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Zacks #1 Stocks on the Move 09/19/2014

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Analyst Blog

JPMorgan to Redeem $1.7B Worth of Subordinated Notes

Posted Fri Sep 19, 06:40 pm ET

by Zacks Equity Research

JPMorgan Chase & Co. (JPM) is planning to redeem callable subordinated notes worth nearly $1.7 billion. The following series of fixed/floating rate subordinated notes will be redeemed:

  • The XS0246053531 series worth $438 million to be redeemed on Oct 31, 2014.
  • The 46625H CY4 series worth $287.5 million to be redeemed on Oct 31, 2014.
  • The XS0205436040 series worth €750 million to be redeemed on Nov 12, 2014.

JPMorgan stated that the total amount, to be paid on redemption, includes the entire principal amount of the notes, plus accrued and unpaid interest thereof (excluding the redemption date). The holders of each series of notes will get the redemption notices, which the company will send out through the relevant clearing systems within the notice periods.

Further, to receive the payment, the holder of these notes will have to submit them at the offices of The Bank of New York Mellon Corp. (BK). Also, JPMorgan anticipates that these redemptions will not affect its earnings.

Nonetheless, interest expenses, which reflected a fall of 12.7% in the first half of 2014, will surely register an additional decline in the upcoming quarters, once the redemption is completed. This in turn will somewhat ease pressure on top line.

While the presence of subordinated debt in the capital structure compels a company to remain vigilant, too much of such debt can prove to be critical for the company’s overall health as was witnessed in the financial crisis of 2008 after which the Federal Reserve exerted stricter rules in the form of Basel III requirements.

Currently, JPMorgan holds a Zacks Rank #2 (Buy). Some better-ranked finance stocks include Sierra Bancorp (BSRR) and Farmers Capital Bank Corp. (FFKT). Both these stocks sport a Zacks Rank #1 (Strong Buy).

Cisco, Belgacom Extend Alliance to Boost Internet Services

Posted Fri Sep 19, 06:30 pm ET

by Zacks Equity Research

Cisco Systems, Inc. (CSCO) announced the extension of its partnership with Belgian telecommunications company Belgacom, which is in the process of upgrading its network.

Belgacom has purchased Cisco’s mobile Internet products including Cisco Serving GPRS Support Node (“SGSN”) and Cisco Mobility Management Entity (“MME”), which are the main components of the Cisco Aggregated Services Router ("ASR") 5000 Series.  

The Belgacom Group is the largest telecommunications company in Belgium, which offers fixed line communication, mobile communications and ICT (Information and Communication Technology) services.

The alliance goes back to Oct 2013, when Belgacom had selected Cisco Aggregated Services Router ("ASR") 5000 for boosting its mobile Internet services. With the recent extension, Belgacom aims at developing its network and offering enhanced mobile Internet experiences to its subscribers.

Given the partnership and deployment of its carrier-class networking products, Cisco can further expand its reach in the European market by getting access to other telecommunication clients. It will help the company to meet growing business demand and boost its bottom line going forward.

In fact, Cisco’s fourth-quarter fiscal 2014 earnings of 50 cents beat the Zacks Consensus Estimate of 48 cents. The better-than-expected earnings were driven by improving markets for the company’s products in the United States and Europe.

The Cisco ASR 5000 Series is a carrier grade platform for deploying high-demand 3G networks and moving to the Long Term Evolution ("LTE") network. It provides mobile operators with the capability to meet network performance challenges in a cost-effective manner.

Cisco is the worldwide leader in networking for the Internet. Its recent streamlining efforts to optimize the cost structure and efforts to grow new businesses like cloud computing, consulting, managed services and security helps the company remain strong in its domain, despite growing competition.

Cisco currently has Zacks Rank #3 (Hold). Better-ranked stocks include Ametek Inc. (AME), National Instruments Corp. (NATI) and Cognex Corp. (CGNX). All these stocks carry a Zacks Rank #2 (Buy).

VIVUS and Auxilium Announce Stendra Label Expansion

Posted Fri Sep 19, 06:25 pm ET

by Zacks Equity Research

VIVUS, Inc. (VVUS) and Auxilium Pharmaceuticals, Inc. (AUXL) announced that the FDA has approved their erectile dysfunction (ED) drug, Stendra’s (EU trade name: Spedra) supplemental new drug application (sNDA) to include 15 minutes onset of action. VIVUS shares soared 12.4% on the news.

As per the newly approved label, Stendra can be taken as early as approximately 15 minutes before sexual activity. The previously approved prescribing information recommended administration of Stendra approximately 30 minutes before.

Stendra, a phosphodiesterase type 5 (PDE5) inhibitor, received marketing approval in the U.S. in Apr 2012 and the EU in Jun 2013. VIVUS has collaborated for the drug with privately -held Italian pharmaceutical company, Menarini (more than 40 European countries, Australia and New Zealand), Sanofi (Africa, the Middle East, Turkey, and the Commonwealth of Independent States including Russia) and Auxilium. Auxilium possesses the rights to Stendra in the U.S. and Canada.

VIVUS licensed the product from Mitsubishi Tanabe Pharma Corp. Auxilium launched the drug in the U.S. in Dec 2013, while Menarini launched the drug in the EU in Apr 2014.

Our Take

We are pleased with the inclusion of 15 minutes onset of action in Stendra’s label. We believe it will give an edge to Stendra over currently approved PDE5 inhibitors including Viagra, Levitra and Cialis (none of which have an onset of action as fast as Stendra) and help boost market share.

VIVUS, a biopharmaceutical company, currently carries a Zacks Rank #2 (Buy). Some better-ranked biopharma stocks worth considering, include Amgen Inc. (AMGN) and Gilead Sciences Inc. (GILD). Both are Zacks Rank #1 (Strong Buy) stocks.

Covidien Sonicision Line Expands, 3 Devices Gain FDA Nod

Posted Fri Sep 19, 06:20 pm ET

by Zacks Equity Research

Covidien plc (COV) recently announced the expansion of its Sonicision Cordless Ultrasonic Dissection Device portfolio, following the U.S. Food and Drug Administration (FDA) clearance for three additional device lengths − 13 cm, 26 cm and 48 cm.

Covidien’s Sonicision system is a hand-held, pistol-grip style, battery-powered surgical ultrasonic device that is designed for soft-tissue incision and hemostasis. The device is used in a wide variety of surgical procedures, including general, bariatric, colorectal, gynecological and urological.

The newly-approved device lengths allow surgeons to expand their use of the Sonicision system to a more diverse range of surgical procedures, including pediatric colectomy, splenectomy, and appendectomy.

The Sonicision device’s cordless design allows complete freedom of movement to surgeons when applying ultrasonic energy. Increased mobility eliminates the need for managing cords in a sterile field and helps increase procedural efficiencies. In addition, reducing the number of cords and separate generators in the operating room contributes to a safer operating environment and patient experience.

Way back in Oct 2012, Covidien had unveiled Sonicision, the industry’s first cordless ultrasonic dissection device, at the American College of Surgeons Clinical Congress. The full cordless ultrasonic portfolio is currently available in the U.S.

With the most versatile cordless ultrasonic portfolio in the industry, Covidien now offers surgeons a wide range of options when performing pediatric, urological and bariatric procedures on patients of all sizes.

Covidien is focused on developing and delivering energy-based medical technologies. The Sonicision system’s innovative cordless offerings provide transformational options in the field of minimally invasive surgeries.

Currently, Covidien carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical products industry include ICU Medical (ICUI), Abaxis, Inc. (ABAX) and Eagle Pharmaceuticals (EGRX). ICU Medical sports a Zacks Rank #1 (Strong Buy), while both Abaxis and Eagle Pharmaceuticals carry a Zacks Rank #2 (Buy).

Qualcomm's Vufuria to Enhance Digital Eyewear Range

Posted Fri Sep 19, 06:15 pm ET

by Zacks Equity Research

In an attempt to enhance mobile vision technology, Qualcomm Connected Experiences, Inc. – the business arm of Qualcomm Inc. (QCOM) – recently unveiled a solution, Qualcomm Vuforia. 
The Vuforia technology will help manufacturers upgrade digital eyewear devices and services by means of developing augmented reality (AR) applications. It will also enhance user experience by providing interactive 3D content which are to be visually aligned with the underlying world. This new technology can be widely used in the fields of hybrid VR/AR gaming, shopping, as well as education. 
The Vuforia application will deliver advanced computer vision for easy tracking of images and objects which appear in the user's field of view. Moreover, the Qualcomm Snapdragon processors integrated into the application will reduce the motion-to-photon latency, thereby offering an authentic AR effect to the end users.
Qualcomm has come up with Vuforia SDK for Digital Eyewear technology mainly to keep abreast with the latest developments in the digital eyewear device market, which include ODG R-7 and Epson Moverio BT-200. Growing popularity of video games coupled with increased demand for 3D content will continue to drive demand for high quality digital glasses. 
Meanwhile, Qualcomm launched Snapdragon 210 processors for low-cost smartphones supporting multi-band 3G and dual-mode 4GLTE connections, a few days back. 
In the third quarter of fiscal 2014, the company shipped nearly 225 million CDMA-based MSM chipsets, up 31% year over year and generated revenues to the tune of $6.8 billion, up 9% year over year. We also believe that launch of such innovative products and services will further drive revenues moving ahead. 
Currently, Qualcomm carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Other better-ranked stocks in the sector which are worth a look include Aruba Networks, Inc. (ARUN), NVIDIA Corporation (NVDA) and BlackBerry Ltd. (BBRY). All three have a Zacks Rank #2 (Buy).

Salix' s Xifaxan 550 sNDA Under Review, Response by Feb 28

Posted Fri Sep 19, 06:10 pm ET

by Arpita Dutt

Salix Pharmaceuticals, Ltd.’s (SLXP) supplemental new drug application (sNDA) for Xifaxan 550 has been accepted for review by the FDA. The company is looking to expand the use of Xifaxan 550 for the treatment of irritable bowel syndrome with diarrhea (IBS-D).
With the resubmitted sNDA being treated as a class 2 response, a decision from the FDA regarding the approval status of the drug should be out by Feb 28, 2015.
We remind investors that Salix had earlier received a complete response letter (CRL) from the FDA for this indication. In keeping with the requirements, the company conducted a randomized, double-blind, placebo-controlled phase III study – TARGET 3 – to evaluate the efficacy and safety of repeat treatment with Xifaxan 550 mg thrice daily for 14 days in subjects with IBS-D who had responded to an initial 14-day treatment course with Xifaxan 550 mg thrice daily. Salix reported positive results from this study in Jul 2014.
Xifaxan 550 is currently approved for the reduction in risk of overt hepatic encephalopathy recurrence in adults. Approval for the IBS-D indication would boost Xifaxan 550 sales significantly.
Meanwhile, Salix has an important regulatory event coming up this month with the FDA slated to decide on the approval of Relistor for the treatment of opioid-induced constipation (OIC) in patients taking opioids for chronic non-cancer pain. Earlier this week, the FDA had approved AstraZeneca (AZN) and Nektar Therapeutics’ (NKTR) Movantik for this indication.
Salix is a Zacks Rank #4 (Sell) stock. Some better-ranked stocks in the health care sector include Endo International plc (ENDP). Endo is a Zacks Rank #1 (Strong Buy) stock.

Haemonetics (HAE) Poised on Strong Q2, Optimistic Outlook

Posted Fri Sep 19, 06:00 pm ET

by Zacks Equity Research

On Sep 19, 2014, we issued an updated research report on Haemonetics Corporation (HAE) – a global provider of blood management solutions. Haemonetics reported an impressive first quarter of fiscal 2015 with both earnings and revenues outpacing the respective Zacks Consensus Estimate.

Adjusted EPS of 38 cents, although down 17.4% year over year, surpassed the Zacks Consensus Estimate by 3 cents. Revenues increased 2.3% to $224.5 million, steering ahead of the Zacks Consensus Estimate of $216 million.

The company’s plasma disposables continue to be a profitable business, with particular strength in North America. Haemonetics’ hospital diagnostics business also happens to be a booming one, with 1,800 TEG (Thromboelastography) devices installed in the past three fiscal years. Management firmly expects strong growth to continue in this business segment despite current and anticipated headwinds in surgical ongoing OrthoPAT market trends, buoyed by strong growth observed in TEG.

Despite the sluggish performance of the company’s Blood Center disposable business and the American Red Cross whole blood tender loss which will continue to adversely affect this business segment through the remaining quarters of fiscal 2015, Haemonetics still considers fiscal 2015 a transition year for the company.

The company expects profitable growth in plasma, TEG and emerging market in this period, although it will likely be offset by three major  factors: unfavorable currency trend, the weak performance of the U.S blood collection market  and finally, fiscal 2014 bonus funding program that is expected to escalate the operating costs. However, we believe, Haemonetics has every potential to overcome its existing difficulties and achieve improved financials in the next fiscal.

Other Stocks to Consider

While Haemonetics carries a Zacks Rank #3 (Hold), better-ranked stocks worth considering in the medical products sector are ICU Medical, Inc. (ICUI), Abaxis, Inc. (ABAX) and Hospira Inc. (HSP). While ICUI sports a Zacks Rank #1 (Strong Buy), ABAX and HSP carry a Zacks Rank #2 (Buy).

Lindsay's Capital Allocation Initiative Shows Potential

Posted Fri Sep 19, 05:55 pm ET

by Zacks Equity Research

On Sep 18, 2014, we issued an updated research report on Lindsay Corporation (LNN). The designer and manufacturer of self-propelled center pivot and lateral move irrigation systems is poised to benefit from its capital allocation plan, sustained growth in infrastructure business and development of new Road Zipper system. However, lower crop prices and political instability in Iraq remain matters of concern.

In Jan 2014, Lindsay announced its capital allocation plan, which lays out the company’s intent to make investments that will lead to revenue and earnings growth and at the same time enhance shareholder return. Lindsay intends to repurchase shares worth $100 million to $150 million over the next 24 months and increase its dividend annually.

In line with its strategy, Lindsay’s board of directors approved a 4% increase in regular quarterly dividend to $0.27 per share on Jul 25. Annualized, this represents a payout of $1.08 per share, up 3.8% from the current annual dividend of $1.04 per share.

Lindsay also targets a cash balance of $60 million to $75 million for 2014, according to the capital allocation plan. Capital expenditure is projected at $20 million to $25 million annually, over the next 3 years. The company also intends to spend $100 million to $150 million on acquisitions over the next three years using cash and debt. Acquisitions are expected to help in achieving the annual revenue growth goal of 10–15%.

Further, the company remains optimistic about growth in global applications of technologies and a multi-year highway bill with similar or improved funding levels. Lindsay will also benefit from the expansion of global irrigation equipment manufacturing capacity, sustained progress in the infrastructure business and development of new Road Zipper system.

However, lower crop prices are likely to pressure irrigation demand during the rest of the year, in turn affecting earnings of the company. Additionally, the U.S. Department of Agriculture (USDA) estimated U.S. 2014 net farm income to be $113.2 billion, down about 14% from 2013 forecast of $131.3 billion.

Lindsay also reported a decrease in backlog in third-quarter fiscal 2014 due to decline in orders from the international markets. The prior-year irrigation backlog included an equipment and installation contract in Iraq, of which $2.6 million remained in backlog at May 31, 2014. If Lindsay fails to complete its work, it will not be able to realize the remaining amount due under the contract.

Furthermore, the estimates for Lindsay moved downward in the past 90 days. The Zacks Consensus Estimate for 2014 decreased 5.6% to $4.87 per share and for 2015 the same reduced 9.3% to $4.30 per share. Lindsay has also underperformed the Zacks Consensus Estimate in each of the four trailing quarters with an average negative surprise of 10.01%.

Lindsay carries a Zacks Rank #4 (Sell).

Other Stocks That Warrant a Look

Some better-ranked players in the same industry include ACCO Brands Corporation (ACCO), AO Smith Corp. (AOS) and ARC Document Solutions, Inc. (ARC). All these carry a Zacks Rank #2 (Buy).

athenahealth Up to Buy on High EHR Adoption

Posted Fri Sep 19, 05:50 pm ET

by Zacks Equity Research

On Sep 17, Zacks Investment Research upgraded athenahealth, Inc. (ATHN) by a notch to a Zacks Rank #2 (Buy).  

Why the Upgrade?

This leading provider of cloud-based services and mobile tools for medical groups and health systems has been witnessing an increased adoption of its electronic health record (EHR), revenue cycle management and patient engagement services.

Recently, the University of Toledo selected athenahealth's suite of cloud-based services to advance connectivity, drive efficiency, and support population health initiatives. Earlier in July, New Haven Community Medical Group, one of the largest independent physician associations in Connecticut, also selected athenahealth as one of its preferred health information technology vendors.

Moreover, according to a publication by the Centers for Medicare and Medicaid Services, athenahealth led the healthcare industry in Meaningful Use Stage 2 attestations in the month of June.

athenahealth has also been enjoying rising earnings estimate revisions. For fiscal 2014, two estimates moved north over the last 60 days with no negative revision, causing the Zacks Consensus Estimate to move up 8.0% to its current level of 27 cents.

Also, for fiscal 2015, two estimates moved up over the same time frame with no revision in the opposite direction, raising the Zacks Consensus Estimate by 4.8% to 44 cents per share.

The company also clocked positive earnings surprises in three of the last four quarters, reflecting an average surprise of 350% in the last reported quarter.

In the second quarter of 2014, athenahealth posted adjusted earnings of $3.7 million or 9 cents per share in stark contrast to a loss of $9.3 million or 25 cents per share in the same quarter of 2013. Revenues in the quarter rose 27.1% to $185.9 million and edged past the Zacks Consensus Estimate of $182 million.

For full-year 2014, athenahealth projects revenues of $725 to $755 million. The current Zacks Consensus Estimate of $746 million lies within the company’s projected band. For the full year, athenahealth also provides adjusted net earnings per share guidance of 98 cents to $1.10, which is much higher than the Zacks Consensus Estimate.

The long-term expected earnings growth rate for athenahealth stands higher at 22.7% compared with industry growth of 18.7%.   

Other Stocks to Consider

Other well-performing stocks include Merge Healthcare Incorporated (MRGE) and Omnicell, Inc. (OMCL) in the medical information systems industry and Alphatec Holdings, Inc. (ATEC) in the medical instruments industry. While Alphatec sports a Zacks Rank #1 (Strong Buy), both Merge Healthcare and Omnicell carry a Zacks Rank #2 (Buy).

Visa's Growth to Be Affected by Litigations, Regulations?

Posted Fri Sep 19, 05:45 pm ET

by Zacks Equity Research

On Sep 18, we issued an updated research report on Visa Inc. (V). Higher competition, stringent regulations and the possibility of adverse outcomes of the ongoing litigations raise both operational and financial risks for the company. Nevertheless, a strong network of merchants and updated technology should drive growth.

Moreover, given the recent verdict in European Union (EU) and stringencies in Russia, Visa and its peer MasterCard Inc. (MA) will be compelled to offer concessions on cross-border card transactions.

Additionally, the EU’s ruling has reinitiated Britain's Competition and Markets Authority’s scrutiny for the domestic card payment fees charged by Visa and peers on the retailers who now demand reduction in domestic interbank rates to be at par with the new cross-border card fees. A final decision is expected by Oct 2014, slapping the company with more charges and rebates. Notably, in the first half of fiscal 2014, Visa also shelled out $194 million to settle a lawsuit.

These risks have also been addressed by Visa, which deposited $450 million in its litigation escrow account earlier this month.Thiscould have otherwise been used for exploiting growth opportunities or increasing shareholder value.

The company’s top-line growth guidance of high single to low double digits, excluding a 2% reduction due to negative impact of foreign currency and bottom-line growth in high teen range in fiscal 2014, lower than 22% growth recorded in fiscal 2013 also reflect cautiousness.

Mobile Payments an Opportunity

The threat to card security amid the increasing number of cyber hacking cases keeps consumers away from mobile payments, an area of opportunity that the card networks are exploring proactively. In this regard, Visa’s latest alliance with Apple (AAPL) Pay, along with the launch of digital token service and improved security measures further elucidate its focus on accentuating the efficiency of cards in electronic payments.

Meanwhile, core growth of Visa has been steady so far in fiscal 2014 despite difficult comps and currency fluctuations. This is reflected in its improved margins, debt-free balance sheet and strong cash flows, which also support efficient capital deployment, thus retaining shareholders’ confidence. Given the growth potential of mobile payment industry in the next 3–5 years, we believe it will unlock incremental opportunities for Visa as well.

Earnings Review

This Zacks Rank #3 (Hold) stock has delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 2.1%. The company’s third-quarter fiscal 2014 (ended Jun 2014) earnings topped both the Zacks Consensus Estimate and the year-ago quarter number by 3.8% and 15.4%, respectively.

Overall, a balanced risk-reward profile in the near term has led to minor estimate revisions for 2014 and 2015. The Zacks Consensus Estimate for 2014 and 2015 dipped one and three cents to $8.97 and $10.35 a share, respectively, in the past 60 days. However, on a year-over-year basis, earnings are expected to grow by about 20% in 2014 and 15.4% in 2015.

Moreover, the Most Accurate estimate for Visa’s 2014 and 2015 earnings currently stand at $9.05 and $10.60 a share, resulting in an Earnings ESP of +0.9% and +2.4%, respectively. This indicates a likely earnings beat for both the years.

Visa’s long-term growth is pegged at 17.2%, way higher than peer group average of 11.9%.

Key Picks in the Sector

Some better-ranked stocks in the financial sector include Vantiv Inc. (VNTV) and Green Dot Corp. (GDOT), both of which sport a Zacks Rank #1 (Strong Buy).

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