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Posted Fri Nov 20, 04:27 pm ET
by Dirk van Dijk, CFA
I want to talk about the challenge of exponential growth in a finite world. This is a concept that while on its surface seems easy to get, most people don’t fully grasp it.
Any growth rate that is positive will lead to a doubling in size eventually -- the higher the growth rate, the quicker the doubling. A quick "back of the envelope" method of figuring it out is known as the rule of 70. If you divide a growth rate into 70, it will roughly give you the time for something to double. Thus if something is growing at 2% a year, then it will double in about 35 years, at 5% only 14 years, etc. If you want to be more precise, you can always use your Y^x button on your calculator, but the rule of 70 will do for this discussion.
Clearly, exponential growth is what we are looking for when we invest -- better known as compound interest -- and it is vital to anyone’s financial health that they stay on the right side of it. People who get on the wrong side -- for example, by carrying a credit card balance -- are eventually headed towards financial oblivion. If that is you, then your best investment is probably not one of the stocks or ETFs that I recommend, it is paying down you damm Visa bill.
It is also why I try to watch the downside when I make investment decisions. It is far more important to avoid 50% losses than it is to have a 50% gain. After all, if you had a 50% gain in one year, but in the next year you suffered a 50% loss, at the end of two years that dollar would have turned into just $0.75 -- a 25% loss.
However, far more important to the world is the dark side of exponential growth. Let's start with the obvious one: population growth. The table below comes from Wikipedia, but is based on UN data. Note that from 1750 to 1800, the world population grew from 791 million to 978 million -- an increase of 187 million, or 0.4% per year. From 1850 to 1900, it grew from 1.262 billion to 1.650 billion -- an increase of 388 million or at 0.53% per year.
Thus, even very small growth rates can result in some very large increases extended long enough, and as the base grows, the absolute increase gets larger each year even if the rate of increase stays the same. Now look at what has happened more recently. From 1950 to 1999, world population increased by 3.457 billion, more than doubling from 2.521 billion, an increase of 1.78% per year. Lately we have seen a slowdown in the growth rate; from 1999 to 2008 it was just 1.29% per year, but that has meant an increase of 729 million in just nine years, or 92% of the entire world population in 1750.
Looking forward, the U.N does see a further reduction in the rate of growth, to just 0.68% per year, or almost back down to the growth rate in the very earliest days of the Industrial Revolution. But the base is so much larger, the absolute increase is 2.2 billion, or almost the world population of 1950. The effect is that a long-term graph of world population looks like a picture of a rocket launch. And unless you believe in the Mayan calendar or the equally silly "end times" nonsense, this is going to cause some very big problems (not that the end of the world in 2012 wouldn't be a very big problem on its own).
Now look at where the growth is coming from. The combined populations of North America (Mexico is included in the Latin American numbers, so basically the US and Canada) and Europe are actually expected to fall from the current 1.069 billion to 1.020 billion. All of the growth is coming from Asia, Africa and Latin America.
The only thing that can keep up with exponential growth is something that itself grows exponentially. Fortunately, the one thing that grows exponentially at a very fast rate is computing power, which in turn allows for technological advances. So far, technology has managed to hold off the worst of the problems that one might expect. After all, this analysis is not exactly original. It was first made by Thomas Malthus back before world population hit the 1 billion mark.
However, you can eat potato chips, not computer chips. One of the things that technology has done is level the playing field, so that people in Asia and eventually Africa will have the same shot at success as people in the U.S. and Europe. They can see how we live, and surprise, surprise -- they would prefer to live the way we do, and are increasingly able to do so. As they do, the economic growth opportunities will be huge.
That is why I like the emerging markets story so much. However, given the challenges of trying to research foreign firms who might be best positioned to take advantage of these trends, it probably makes sense to use ETFs such as the I-shares MSCI Emerging Market Fund (EEM) or more country-specific variants like the Claymore China Small Cap ETF (HAO) or the Wisdom Tree India Earnings ETF (EPI).
One of the things that has been absolutely key to our ability to have so much higher living standards today than back in, say, 1850 is that we use a lot more energy.
So let’s take a look at energy consumption per capita (the data I’m using comes from here if you want to investigate further). In 2005, people in North America used the equivalent of 8157.9 kilograms of oil per year (kgoe/y) per person, up from 7942.9 kgoe/y in 2000. Thus while our rate of increase in energy consumption was just 0.54% per year, it was on a high base so the absolute increase was 215 kgoe/y over that time.
Now look at Asia (excluding the Middle East). In 2000, they were using 865.2 kgoe/y, and by 2005 it was up to 1051.5 per year. That is an increase of 3.98% per year, or to go back to the rule of 70, it means that if it keeps up Asia’s energy consumption per capita will double by 2022. Combine that with a population that is expected to grow at 0.6% per year, and Houston, we have a problem.
However, note that the absolute increase in energy use per capita in Asia was just 186 kgoe/y, or just 86.5% of the increase in North America, despite the far higher growth rate. However, if the relative growth rates continue, that will not last. If we extrapolate out the growth rates of 2000 to 2005 then by 2015, Asia’s per capita consumption will grow to 1,553.0 kgoe/y, an increase of 501.5, while the absolute increase in North America will be "only" 451.4 kgoe/y.
Put another way, right now we use 7.76x as much energy per person as in Asia (keep in mind these figures include relatively rich countries like Japan and South Korea, as well as basket-cases like Burma and Bangladesh), and by 2015 that ratio will fall all the way down to 5.54x as much.
Now, the peak year for actual oil discovery in the world was in 1964, and as you pump oil out of the ground it is gone. Once you reach the point where you have pumped half the original oil in a field, it is basically impossible to increase the annual output from that field without causing serious damage that eventually results in that oil being trapped forever. Most of the currently producing fields are past their peak. As the International Energy Agency (IEA) found last year:
"Output from the world's oilfields is declining faster than previously thought, the IEA said in its annual report. Without extra investment to raise production, the natural annual global crude oil depletion rate is 9.1%. The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as in the North Sea, Russia and Alaska. The effort will become even more acute as prices fall and investment decisions are delayed. Even with investment, the annual rate of output decline is 6.4." (See here for full story.)
Now the situation is better for natural gas (NG) than it is for oil, but eventually that will run out as well. However, we have much more time thanks to the new shale plays here in the U.S. We need to shift to more usage of NG as a bridge towards the eventual goal of producing most of our energy from renewable sources like wind and solar. But given the tiny fraction of the world’s energy they now represent, we will need many years of very fast growth in them to make a substantial dent in world energy needs.
Natural gas also has the benefit of being located here in North America, rather than in rather unstable and hostile areas of the world, the way oil is.
The U.S. cannot continue to run massive trade deficits with the rest of the world. The trade deficit is the source of our external debt, not the fiscal deficit. Our external debt is now (as of 6/30/09) at $13.454 trillion -- up from just $7.744 trillion five years ago. That is a growth rate of 11.7% per year, and is clearly not sustainable (that might be overstating it since it is a gross number; we do hold some debts of other countries that offsets it in part). Still, even if the net growth rate is half that amount, it is clearly unsustainable, and is one of the reasons the dollar is going to be under long-term pressure.
Putting this all together it seems clear to me that the price of energy must continue to rise over the long term. Companies that are going to be able to increase their production of oil, such as Petrobras (PBR) are going to be exceptionally well positioned.
While natural gas should see a big growth in demand, it is not a perfect substitute for oil. Still, big gas producers like EnCana (ECA) have a very bright long-term future. I would also note that what I am saying about oil also holds true for other commodities. Energy and commodities are going to be the real stores of value and of wealth over the next few decades. Read the full analyst report on EEM
Read the full analyst report on HAO
Read the full analyst report on EPI
Read the full analyst report on PBR
Read the full analyst report on ECA
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Posted Fri Nov 20, 03:36 pm ET
by Zacks Equity Research
A subsidiary of CenterPoint Energy Inc. (CNP) and NextEra US Gas Assets LLC, an affiliate of FPL Group Inc. (FPL) signed an agreement to explore the construction of a pipeline in north Louisiana. The new pipeline will transport natural gas from the Haynesville Shale area.
The expected capacity of the potential new pipeline is up to 2.0 billion cubic feet per day. The pipeline would connect Haynesville Shale natural gas production to markets in north Louisiana and CenterPoint Energy's Perryville Hub.
The companies announced that an open season will be held to gauge market interest in the proposed new pipeline.
With the development of the new pipeline, CenterPoint and FPL Group expect to enhance the existing infrastructure in the rapidly expanding Haynesville Shale area. Gas production in north Louisiana, including the rapidly developing Haynesville Shale, remains robust. The new pipeline would assist producers with Haynesville and north Louisiana acreage, creating another option for their production.
Assuming adequate expressions of interest are received and management approval from both companies, a joint venture entity will be formed that would execute binding precedent agreements and seek necessary regulatory approvals to place the pipeline into service as quickly as possible. Each company would own an equal equity interest in the new pipeline. CenterPoint Energy's pipeline group would design and oversee construction, and ultimately operate the new pipeline. Read the full analyst report on CNP
Read the full analyst report on FPL
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Posted Fri Nov 20, 03:11 pm ET
by Zacks Equity Research
Warren Buffett, the CEO and Chairman of Berkshire Hathaway (BRK.A)/(BRK.B), announced on Thursday to borrow $8 billion of loan for the acquisition of Burlington Northern Santa Fe Corporation (BNI). Berkshire Hathaway, which already owns a 22% stake in Burlington Northern, announced earlier this month it would acquire the rest for a total value of $34 billion. Buffet agreed to pay $100 a share in cash and stock to buy the rest of the company.
The $8 billion loan that will be provided by JPMorgan Chase (JPM) and Wells Fargo (WFC) is intended to be paid back in three years’ time.
For Berkshire, the acquisition of Burlington Northern, or BNSF, the second largest railroad, will be its biggest to date. With it, Berkshire is adding a railroad transportation business with its already diverse range of businesses including retail, manufacturing and insurance, as well as several regional electric and gas utilities.
The acquisition is expected to close in early 2010 and is subject to Burlington Northern’s shareholder approval. Post acquisition, Burlington Northern will operate from its headquarters as a wholly owned subsidiary of Berkshire Hathaway.
Based in Fort Worth, Texas, Burlington Northern operates one of the largest railroad networks in North America through its subsidiary, with 33,500 route miles covering 28 U.S. states and two Canadian provinces. This network covers two-thirds of the western United States, stretching from major Pacific Northwest and Southern California. The company employs more than 40,000 people. Read the full analyst report on BNI
Read the full analyst report on BRK.A
Read the full analyst report on BRK.B
Read the full analyst report on JPM
Read the full analyst report on WFC
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Posted Fri Nov 20, 02:14 pm ET
by Zacks Equity Research
Stone Energy Corporation (SGY) reported third-quarter 2009 earnings of $1.06 per share, beating the Zacks Consensus Estimate of 66 cents and the year-earlier earnings of $1.04. The robust results were driven by increased production volumes and reduced costs.
Production during the quarter averaged 239 million cubic feet of gas equivalent per day (MMcfe/d), compared to average daily production of 209 MMcfe/d in the prior quarter and 129 MMcfe/d in the year-ago quarter. This increase was primarily due to the company’s successful execution of its hydraulic rig work over program, reduced cycle time and optimization of individual well rates.
Stone expects net daily production to average 225-235 MMcfe in the fourth quarter and 210-220 MMcfe in 2009.
Discretionary cash flow was $157 million during the quarter, down approximately 4% year over year. Prices realized during the quarter averaged $77.39 per barrel of oil (down more than 27% year-over-year) and $5.90 per Mcf of natural gas (down nearly 45% year-over-year). Overall realization, on a per Mcfe basis, was down in excess of 34% year-over-year to $9.23 per Mcfe.
On the costs front, unit lease operating expenses (LOE) were down significantly to $1.28 per Mcfe. The significant reduction in LOE was due to lower maintenance projects operation. DD&A was down nearly 29% year-over-year to $3.06 per Mcfe and SG&A expenses were down 51% year-over-year to 43 cents per Mcfe.
Stone’s capex guidance for 2009 is $300 million, excluding acquisitions, capitalized interest and G&A. For 2010, the company is expecting $350 million of capex though it is yet to be approved by the Board. At the end of the quarter, the company had approximately $98 million in cash and $650 million in long-term debt. Current debt-to-capitalization ratio is 59.9%.
The Gulf of Mexico (GoM) shelf has helped the company to deliver a strong quarter underpinned by both production growth and decreased cost. Last year’s acquisition of Bois d’Arc Energy, a pure-play GoM player, has increased Stone’s footprint in this region. Given this acquisition, the company has now visibility into three years to five years of oil development drilling and more approved developed non-producing reserves.
However, Stone’s high cost and capital-intensive Gulf Coast-centric asset base as well as lack of meaningful exposure to the emerging shale plays are competitive disadvantages. Consequently, we recommend a Neutral rating for the stock. Read the full analyst report on SGY
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Posted Fri Nov 20, 01:48 pm ET
by Zacks Equity Research
J.M. Smucker Company (SJM) reported second quarter results with earnings of $1.22 per share, which was well above the Zacks Consensus Estimate of 99 cents. Quarterly earnings were up 21% compared to $1.01 reported in the prior-year quarter.
Net sales for the quarter grew 51.7% year-over-year, primarily due to the addition of the Folgers coffee business. Excluding Folgers, volumes increased 1%, driven by Pillsbury, Crisco oils, Jif peanut butter and Hungry Jack brands. These were partially offset by declines in canned milk, fruit spreads, foodservices and natural foods.
On segment basis -- the U.S. retail coffee market segment posted $445.1 million in sales during the quarter. Volume also increased by approximately 5%. The continued expansion of the Dunkin' Donuts brand in the gourmet category and strong growth in traditional roast and ground coffee led to the improvement.
Net sales of the U.S. retail consumer market segment were down 4% compared to the prior year, primarily due to flat volumes. Gains in Jif peanut butter and Hungry Jack pancake mixes and syrups were fully offset by declines in potatoes, fruit spreads, Smucker's Uncrustables sandwiches and the specialty foods business.
The U.S. retail oils and baking market segment sales declined 9% year-over-year. The decline reflected the impact of price declines in oils, flour and canned milk, and higher promotional spending on Crisco oils. However, volumes grew 3%, due to double-digit gains in Pillsbury and Crisco brands fully offsetting the declines in canned milk.
Net sales in the special markets segment grew 15%, driven primarily by the acquisition of Folgers. Volumes were down 1% due to declines in foodservice and natural foods partially offset by gains in Canada.
Gross margin for the quarter expanded 962 basis points (bps) to 38.5% versus 28.9% in the prior-year quarter. The acquisition of Folgers contributed almost 90% of this increase.
Interest expense for the quarter increased by 54% or $6.2 million during the quarter due to an increase in the debt level related to the Folgers transaction. However, the company had repaid approximately $75 million of debt on June 1, 2009.
Cash and cash equivalents at the end of the first half were $410 million, compared to $166 million in the prior-year quarter.
Based on the performance of the company during the second quarter, the company raised its guidance for fiscal 2010. Annual earnings are now expected to be in the range of $3.95 and $4.05 per share. Previous guidance was $3.65 and $3.80.
Net sales for the year are reiterated at approximately $4.5 billion. Read the full analyst report on SJM
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Posted Fri Nov 20, 01:25 pm ET
by Zacks Equity Research
GameStop Corporation (GME) the biggest video game retailer, reported third quarter earnings of 32 cents per share, slightly above the Zacks Consensus Estimate of 31 cents. The reported earnings were 6% lower than prior-year quarter.
Revenue for the quarter increased 8.2% to $1,834.7 million compared to $1,695.7 million reported in the year-ago quarter. The company’s top-line benefited from strong new title releases and price cuts on all current generation platforms.
While new software sales grew 9.4%, used product sales increased 19.4% during the quarter. However, comparable store sales dropped 7.8% due to a decline in new video game hardware sales. New video game hardware sales fell 2%. The company opened 86 stores during the quarter, including 48 in the U.S.
Gross margin increased 60 basis points year-over-year to 28.5% in the reported quarter. The margin improvement was a result of product mix shift from low-margin hardware sales to higher-margin software sales.
GameStop reiterated fourth quarter earnings guidance in the range of $1.47 to $1.65 per share, compared to $1.39 in the prior-year quarter. The company expects comparable store sales in the range of -7.0% to -1.0%.
For the full year, GameStop forecasts EPS of $2.45-$2.63, which reflects year-over-year EPS growth of 2% to 10%. Comparable store sales are expected to decline between 7.0% and 4.0% for the year.
The company continues to generate significant cash flow, utilizing it for opening new stores and acquisitions. For fiscal year 2009, GameStop expects to generate free cash flow in the range of $400 million to $425 million. Read the full analyst report on GME
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Posted Fri Nov 20, 12:33 pm ET
This morning, Pozen (POZN) initiated phase III studies on PA-325/40, a fixed-dose combination of 325mg enteric coated aspirin and 40mg of immediate release omeprazole. The phase III program will consist of two pivotal trials conducted under a Special Protocol Assessment (SPA) agreed upon with the U.S. FDA, and one long-term safety study.
The two pivotal programs will enroll approximately 500 patients per study at over 100 sites around the U.S. The primary endpoint of the pivotal studies is the cumulative incidence of gastric ulcers over the six-month treatment period for PA32540 versus 325 mg of enteric-coated aspirin. The long-term study will enroll approximately 400 patients and assess safety over a period of one year.
Pozen is developing PA-325/40 for use in the secondary prevention of heart attacks and strokes in patients at risk for associated gastric ulcers. Aspirin is the No. 1 recommended agent for at-risk patients, with some 50 million Americans take daily aspirin therapy for secondary prevention of heart attacks and strokes.
However, according to data presented at the American College of Gastroenterology and at the American Heart Association meeting, the use of low-dose aspirin for cardiovascular disease prophylaxis is associated with a 2- to 4-fold increase in gastro-intestinal (GI) complications, including gastric ulcers. Enteric coating is not a sufficient to reduce the risk of GI bleeding, and thus the majority of patients that should be taking 325mg aspirin are non-compliant or taking suboptimal low-dose (81mg) "baby" aspirin instead.
Pozen’s PA-325/40 is designed to provide immediate-release omeprazole as a GI-protectant for patients taking full-dose 325mg daily aspirin therapy. If the phase III trials meet the primary endpoint of reduction in cumulative incidence of gastric ulcers, we expect PA-325/40 to be approved by the U.S. FDA with the full cardiovascular label claims of regular enteric-coated aspirin. This is a significant market opportunity in our view, considering less than 15% of the 50 million Americans on daily aspirin therapy are taking a GI-protectant such as omeprazole.
Recently, data from a retrospective analysis of patients that use Sanofi-Aventis (SNY) / Bristol-Myers’ (BMY) Plavix (clopidogrel) showed an increased risk of major adverse cardiovascular events (MACE) by as much as 50% while taking a proton pump inhibitor (PPI) such as AstraZeneca’s (AZN) omeprazole (Prilosec) or esomeprazole (Nexium). The data included analysis of outcomes from 16,700 patients who underwent percutaneous coronary intervention and continued Plavix for 12 months after the procedure.
Approximately 9,900 were not given a PPI at any time during Plavix treatment and 6,800 were given overlapping PPI therapy. The analysis showed a 12-month MACE event rate of about 25% among PPI users, compared with 18% of patients who were not given PPI (MACE hazard ratio of 1.50 for PPI users versus nonusers).
The current Plavix label discourages use of a PPI due to this potential limiting effect on the drug’s effectiveness. The majority of Plavix use for secondary prevention of heart attacks and strokes is with enteric-coated aspirin.
Strengthening this label warning by the U.S. FDA could work to greatly limit the potential uptake for Pozen’s PA-325/40 product. However, we note the retrospective analysis that potentially showed a reduced effectiveness for Plavix while on a PPI was with commercially available delayed release PPIs dosed at the same time as taking Plavix. Pozen is currently conducting a drug-drug interaction study with their immediate release omeprazole doses both at the same time and 12 hours apart from Plavix.
The omeprazole used in PA-325/40 is an immediate release formulation, not the commercially available delayed-release found in Prilosec or Nexium. We suspect that dosing an immediate release omeprazole 12 hours apart (say at night) from Plavix (in the morning) will dramatically reduce the potential negative interactions between the two drugs.
We are optimistic on the development plans for PA-325/40. Besides the potential use as a secondary preventative agent for cardiovascular disease, significant literature exists showing a potential reduction in risk for developing precancerous adenomas on high-dose aspirin regimen.
Four separate government-funded randomized controlled trials concluded that aspirin is a benefit in the prevention of adenomas and significantly reduces the risk of colon cancer. However, the dangerous GI tolerability has greatly limited large outcome-based clinical studies or wide-spread use of high-dose aspirin in colon cancer prevention. We believe that Pozen’s PA-325/40, and phase II PA-650/40, have the potential to be a game-changer with respect to colon cancer prevention. This also helps mitigate the potential downside risk to pushing forward with development despite the recent negative Plavix/PPI headlines. Read the full analyst report on POZN
Read the full analyst report on SNY
Read the full analyst report on BMY
Read the full analyst report on AZN
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Posted Fri Nov 20, 12:03 pm ET
by Zacks Equity Research
Yesterday, after market close, ADC Telecommunications Inc. (ADCT) declared financial results for the fourth quarter of fiscal 2009. Earlier, the Board of Directors of ADC had taken a decision to change its fiscal year from Oct 31 to Sep 30. As a result, fiscal year 2009 ended on Sep 30, 2009, which means the company got only two months as its fourth quarter. The fourth quarter of fiscal 2009 would, therefore, not be comparable to either the prior-year quarter or the previous quarter. For this reason, management has presented pro forma results for the three month period ending Sep 30 and its comparable quarter.
Actual revenue of fourth quarter 2009 was $183.9 million, below the Zacks Consensus Estimate of $189 million. Quarterly pro forma revenue was $293.6 million, down 17.5% year-over-year. This significant decline in revenue is the result of the global economic recession across all the three business segments.
On a GAAP basis, net loss in the quarter was $19.8 million or a loss of 20 cents per share compared to a net loss of $5.6 million or a loss of 5 cents per share in the prior-year quarter. However, adjusted net income (excluding $25.5 million special charges and $0.6 million loss from discontinued operations, net of taxes) in the reported quarter was $6.3 million or an income of 6 cents per share, higher than the Zacks Consensus Estimate of an income of 4 cents per share.
Pro forma gross margin for the quarter was 34.6% compared to 33% in the year-ago quarter. This reflects the aggressive cost cutting measures taken by management during the past one year. Pro forma quarterly operating expenses were $113 million compared to $106.2 million in the prior-year quarter.
At the end of the quarter, ADC had $610.9 million of cash & marketable securities on its balance sheet compared to $680.5 million at the end of the prior-year quarter. Total debt was $651.6 million at the end of the same quarter compared to $653.3 million at the end of the year-ago quarter. Pro forma cash flow from operations during fiscal 2009 was $86 million compared to $132 million in the previous fiscal. Pro forma yearly free cash flow (cash flow from operation less capital expenditure) was $54 million compared to $94.9 million in the previous fiscal.
Global Connectivity Solutions Segment
Actual revenue in the quarter was $143.3 million. Pro forma quarterly revenue was $228 million, down 18.8% year-over-year and also down 2% sequentially. This segment continues to generate the bulk (78%) of total revenue. Out of this, Fiber Connectivity accounted for 30%, Copper Connectivity 29%, Enterprise Connectivity 16%, and the rest 3% was provided by Wireline Connectivity products.
Network Solutions Segment
Actual revenue in the quarter was $13.5 million. Pro forma quarterly revenue was $23.8 million, down 21.7% year-over-year but up 6.3% sequentially.
Professional Services Segment
Actual revenue in the quarter was $27.1 million. Pro forma quarterly revenue was $41.8 million, down 6.7% year-over-year but up 12.6% sequentially.
Future Financial Outlook
Management has guided that its net sales in the first quarter of fiscal 2010 will be within the range of $250 million to $275 million, well below the Zacks Consensus Estimate of $271 million. The company is expecting a significant decline in telecom carrier spending during the first quarter. On a GAAP basis, EPS is expected within the range of a loss of 15 cents to a loss of 5 cents, which includes non-cash amortization expense of 5 cents per share and excludes potential non-cash charges or restructuring charges. This is also well below the Zacks Consensus Estimate of an income of 9 cents per share. Read the full analyst report on ADCT
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Posted Fri Nov 20, 11:43 am ET
by Zacks Equity Research
Recently, AstraZeneca plc (AZN) announced the submission of a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for its blood clot preventer Brilinta (ticagrelor). Brilinta is an oral reversible P2Y12 adenosine diphosphate receptor antagonist for arterial thrombosis aimed to compete with the blockbuster drug Plavix which is co-developed by Bristol-Myers Squibb (BMY) and Sanofi-Aventis (SNY). On Oct 26, 2009, AstraZeneca filed for approval of the drug with the European Medicines Agency (EMEA) and is awaiting validation of the application.
AstraZeneca is seeking an FDA approval of Brilinta primarily on the basis of data from PLATO (a study of Platelet Inhibition and Patient Outcomes), a late-stage 18,624 patient trial, that showed that Brilinta was more effective than Plavix in treating patients with acute coronary syndrome (ACS) in 43 countries. Brilinta treatment resulted in a reduction of cardiovascular events (CV death, MI or myocardial infarction, stroke) over clopidogrel (Plavix), without an increase in major bleeding. Brilinta is the first investigational antiplatelet that has demonstrated a reduction in CV death versus Plavix in ACS patients.
As a reminder, PLATO evaluated the efficacy, safety and tolerability of Brilinta versus Plavix. The trial design prospectively identified 66 subgroups including 33 efficacy and 33 safety subgroups. The findings from 62 of the 66 subgroups were consistent with the results in the overall study population.
ACS represents conditions that result from a reduction in blood flow to the heart muscle, including unstable angina and myocardial infarction. According to data from the American Heart Association, approximately 1.4 million people in the United States are affected by ACS annually.
We believe that if Brilinta gets FDA approval and enters the approximately $9 billion anticlotting medicine market, it would provide increased competition to Plavix, which is one of the largest selling drugs globally with sales of $5.6 billion in 2008. Plavix already has to contend with a new player in the market, Eli Lilly’s (LLY) Effient. Moreover, Plavix will lose patent protection in 2011 resulting in huge loss of revenues for Bristol. If AstraZeneca can get Brilinta on the market before Plavix goes generic, it may help Brilinta maintain its market share and reduce the number of patients switching to generic clopidogrel.
Currently, we are Neutral on AstraZeneca. Read the full analyst report on AZN
Read the full analyst report on BMY
Read the full analyst report on SNY
Read the full analyst report on LLY
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Posted Fri Nov 20, 11:31 am ET
by Zacks Equity Research
Limited Brands Inc. (LTD) reported results for the third quarter of fiscal 2009 with earnings of 2 cents per share. Earnings were below the Zacks Consensus Estimate of 6 cents but were up 50% compared to the prior-year quarter.
Net sales for the quarter declined 3.5% year-over-year to $1.7 billion due to a 2% decline in comparable same store sales (comps).
According to channels, comparable same store sales of Victoria’s Secret channel contracted 4% as bra sales rose only modestly by low single-digits, while panties sales were down low single-digits. However, beauty sales were flat year-over-year as declines were fully offset by new launches and the strong performance of core products.
Bath & Body Works channel’s comparable store sales increased 2% during the quarter. The channel benefited from the improvement in the merchandise margin rate.
Gross margin for the quarter expanded 16 basis points (bps) to 31.7% versus 31.5% in the comparable prior-year quarter. The increase was primarily driven by the overall cost reduction efforts taken by the company as well as effective inventory management. Retail inventories per foot during the quarter were down 10% compared to the prior-year. The operating margin for the quarter grew 107 bps to 3.3% from 2.2% in the prior-year quarter.
Based on the performance of the third quarter, management raised its guidance for the full year and fourth quarter 2009. For the full year, the company expects the comps to decline in the mid single-digit range. Further, management expects a sales decline of approximately 10% at Victoria’s Secret direct and a sales decline of about 20% at Mast. Gross margins for the quarter are expected to be up modestly compared to the prior-year driven by an improvement in the merchandise margin rate partially offset by buying and occupancy de-leverage.
Furthermore, the company remains on track to generate $175 million in cost savings this fiscal. Annual earnings are now expected to be in the range of 93 cents to $1.08 per share. Previous guidance was 75 cents to 90 cents. Capital expenditures for fiscal 2009 are expected to be at $225 million. The company expects free cash flow in the range of $500 million to $600 million.
For the fourth quarter, the company expects earnings to be in the range of 71 cents to 86 cents per share. The guidance reflects a comp decline in the low to mid single-digit range. Net sales for the fourth quarter are expected to be roughly flat to down low single-digits. Management expects inventory per square foot to be down in the mid single-digit range.
Furthermore, the company has lined up holiday themes focused on offering core products and attractive seasonal gifts. The holiday themes also include Twilight Woods, the newest Signature Collection fragrance that will be featured throughout the shop, along with new fragrances in the Holiday Traditions Collection, including Vanilla Fig and Pear Vanilla.
In home fragrance, the company has new holiday figural candles and the new scent, Fireside. Additionally, in mid Jan, the company expects to restage its anti bac product line. The restage will include all new soap formulas and the gel, foaming and moisturizing forms as well as new formulas in hand sanitizers.
Limited brands is also updating its iconic diamond bottle shape by adding new graphics that are consistent with the restaged Signature Collection product line. In addition to the company’s focus on holiday and the anti bac restage, the other priorities remain,
The company is therefore, optimistic about its holiday assortment and the visual appeal of its stores. However, as the traffic is expected to be down compared to last year, management maintains a cautious outlook on the fourth quarter. Read the full analyst report on LTD
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