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Zacks #1 Stocks on the Move 08/29/2014

Company Name Symbol %Change

Analyst Blog

Regeneron Pharmaceuticals' Pipeline Progress Raises Costs

Posted Fri Aug 29, 06:30 pm ET

by Zacks Equity Research

On Aug 26, 2014, we issued an updated research report on Regeneron Pharmaceuticals (REGN).

The biopharmaceutical company reported earnings of $1.89 per share in the second quarter of 2014, missing the Zacks Consensus Estimate of $2.33 by a wide margin. Results were impacted by higher costs. Both research & development costs as well as selling, general and administrative (SG&A) expenses were on the upswing during the quarter. The company expects adjusted SG&A costs to rise further in the remaining quarters of 2014 due to higher pre-launch expenses related to alirocumab and sarilumab. Regeneron is developing the candidates with Sanofi (SNY).

The huge earnings miss dented investors’ and analysts’ confidence in the stock. Hence, over the last 30 days, the analysts are bearish on Regeneron, leading to a decline in the Zacks Consensus Estimate. For 2014, the Zacks Consensus Estimate fell 14.4% to $7.95 per share, while for 2015 it decreased 18.4% to $9.53 per share.

Though second-quarter 2014 U.S. sales of the eye drug Eylea improved 15.6% sequentially after a disappointing first quarter, we believe sales of the drug will have to improve significantly in the remaining quarters in order to meet the 2014 guidance of $1.7 billion to $1.8 billion. Below par showing of the drug in the remaining quarters of 2014 would not only cause it to miss its sales guidance, but would also hurt the stock badly as Eylea is Regeneron’s key growth driver.

A key action date for Regeneron is coming up in October when the FDA will decide on expanding the label of Eylea into the macular edema after branch retinal vein occlusion indication. Any regulatory setback/hiccup in gaining approval would hurt the stock. Regeneron presently has a Zacks Rank #5 (Strong Sell).

Stocks That Warrant a Look

Some better-ranked biopharmaceutical stocks include Gilead Sciences (GILD) and Celgene Corp. (CELG). While Gilead carries a Zacks Rank #1 (Strong Buy), Celgene is a Zacks Ranked #2 (Buy) stock.

Hewlett-Packard (HPQ) Introduces ProLiant Generation 9

Posted Fri Aug 29, 06:20 pm ET

by Zacks Equity Research

Technology giant Hewlett-Packard Co. (HPQ) or H-P is all set to usher in a new era of server experience with its ‘HP ProLiant Generation 9 (Gen9)’ server systems to meet the growing demand for cloud computing and Big Data. H-P looks quite confident with Gen9 as it is expected to surpass the benefits of traditional server systems in every possible way.

This cost-effective bundle helps to reduce complexities associated with the management of IT assets, lowers data loss and accelerates data transfer. It will be available across multiple locations from Sep 8.

HP ProLiant Generation 9 has been designed and customized to reduce workloads at an optimum speed that should result in enhanced performance and flexibility. The server runs on Intel Corp.’s (INTC) yet-to-be released Xeon E5-2600v3 processors. The usage of chips will not only save space and energy but also reduce costs. The new offering is also helping H-P to gain an edge over its competitors.

H-P dominated the server market in the second quarter of 2014, per IDC’s Worldwide Quarterly Server Tracker, followed by IBM (IBM), Dell, Cisco (CSCO) and Oracle (ORCL). We believe that these product launches will enable the company to maintain its leadership position.

As a matter of fact, H-P expanded its market share to 25.4% from 25% in the year-ago period and revenues increased 4% on a year-over-year basis. Notably, in the second quarter, revenues from the server market increased 2.5% year over year to $12.6 billion.

H-P’s server revenues were positively impacted by higher revenues from x86-based ProLiant servers, which more than offset the continued decline in revenues from its Itanium-based Integrity server. H-P retained its leading position in x86 servers and Blade servers commanding a 29.6% and 42.2% revenue share in the second quarter of 2014, respectively.

Reportedly, H-P is taking aggressive steps to increase its share in the x86 server segment since IBM sold its x86 server business to Lenovo. The sale of IBM’s x86 server business has created an opportunity for H-P as it is tapping into IBM’s customer base. This should strengthen its footing in the server market and generate incremental revenues, going forward.

Moreover, H-P’s traction in the cloud, security and Big Data segments is expected to drive growth, going forward. We believe that the company’s strategic focus on the software business will help it to diversify beyond PCs. Nonetheless, macroeconomic challenges and tepid IT spending remain near-term concerns.

Currently, H-P has a Zacks Rank #3 (Hold).

KKR & Borealis Maritime Buy 9 Ships from Commerzbank

Posted Fri Aug 29, 06:15 pm ET

by Zacks Equity Research

Kohlberg Kravis Roberts & Co. (KKR) announced the purchase of a shipping portfolio containing nine feeder container vessels in partnership with Borealis Maritime in a deal coordinated by the German bank Commerzbank AG (CRZBY). The financial terms of the deal were not divulged by the company.

Kohlberg Kravis will finance this deal through some of its managed funds and accounts as well as through its special situations fund, which provides capital to back up the long-term investment required in shipping assets.

The shipping fleet, originally financed by Commerzbank, was earlier under the possession of several German KG funds.

KKR & Borealis Maritime’s Affiliation

With the intention to invest in troubled shipping assets, Kohlberg Kravis entered into a joint venture with Borealis Maritime last year. This strategic alliance, known as Embarcadero Maritime, has bought total 27 vessels since its inception through 9 different transactions including the latest deal.

Moreover, Embarcadero Maritime’s $100 million investments to date comprise a mix of chemical tankers, feeder container vessels and small LPG vessels. This collaboration has helped both the companies to capitalize on the emerging opportunities triggered by a low phase prevalent in the shipping industry.

Kohlberg Kravis looks forward to increase investments in the distressed German shipping space by providing a viable way out to lenders – mainly German banks – who want to trim down their shipping portfolio.

Commerzbank’s Rationale Behind the Sale

This deal comes under Commerzbank’s plan to exit the shipping finance unit which it declared in June this year. The third biggest maritime lender in world intends to focus on other profitable businesses rather than the European shipping industry, which is struggling to meet operating costs. Moreover, the weakening container vessels unit constitutes a major portion of the KG funds as well as German shipping bank portfolios.

Additionally, financial institutions will have to conform to stricter regulations from the European Central Bank, which is expected to take over direct supervision of about 130 euro-area banks such as BNP Paribas SA (BNPQY) and National Bank of Greece SA (NBG) at the end of this year. This will aggravate the problem further by making loans costlier for the shipping companies.

Other Simultaneous Acquisition by KKR

Kohlberg Kravis is on the verge of taking over full control of German cutlery and automated coffee-machine maker WMF by acquiring more than 90% stake in the company.

Stakeholders of WMF tendered 74.7% of preference shares for €58 per share to Kohlberg Kravis. The buyout company, which already holds 72% of WMF, will become a major stakeholder of its target firm after considering the interests of WMF’s co-owner Andreas Weissenbacher – who has agreed to sell his stake to Kohlberg Kravis.

Further, Kohlberg Kravis looks ahead to delist WMF from the Frankfurt stock exchange and drive out the minority shareholders.

Pfizer's C. Difficile Vaccine Gets Fast Track Status

Posted Fri Aug 29, 06:10 pm ET

by Zacks Equity Research

Pfizer Inc. (PFE) announced that its vaccine candidate (PF-06425090) for clostridium difficile infection has been granted fast track designation by the FDA. The designation helps to expedite the development and review process of experimental drugs and vaccines targeting serious diseases.

The company is developing the candidate (currently in phase II) to prevent clostridium difficile-associated disease, which includes life-threatening diarrhea and pseudomembranous colitis.

At present, there are no vaccines available to prevent clostridium difficile-associated disease. As per Centers for Disease Control and Prevention data, it affects approximately 250,000 people each year leading to 14,000 deaths in the U.S. If successfully developed and eventually approved, Pfizer’s candidate has the potential to capture a large part of the market share. However, we note that several other companies are developing a vaccine for the prevention of clostridium difficile infection.

We note that Pfizer possesses one of the world’s leading vaccine operations, with total sales of approximately $2 billion in the first half of 2014. The company’s portfolio includes Prevnar 13, which is indicated for the prevention of various syndromes of pneumococcal disease.

Pfizer carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Amgen Inc. (AMGN), Gilead Sciences Inc. (GILD) and Alexion Pharmaceuticals, Inc. (ALXN). While Amgen and Gilead are Zacks Rank #1 (Strong Buy) stocks, Alexion carries a Zacks Rank #2 (Buy).

Amgen Submits Regulatory Application for PCSK9 Inhibitor

Posted Fri Aug 29, 06:05 pm ET

by Zacks Equity Research

Amgen Inc. (AMGN) submitted a Biologics License Application (BLA) seeking FDA approval for its PCSK9 inhibitor, evolocumab (AMG 145) for the treatment of high cholesterol.

Evolocumab works by inhibiting PCSK9, a protein that lowers the liver's ability to remove “bad" cholesterol from the blood.

The BLA was based on results from 10 phase III studies. Amgen has been consistently presenting positive data on evolocumab.

Along with filing the BLA, Amgen reported positive top-line results on evolocumab from the phase III YUKAWA-2 study (StudY of LDL-Cholesterol Reduction Using a Monoclonal PCSK9 Antibody in Japanese Patients With Advanced Cardiovascular Risk). The study, which was conducted in Japanese patients with high cardiovascular risk and high cholesterol, met its co-primary endpoints.

We are pleased with Amgen’s progress with its pipeline. The company recently received priority review status for ivabradine for the treatment of chronic heart failure. Meanwhile, evolocumab is one of the most promising pipeline candidates in the company’s pipeline. We believe evolocumab has huge market potential.

However, although Amgen’s regulatory application may be the first BLA to be submitted for a PCSK9 inhibitor, the race to bring the first PCSK9 inhibitor to market is heating up. Sanofi (SNY) and Regeneron (REGN) are collaborating on the development of a PCSK9 inhibitor, alirocumab. The companies intend to use an FDA rare pediatric disease priority review voucher for the BLA submission for alirocumab. Sanofi and Regeneron are not far behind Amgen and expect to file for regulatory approval in the U.S. by year end.

Amgen is a Zacks Rank #1 (Strong Buy) stock. An equally well-ranked stock is Cambrex Corp. (CBM).

Honda Recalls 63,200 More Vehicles with Faulty Takata Airbag

Posted Fri Aug 29, 06:01 pm ET

by Zacks Equity Research

Honda Motor Co., Ltd. (HMC) recently announced a global recall of 63,200 vehicles with faulty Takata-made driver-side air bags. Takata is one of the leading global suppliers of automotive safety systems and products. The vehicles recalled include CR-V, Civic, Brio and Amaze of the model year 2012-2015.

Honda revealed that a major portion of the recalled vehicles is from China and other Asian countries. The remaining vehicles are from Europe, Latin America and Africa. Notably, none of the vehicles from North America have been recall.

Honda said that the driver-side air bags manufactured by Takata had an inflator which was produced with a faulty part. Thus, when the air bag is deployed, the inflator can explode and shoot out metal fragments in the vehicle. However, there is no report of any casualties related to this defect.

In June this year, Honda recalled 2.03 million vehicles globally due to malfunctioning Takata-made airbag inflators. Of these, 1.02 million vehicles are from North America and nearly 669,000 are from Japan. The recalled vehicles included Civics, CR-Vs, Odysseys and Elements manufactured between 2000 and 2005. The Japanese automaker recalled nearly 1 million vehicles for the same problem last year.

Also in June, automakers like Toyota Motor Corp. (TM), Honda, Mazda Motor Corp. (MZDAY) and Nissan Motor Co. Ltd. (NSANY) announced recalls owing to defective Takata airbag inflators. All these automakers, along with BMW, recalled 3.6 million vehicles with defective Takata airbags last year as well.

Since 2008, auto manufacturers have recalled a total of 12.3 million vehicles globally due to faulty driver-side and passenger-side air bags produced by Takata.

The recalls are set to increase further as the NHTSA has requested seven automakers to announce recalls in regions with high humidity such as Florida, Puerto Rico, Hawaii and the Virgin Islands. About 3.5 million vehicles are expected to be recalled from these high-humidity areas in the U.S.

Currently, Honda carries a Zacks Rank #3 (Hold).

Google Likely to Release 2 Nexus Smartphones in 2014

Posted Fri Aug 29, 05:56 pm ET

by Zacks Equity Research

Google's (GOOGL) plans for its Nexus brand are persistently under a lot of speculation. Per sources, Google might release two new Nexus smartphones this year along with the rumored Nexus 9 tablet.

We are already aware about the Nexus X but whether it’s going to be a 5.2-inch model or a 5.9-inch model or both remains unclear as of now.

This apparently depends on the market performance of Motorola’s Moto X+1, which is still in the works. It’s speculated that Moto X+1’s performance will determine which version of the rumored Moto S ( 5.9 inch or 5.2 inch version) Motorola releases, and that in turn will have an impact on  Google's Nexus plans.

The Moto X+1 is said to be a 5.2-inch smartphone. If that fails to find an audience, then Motorola will go for the larger, 5.9-inch Moto S as its next device.

The main Nexus X is rumored to be a 5.9-inch device. It is said that if Motorola releases the 5.9-inch Moto S, Google may remodel the 5.2-inch Moto S units as a second Nexus device.

A 5.9-inch screen is uncommon for a smartphone. As a matter of fact it's about one inch short of a tablet. The Samsung Galaxy Mega, which comes in two sizes- 5.8- and 6.3-inches, is the sole phablet that gets close to Google's upcoming giant smartphone.

If the reports turn out to be true, then it would be the first time that Google will release two Nexus smartphones in the same year.

Google currently holds Zacks Rank #3 (Hold). Better-ranked stocks in this industry are Baidu, Inc. (BIDU) and Inuvo Inc. (INUV), which sports a Zack Rank #1 (Strong Buy). Borderfree Inc: (BRDR) holds Zacks Rank #2 (Buy).

OncoMed's Vantictumab Studies' Partial Clinical Hold Lifted

Posted Fri Aug 29, 05:50 pm ET

by Zacks Equity Research

OncoMed Pharmaceuticals, Inc. (OMED) announced that the FDA has removed the partial clinical hold on the enrollment process in the phase I studies on vantictumab (anti-Fzd7, OMP-18R5).

The company is evaluating vantictumab in combination with standard-of-care chemotherapy in three phase Ib studies for advanced non-small cell lung cancer (NSCLC), advanced HER2-negative breast cancer and advanced pancreatic cancer. OncoMed’s shares gained 9.9% following the announcement. OncoMed is developing vantictumab with Bayer (BAYRY).

We remind investors that in Jun 2014 the FDA had placed a partial clinical hold on the phase I studies of vantictumab following the company’s announcement that it is temporarily halting patient enrolment and dosing with vantictumab. OncoMed took this action on the basis of careful analysis of mild-to-moderate bone-related adverse events associated with the treatment with vantictumab.

The FDA removed the partial clinical hold from the phase I studies following its review of a data package on clinical safety and efficacy and revised study protocols submitted by OncoMed.

OncoMed will resume patient enrolment and dosing shortly. Under the amended protocol, OncoMed will follow a modified enrolment criteria as well as amend the dosing regimens and risk mitigation measures including increased monitoring and bone protection strategies.

The lifting of clinical hold on the three vantictumab studies by the FDA is a major positive for OncoMed. We expect investor focus to remain on further updates on the status of this program.

OncoMed holds a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the biotech sector are Amgen Inc. (AMGN) and Regado Biosciences, Inc. (RGDO). Both carry a Zacks Rank #1 (Strong Buy).

Morgan Stanley Plans to Build CNG Export Facility in Texas

Posted Fri Aug 29, 05:45 pm ET

by Zacks Equity Research

Morgan Stanley (MS) has submitted its plans for setting up a compressed natural gas (CNG) export facility near Freeport, TX to the U.S. Department of Energy’s Office of Fossil Energy, as per Reuters. The proposal to construct an operating facility with an annual shipping capacity of 60 billion cubic feet was made in May.

Interestingly, this move has come amid the recent initiatives by many big banks to shed their physical commodities businesses. Due to drawbacks like higher capital requirements and lower profitability, JPMorgan Chase & Co. (JPM), Bank of America Corporation, Barclays PLC and Deutsche Bank AG, among other Wall Street Biggies, have been moving away from physical commodities businesses.

In Jul 2014, Morgan Stanley completed the divestiture of its 100% ownership in TransMontaigne Inc. – an oil storage, marketing and transportation company to Tulsa, OK-based NGL Energy Partners LP (NGL). (Read more: Morgan Stanley Completes Sale of TransMontaigne Stake.)

In Dec 2013, Morgan Stanley inked an agreement to vend its Global Oil Merchanting unit to Russia-based Rosneft Oil Company’s wholly owned subsidiary. Considering the current backdrop, Morgan Stanley’s proposal indicates its rekindled interest in the physical commodities markets.

Notably, Morgan Stanley and The Goldman Sachs Group, Inc. (GS) are the only two Wall Street banks which enjoy the ‘grandfather’ status for any commodities activities engaged in before 1997, courtesy of the Gramm-Leach-Bliley Act. Empowered with this status, these banks can own and run infrastructure for the manufacture, storage and operation of raw materials. Availing this opportunity, Morgan Stanley will export cheap domestic CNG to countries such as Dominican Republic, Panama, Guatemala, El Salvador, Honduras and Costa Rica, with which U.S. has free trade agreements.

Importantly, excess production of natural gas in the U.S. has lowered the prices to $4.02 per million British thermal units. Further, the U.S. Energy Information Administration expects this low price to prevail. Hence, the comparatively low-cost domestic CNG could be a cheaper alternative for many countries. Moreover, building up a CNG plant requires lower investment compared to a liquefied natural gas facility. All these advantages might have prompted Morgan Stanley to reframe its physical commodities business plans.

Nevertheless, the permission process for the project is lengthy with many proposals in the queue. Also, there are logistics hurdles to be crossed. All said and done, we believe that successful realization of the proposed project will tempt many other banks to reconsider their physical commodities business strategies.

Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).

Berkshire Hathaway Business Diversity Drives Top-Line Growth

Posted Fri Aug 29, 05:41 pm ET

by Zacks Equity Research

On Aug 29, we issued an updated research report on Berkshire Hathaway Inc. (BRK.A) (BRK.B). The company reported second-quarter operating earnings of $1.75 per share, which were in line with the Zacks Consensus Estimate.  
Total revenue came in at $49.8 billion, up 11.3% year over year. The increase was driven by higher contribution from Insurance, Railroad, Utilities and Energy as well as Finance and Financial Products segments. 
Berkshire Hathaway’s property and casualty insurance business has been the engine behind its growth, as it has successfully released a huge moat (investible surplus), making numerous acquisitions possible for the company. This strength differentiates Berkshire’s insurance companies from its competitors.
Berkshire’s economically sensitive non-insurance businesses – utilities and energy, and manufacturing, service and retail – are performing well and are expected to continue doing so with the economy improving gradually. The utilities and energy business is witnessing substantial growth led by increased revenues from BNSF, the railway which was acquired in Feb 2010. Revenues from BNSF have contributed majorly to the company’s top line.
Berkshire’s Finance and Financial Products segment is also performing well after suffering from a soft housing market in the recent past. We expect improving trends in this business segment since the housing market is catching up.
Moreover, with Warren Buffett at the helm, the company has created tremendous value for its shareholders over the years. A strong capital position along with Buffett’s unique skills in making the right acquisitions has made Berkshire a conglomerate of more than 80 businesses and an equity stake holder in many big companies. 
Other Stocks 
Berkshire Hathaway holds a Zacks Rank #3 (Hold). Better-ranked players from the same industry include Global Indemnity plc (GBLI), AmTrust Financial Services, Inc. (AFSI) and  Endurance Specialty Holdings Ltd. (ENH). All of these carry a Zacks Rank #1 (Strong Buy).

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