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Posted Wed Aug 20, 06:40 pm ET
by Zacks Equity Research
On Aug 19, 2014, we issued an updated research report on Enterprise Products Partners L.P. (EPD), a leading master limited partnership (MLP) engaged in providing a wide range of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGL) and crude oil.
Enterprise Products Partners reported second-quarter 2014 adjusted earnings per limited partner unit of 67 cents, which lagged the Zacks Consensus Estimate of 73 cents but was higher than the year-ago quarterly earnings of 65 cents.
We continue to view Enterprise Products Partners as a core holding in an MLP portfolio, given its string of organic growth projects, potential acquisitions, strong balance sheet and solid liquidity position. The partnership is one of the major fully integrated midstream service providers with a positive long-term outlook, and has significant geographic and business diversity.
Enterprise Products Partners increased its second-quarter 2014 cash distribution rate by 5.9% to 72 cents per common unit, or $2.88 per unit on an annualized basis, thus marking the partnership’s 40th consecutive quarterly increase.
The partnership has made a capital investment of around $697 million in second-quarter 2014, and expects to bring $6 billion worth of major assets online through 2016. The key projects consist of two NGL fractionators at Mont Belvieu and Front Range NGL pipeline; extension of the Seaway crude oil pipeline; expansion of Mid-America Pipeline; the ATEX ethane pipeline and completion of the Eagle Ford crude oil pipeline. The successful execution of these projects will be value accretive and drive future cash flows.
Enterprise Products Partners continues to position itself to capitalize on NGL market dynamics by increasing its Eagle Ford shale exposure. The Eagle Ford shale continues to be a growth driver for the partnership by offsetting volume weakness in other regions of the Mid-continent.
The partnership has several projects planned for this region, including an expanded gas processing facility at Yoakum with a total processing capacity of to over 140,000 barrels a day. This makes it one of the major NGL producing plants in North America.
While we believe that Enterprise Products Partners has solid cash flow stability based on its quality pipeline, storage assets and geographic diversity, volume risk and commodity price exposure could weigh on its near-term results. We remain apprehensive of a volatile NGL pricing environment.
Moreover, the Gulf Coast and Gulf of Mexico (GoM) are prone to storms and hurricanes. The partnership’s significant presence in these regions will continue to expose its results to such weather-related uncertainties.
Other Stocks to Consider
At present, Enterprise Products Partners carries a Zacks Rank #3 (Neutral). Some better-ranked stocks in the same industry include Weatherford International plc (WFT), Sunoco Logistics Partners L.P (SXL) and Sanchez Energy Corp (SN). All of these stocks sport a Zacks Rank #1 (Strong Buy).
Posted Wed Aug 20, 06:39 pm ET
by Zacks Equity Research
On Aug 19, 2014, we issued an updated research report on Cooper Tire & Rubber Co. (CTB). This Zacks Rank #2 (Buy) stock’s earnings per share increased to 59 cents in the second quarter of 2014 from 55 cents in the prior-year quarter. However, the figure lagged the Zacks Consensus Estimate of 80 cents.
Revenues of Cooper Tire improved 1% year over year to $889 million in the quarter, beating the Zacks Consensus Estimate of $870 million.
After the dismissal of the merger proposal with Apollo Tyres Ltd., Cooper Tire is focusing on improving its business operations. As a result, its earnings have begun to improve. Cooper Tire has also restored normal operations at its Chinese joint venture (JV).
The company develops high-performance products to cater to the current market demand. Cooper Tire expects the improving product mix to increase its profitability.
On Aug 7, 2014, the company announced an accelerated share repurchase (ASR) program worth $200 million. The ASR will significantly reduce the outstanding shares of the company, thus having a positive impact on future earnings per share.
Cooper Tire aims to attain operating profit over 10% and net sales of $5–$6 billion per annum in the long term. The company plans to reduce its manufacturing costs by 14% by 2017 through increased automation in production facilities and consolidation of product family.
Cooper Tire also plans to maintain a sustained annual operating profit of 8–10%. It plans to reduce the number of global product families by 60% by 2020. This will lead to simplification of the manufacturing process, lower costs, higher sourcing flexibility and faster product development.
Some other automobile stocks that are worth considering include Tesla Motors, Inc. (TSLA), Fox Factory Holding Corp (FOXF) and Gentherm Incorporated (THRM). While Tesla sports a Zacks Rank #1 (Strong Buy), Fox Factory and Gentherm have a Zacks Rank #2.
Posted Wed Aug 20, 06:37 pm ET
by Zacks Equity Research
Group 1 Automotive Inc. (GPI) recently acquired a Mercedes-Benz dealership in Boerne, TX. The dealership contains a Mercedes-Benz Sprinter commercial vehicle franchise as well. The automotive retailer will operate the dealership under the name Mercedes-Benz of Boerne.
Group 1 expects the dealership to generate annual revenue of approximately $135 million. Moreover, it will expand the company’s operations in the San Antonio metropolitan market. It will also strengthen the company’s business association with Daimler AG’s (DDAIF) Mercedes-Benz.
Group 1 regularly acquires dealerships and franchises to expand its business. As of Aug 19, 2014, the company owns 154 automotive dealerships, 197 franchises, and 38 collision centers in the United States, United Kingdom and Brazil.
In Jul 2014, the company acquired two dealerships, namely Munday Chevrolet and Munday Mazda in Houston, TX. The Munday Chevrolet dealership is the second largest General Motors (GM) Chevy dealership in Texas. The acquisitions are expected to boost Group 1’s revenues by $225 million per annum.
In May, Group 1 acquired the South Point Kia dealership in Austin, TX. The acquisition is expected to boost its revenues by about $55 million annually.
In April, Group 1 acquired the Alex Rodriguez Mercedes-Benz dealership in League City, TX. The company will rename the dealership, which is expected to generate annual revenue of $85 million, as Mercedes-Benz of Clear Lake. Concurrently, the company opened a new South Loop Hyundai dealership facility in Houston.
In January, Group 1 announced the acquisition of 2 dealerships, namely Heller Ford of Ford Motor Co. (F) and Heller Hyundai in Southern California. The dealerships will be renamed as Ford of Escondido and Hyundai of Escondido. The acquisitions are expected to boost annual revenue of Group 1 by $135 million.
Currently, Group 1 carries a Zacks Rank #3 (Hold).
Posted Wed Aug 20, 06:35 pm ET
by Zacks Equity Research
Leggett & Platt Inc. (LEG), a manufacturer of diversified engineered products, has reached a tentative settlement in one of the civil antitrust cases filed against the company and many other defendants related to the sale of polyurethane foam. The settlement partly relates to the company’s former Prime Foam Products business that was divested in the first quarter of 2007.
Though Leggett denies all accusations, it has agreed to pay a sum of $39.8 million to settle the antitrust claims related to the U.S. direct purchaser class portion of the polyurethane foam in order to counter the uncertainty, expense and distraction of litigation. The settlement, which is subject to approval by Court, includes all plaintiff attorneys' fees and costs.
To set out further details, the company revealed that it remains a defendant in many other antitrust cases related to the sale of polyurethane foam. The company said that it is currently not in a position to ascertain the possible result or amount of loss related to the remaining cases due to the complexities involved. However, it clarified that the total sales of polyurethane foam from Leggett in the remaining cases is comparatively lesser than the currently settled cases.
Leggett stated that a pre-tax charge of $39.8 million will be recorded in the third quarter of 2014 related to this settlement, which will likely impact earnings per share by 18 cents. Throwing further light on the matter, the company indicated that about one-fourth of the said charge will be accounted under discontinued operations as the settlement relates to the already sold off Prime Foam Products business.
Despite the anticipated impact on third-quarter earnings, the company has reiterated its full year 2014 earnings per share forecast of $1.70—$1.85 per share issued during the second-quarter results.
Further, during the earnings release, the company projected sales for 2014 to grow in the 4%—6% range and come in within $3.88—$3.98 billion driven by robust growth in majority of the company’s businesses, offset by decreased demand for store fixtures.
Apart from this, the company expects operating cash flows for 2014 to be over $350 million. Capital expenditure for the year will be approximately $100 million, while the company hopes to spend $170 million toward dividend payout. Further, the company intends to buy back 5—7 million shares and issue nearly 2 million shares under the employee benefit plans in 2014.
Management seems impressed with its sound financials and anticipates record earnings in 2014. Thereafter, Leggett remains optimistic about its performance, given the strength of its various businesses like Automotive, Aerospace, Bedding, Home Furniture and Office Furniture. Also, the company strives to remain in the top 3 of the S&P 500 companies, on the basis of 3-year rolling period Total Shareholder Return (TSR).
Other Stocks to Consider
Currently, Leggett carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer discretionary sector include Hanesbrands Inc. (HBI), Perry Ellis International Inc. (PERY) and V.F. Corp. (VFC). While Hanesbrands and Perry Ellis sport a Zacks Rank #1 (Strong Buy), V.F. Corp. carries a Zacks Rank #2 (Buy).
Posted Wed Aug 20, 06:31 pm ET
by Zacks Equity Research
The Valspar Corporation (VAL) recently stated that its Valde Edge Coverage Powder (“ECP”) has displayed superior anti-corrosion properties required for the heavy machinery market in a field trial. The test was initiated in May 2014, almost two and half years after the first Valde ECP was put through field testing.
Share price of the company rose 1.1% during the trading session following the announcement.
The skid steer loader is a heavy machinery designed for extreme uses like asphalt grinding. According to test reports, the edges of the loader when coated with Valde’s ECP delivered better results than edges of machines coated with traditional coatings. Valspar Valde’s ECP has proved to be an innovative coating, which can provide tough, improved and long-lasting corrosion resistance and a smooth appearance at the lowest possible price.
Valde ECP is a breakthrough technology that saves time and money and is primarily intended for the heavy machinery market. It consists of a powder primer and a top coat, which are applied in a single cure step, eradicating the capital and operational expenses included in second curing oven.
Jason Bolz, director of global heavy machinery at Valspar Industrial, stated that the performance of the Valde ECP on heavy machineries was satisfactory. In fact, he believes that it can be appropriate for commercial use for multiple customers as it can improve the durability of edge corrosion of heavy machines.
Valspar is a Zacks Rank #3 (Hold) stock.
Better-ranked stocks in the specialty chemicals space include Green Plains Inc. (GPRE), Ferro Corp. (FOE), BioAmber Inc. (BIOA). While Green Plains holds a Zacks Rank #1 (Strong Buy), Ferro and BioAmber retain a Zacks Rank #2 (Buy).
Posted Wed Aug 20, 06:30 pm ET
by Zacks Equity Research
Sanofi (SNY) announced that the FDA has approved Cerdelga for the treatment of Gaucher disease type 1. However, the drug is not indicated for adults suffering from Gaucher disease type 1 who metabolize Cerdelga very quickly or at an undetermined rate, as detected by an FDA approved test. The company is planning to launch Cerdelga in a month.
Approval of Cerdelga marks the approval of the only first-line oral therapy for adult Gaucher disease type 1 patients. Currently, intravenous enzyme replacement therapies are the standard of care for Gaucher disease. Currently approved drugs for the treatment of Gaucher disease include Sanofi’s Cerezyme and Shire’s (SHPG) Vpriv among others.
Thus, Cerdelga will provide Gaucher disease patients with an alternative and more convenient treatment option. As per the company press release, globally Gaucher disease affects fewer than 10,000 people with type 1 being the most common form of the disease.
The FDA approved Cerdelga on the basis of efficacy data from two positive phase III studies.
We are pleased with the approval of Cerdelga. We believe that the drug will complement Sanofi’s portfolio which includes Gaucher disease product Cerezyme. Cerezyme generated revenues of €343 million in the first half of 2014, up 7.9% from the year-ago period.
Sanofi presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Allergan (AGN) and AstraZeneca (AZN). While Allergan carries a Zacks Rank #1 (Strong Buy), AstraZeneca is a Zacks Rank #2 (Buy) stock.
Posted Wed Aug 20, 06:28 pm ET
by Zacks Equity Research
To facilitate the expansion of its international footprint and leverage on the growing senior citizen population, Ventas Inc. (VTR) completed the acquisition of 29 Canadian senior living communities from Holiday Retirement.
Positioned in seven Canadian provinces and predominantly in Ontario and Alberta, these private-pay properties enjoy 90% occupancy. The markets have a high concentration of senior population with elevated median household income, thus deeming the properties suitably positioned for their demand.
The all-cash deal was previously announced in Jun 2014. During the second-quarter earnings release, the company confirmed the value of the transaction at $957 million Canadian dollars (approximately $897 million). Management of these communities has been assumed by Atria Senior Living, Inc.
The acquisition was financed with Canadian-dollar denominated term loan and assumed debt. However, the company has plans to replace the term loan with a long-term debt financing.
As a matter of fact, demand for healthcare facilities and senior housing have been on the rise with an increase in the elderly population and consequently proliferating healthcare expenses. Amid this, strong players in the market have announced acquisitions so as to capitalize on this trend.
In addition to the latest acquisition, Ventas is also in a deal to acquire its competitor, American Realty Capital Healthcare Trust Inc. (HCT) in a stock and cash deal worth $2.9 billion.
Most recently, Health Care REIT, Inc. (HCN) unveiled a plan to acquire HealthLease Properties REIT in order to expand its presence in the seniors housing and post-acute care segments. The cash deal was valued at around $950 million, including debt.
Further, Health Care REIT has entered into a partnership agreement with Mainstreet Property Group. It plans to shell out as much as $1.4 billion for acquiring development projects under the Next Generation brand, bringing the total potential investment amount to $2.3 billion. Moreover, NorthStar Realty Finance Corp. (NRF) announced a deal to acquire Griffin-American Healthcare REIT II in a $4.0 billion transaction.
For Ventas, this acquisition would strengthen its already sturdy presence in the healthcare REIT sector, being in tune with its strategy of focusing on its private-pay properties. We expect such acquisitions and the resultant cash flows to add momentum to Ventas’ growth going forward.
Ventas currently sports a Zacks Rank #3 (Hold).
Posted Wed Aug 20, 06:26 pm ET
by Zacks Equity Research
The Goldman Sachs Group, Inc. (GS) stopped its attempt to dispose a $1billion lawsuit filed by the Libyan Investment Authority (LIA), a sovereign wealth fund at London’s High Court. Previously the company looked for a summary judgment on the suit, but finally pulled its request back. Summary judgment means determination of a legal case without trial.
The lawsuit filed in Jan 2014, pertained to dealings made by the company with the LIA in the earlier part of 2008, which led to substantial losses for the sovereign fund.
In May 2011, the Libyan Investment Authority, which was once under the authority of the late Muammar Gaddafi, lost almost 98% of a $1.3 billion bet on currency movements and other complex trades handled by Goldman in 2008. However, Goldman booked profits of around $350 million on these equity-derivatives trades.
Since then, the sovereign fund’s ties with Goldman have been strained. The U.S. banking giant advised the fund to recoup the losses through structured-finance instruments or investment funds. However, these would have required LIA to invest more money through Goldman.
The lawsuit alleged that Goldman leveraged on its relationship with the fund and unfairly influenced the LIA officials who had limited financial and legal expertise, leading to the soured investments. Also, it accused Goldman of maintaining inadequate documents concerning the trades. The company often failed to provide timely information about the trades to LIA.
Gradually, when the reality of the complex trades came into light, it became apparent that Goldman had taken undue advantage of the trust LIA had placed on the Wall Street giant.
Goldman applied for the summary judgment request in Apr 2014 as it believed that the chances of LIA’s success in a trial were dim. However owing to the withdrawal of its request, Goldman will face a court hearing, which is scheduled in early October. The company believes that “the case is entirely without merit.” So it will defend the case strongly.
Currently, Goldman carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the finance space include Select Bancorp, Inc. (SLCT), Piper Jaffray Companies (PJC) and Capital One Financial Corp. (COF). All these stocks sport a Zacks Rank #1 (Strong Buy).
Posted Wed Aug 20, 06:23 pm ET
by Zacks Equity Research
Global brewer Molson Coors Brewing Company (TAP) boasts a strong portfolio of well-established brands, including Coors Light, Molson Canadian, Carling and Staropramen, as well as craft and specialty beers like Blue Moon, Creemore Springs and Cobra. The company focuses on growing its market share through innovation and by shifting its focus on the above-premium category of beers.
Recently, Molson Coors and Heineken N.V. (HEINY) expanded their marketing partnership in Canada, whereby Molson Coors Canada will distribute five additional above-premium brands of Heineken including Dos Equis, Sol, Tecate, Birra Moretti and Desperados in Canada starting from Jan 2015.
Over the last two decades, Molson Coors in association with Heineken has been marketing and selling its brands such as Heineken, Murphy’s, Newcastle and Strongbow. In addition, Molson Coors has also agreed to distribute the Coors Light brand in Ireland.
However, we note that Molson Coors has been posting negative beer volumes in Canada for quite some time. Since 2001, the premium beer segment in Canada has been gradually losing volume to the above premium and value segments, mainly due to an aging population and a sluggish economy.
In Canada, the substantial excise tax increase in Québec, which was enforced in Nov 2012, has been hurting volumes as the company holds a significant share of the Québec market. Despite the reduction in tax rate in Canada in the second quarter of 2013, the region is still struggling with volume declines.
In the recently-reported second quarter 2014 too, a 2% decline in sales volume and currency headwinds led to sales decline in Molson Coors Canada. However, overall the company’s net sales, including excise tax, increased marginally by 0.9% to $1.19 billion in the second quarter driven by positive pricing and mix, which made up for the beer volume decline in the quarter.
Adjusted earnings of $1.57 per share exceeded the Zacks Consensus Estimate by 9% and grew 6.8% from the prior-year earnings driven by growth in underlying pre-tax income and expanded margins owing to lower interest expense (Read: Molson Coors Beats on Q2 Earnings on Lower Interest Costs).
We believe the new expanded agreement will not only strengthen the market share of the above-premium category of beers, but will also complement the existing portfolio of leading Canadian beer brands. The addition of the Heineken portfolio is a positive as Canadian drinkers have a strong appetite for imported beers.
Molson Coors currently holds a Zacks Rank #2 (Buy). Other players worth considering in the beer industry include Anheuser-Busch InBev SA (BUD) and Constellation Brands Inc. (STZ) with a Zacks Rank #2.
Posted Wed Aug 20, 06:21 pm ET
by Zacks Equity Research
Alcobra Ltd. (ADHD) announced that it has started patient enrollment in a phase IIb study (n=60) on its lead candidate, metadoxine extended release (MDX). MDX is being developed for the treatment of fragile X syndrome.
The multi-center, randomized, placebo-controlled study will evaluate MDX for 6 weeks in adolescents and adults suffering from fragile X syndrome in comparison to placebo. Alcobra intends to complete the study and report top-line results from the same in the fourth quarter of this year.
The company stated in its press release that there are no approved products in the market for the treatment of fragile X syndrome. As a result, the approval of MDX will open up an untouched market for Alcobra.
We note that MDX is being developed for other indications as well. Alcobra is currently evaluating MDX in a phase III study for the treatment of adults suffering from attention deficit hyperactivity disorder. The company completed patient enrolment for the study last month.
Moreover, Alcobra is conducting a phase IIb study on MDX in pediatric attention deficit hyperactivity disorder. Alcobra expects top-line data from the study by the end of the year.
We are encouraged by the company’s progress with MDX. Meanwhile, Shire (SHPG), among others, has a strong presence in the attention deficit hyperactivity disorder market. We expect investor focus to remain on MDX going forward.
Alcobra holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Endo International (ENDP) and United Therapeutics Corp. (UTHR). Both stocks hold a Zacks Rank #1 (Strong Buy).
The content contained in this weblog feature may have been abstracted from a complete Zacks Equity Research report.
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