energy LLC and Forest Oil Corp. .

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

Actavis to Buy Warner Chilcott

Actavis, Inc. recently announced its intention to acquire Warner Chilcott plc in a stock-for-stock transaction worth about $8.5 billion. This includes the assumption of Warner Chilcott’s net debt of $3.4 billion.

The successful completion of this deal will lead to the creation of a leading global specialty pharmaceutical company with combined annual revenues of about $11 billion. The combined company will hold the third position in the US specialty pharmaceutical market with annual revenues of about $3 billion.

The deal is expected to close by the end of this year. The two companies will be combined to form a new company domiciled in Ireland where Warner Chilcott is currently incorporated.

Financial Details

Warner Chilcott shareholders will receive 0.160 shares of the new company for each share owned by them. This comes to about $20.08 per Warner Chilcott share, representing a 34% premium to Warner Chilcott's closing share price ($15.01) on May 9, 2013, a day before Warner Chilcott disclosed its merger plans with Actavis.

Meanwhile, Actavis shareholders will receive one share in the new company for each Actavis share owned by them. Once the deal closes, about 23% of the new company will be owned by Warner Chilcott shareholders. The new company, to be called Actavis plc,  will continue to trade on the New York Stock Exchange under the ticker symbol ACT.

Immediately Accretive

The Warner Chilcott acquisition will help strengthen Actavis’ position in the women’s health (eight products) and urology (six marketed products) segments. The company will also gain a presence in the gastroenterology (two marketed products) and dermatology (one marketed product and a new product launch slated for Jul 2013) markets.

Moreover, Actavis will gain a pipeline of 25 candidates include 15 targeting the women’s health market.

Once the new company is formed, specialty brand sales are expected to account for 25% of 2013 sales, up from the current 7% contribution (stand-alone Actavis). The deal is expected to be accretive to Actavis’ 2014 earnings per share by more than 30%. The company expects to achieve post-tax operational synergies and related cost reductions and tax savings of more than $400 million. While a major part of these savings will be realized next year, the full effect will be achieved in 2015.

The combined company’s tax rate is expected to be about 17%, well below stand-alone Actavis’ expected effective 2013 tax rate of 27% - 29%.

Our Take

We are positive on this deal which makes strategic and financial sense. The deal is expected to be immediately accretive. Moreover, it will provide strong operating cash flow and allow Actavis to de-lever its balance sheet. The tax rate will also be significantly below current levels.

Currently, both Actavis and Warner Chilcott are Zacks Rank #3 (Hold) stocks. Shares of both companies reacted positively to the acquisition news.

Another Strong Nat Gas Storage Build

 

The U.S. Energy Department's weekly inventory release showed a larger-than-expected rise in natural gas supplies – the third in as many weeks – on account of milder-than-seasonal weather. Moreover, on a further bearish note, the build was well ahead of the five-year average levels, thereby narrowing the deficit with the benchmark.

About the Weekly Natural Gas Storage Report

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states rose by 99 billion cubic feet (Bcf) for the week ended May 10, 2013, higher than the guided range (of 93–97 Bcf gain) as per the analysts surveyed by Platts. The increase – the fifth injection of 2013 – also exceeded both last year’s build of 56 Bcf and the 5-year (2008–2012) average addition of 83 Bcf for the reported week.

Despite past week’s build, the current storage level – at 1.964 trillion cubic feet (Tcf) – is down 694 Bcf (26.1%) from the last year and is 83 Bcf (4.1%) below the benchmark five-year average.

Natural gas stocks hit an all-time high of 3.929 Tcf last year, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remained robust. In fact, the oversupply of natural gas pushed down prices to a 10-year low of $1.82 per million Btu (MMBtu) during late Apr 2012 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

However, things have started to look up in recent times. This year, cold winter weather across most parts of the country boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, meant that the inventory overhang has now gone, thereby driving commodity prices to $4.38 per MMBtu – the highest since Sep 2011.

This, in turn, is expected to buoy natural gas producers, particularly smaller players like Bill Barrett Corp. , Linn Energy LLC and Forest Oil Corp. . With the financial incentive to produce the commodity and the subsequent improvement in the companies’ ability to generate positive earnings surprises, they are likely to move higher from their current Zacks Rank #3 (Hold).

But natural gas demand is currently going through a lean period – with the end of the winter heating season and ahead of the peak cooling loads for summer. Therefore, until hot summer weather prevails across the country and increases electricity draws to run air conditioners, the commodity may experience above-average builds, thereby pulling down prices again.

 

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact
Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

http://www.zacks.com

Please login to Zacks.com or register to post a comment.