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Zacks #1 Stocks on the Move 04/23/2014

Company Name Symbol %Change
LAKE SHORE G LSG
6.05%
BON TON STOR BONT
5.28%
ANGLOGOLD AS AU
3.53%
GOLD FIELDS GFI
3.27%
KRATON PERFO KRA
3.25%

Analyst Blog

DISH to Launch Internet TV Services

Posted Wed Apr 23, 07:20 pm ET

by Zacks Equity Research

Recently, Bloomberg reported that DISH Network Corp. (DISH) has decided to launch Internet TV service in late summer (possibly Aug/Sep) this year. If successful in the endeavor, DISH will be the first Internet TV provider in the U.S. Last year, Intel failed in its attempt to launch similar products. DISH will offer a full package of live-streaming TV channels to its customers.

Technically, Internet TV is similar to cable TV offerings. The lone difference being that cable TV can be watched only on television sets, while Internet TV shows can be viewed using tablets and smartphones. We believe that the growing deployment of super fast 4G LTE wireless technology and significant adoption of portable mobile devices are the primary reasons behind the popularity of Internet TV.

Bloomberg also reported that major TV networks, such as, ABC, CBS, FOX and NBCU are in talks with DISH about meeting several conditions before streaming their TV shows. Through its existing DishWorld network, the company is already offering live streaming of a series of international TV channels over the web. DISH currently has a Zacks Rank #3 (Hold).

Last month, DISH achieved a significant milestone by signing an online pay-TV deal with the leading media mogul The Walt Disney Co. (DIS). The agreement allows DISH’s customers to watch live shows of several Disney channels on devices like PCs, smartphones and tablets, thereby bypassing the need for a set-top box.  Moreover, Walt Disney dropped its earlier objection against DISH’s ad skipping Auto Hop device.

Internet TV is gradually gaining popularity in the U.S. In Jan 2014, Verizon Communications Inc. (VZ) purchased the unsuccessful Internet TV platform of Intel and is currently negotiating with several content providers to live stream their shows.

AT&T Inc. (T) recently entered into a partnership with Chernin Group to offer Internet TV services by the end of this year. The company will invest over $500 million in this venture.

Epizyme Up on Milestone Payment from Glaxo

Posted Wed Apr 23, 07:10 pm ET

by Zacks Equity Research

Shares of  Epizyme, Inc. (EPZM) were up 8.3% after the company announced the achievement of the third of three histone methyltransferase (HMT) targets, which were included in the company's collaboration agreement with GlaxoSmithKline plc (GSK). The achievement led to Epizyme earning a milestone payment of $4 million.

We note that Epizyme entered into an agreement with Glaxo in Jan 2011 to discover, develop and commercialize novel small molecule HMT inhibitors. As per the deal, Glaxo has the option to obtain global exclusive rights to HMT inhibitors directed to three targets. As per the terms of the deal, Epizyme is responsible for research of the selected targets in the collaboration until the selection of the development candidate. For the subsequent development and commercialization, Glaxo is solely responsible

Epizyme earned a milestone payment of $4 million from Glaxo in Jan 2014 for achieving the first Glaxo collaboration target. Thereafter, in Feb 2014, Epizyme earned a $2 million milestone payment from Glaxo for achieving lead candidate selection with respect to the second of these HMT targets.

Epizyme has thereby achieved all the lead candidate selection milestone payments from Glaxo. All the three potential therapeutic candidates are now identified for the Glaxo collaboration targets.

Epizyme carries a Zacks Rank #4 (Sell) while Glaxo carries a Zacks Rank #3 (Hold). Investors looking for better-ranked stocks in the biopharma sector may consider companies like Amgen (AMGN) and Sucampo Pharmaceuticals, Inc. (SCMP). Sucampo carries a Zacks Rank #1 (Strong Buy) while Amgen holds a Zacks Rank #2 (Buy).

Can Aon Plc (AON) Beat Earnings Estimates?

Posted Wed Apr 23, 07:02 pm ET

by Zacks Equity Research

Aon Plc (AON) is set to report first-quarter 2014 results on April 25, 2014. Last quarter, it posted a 0.65% surprise. Let’s see how things are shaping up for this announcement.

Factors this Past Quarter

On the operational front, Aon has undertaken restructuring plans that have generated savings and checked operating expenses, making way for margin expansion. However, increased debts, competitive threats and exposure to foreign exchange rate fluctuations might dampen the results to some extent.

Aon has been upfront in bolstering its capital deployments that should help the company retain investor confidence. In order to share more profits with shareholders, the company increased its annual dividend by a significant 43% recently. With a strong cash flow, the company is favorably positioned to support these initiatives.

Earnings Whispers?

Our proven model does not conclusively show that Aon is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  That is because the Most Accurate estimate stands at $1.16 per share while the Zacks Consensus Estimate is pegged at $1.17 per share, translating into a difference of –0.86%.

Zacks Rank #3 (Hold): Aon’s Zacks Rank #3 increases the predictive power of ESP but when combined with a negative ESP, it makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing zero or negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

RenaissanceRe Holdings Ltd. (RNR) with Earnings ESP of +9.52% and Zacks Rank #1 (Strong Buy).

Endurance Specialty Holdings Ltd. (ENH), with Earnings ESP of +9.91% and Zacks Rank #1.

Validus Holdings, Ltd. (VR), with Earnings ESP of +1.30% and Zacks Rank #3.
 

Dr. Reddy's Launches Generic Antara

Posted Wed Apr 23, 07:00 pm ET

by Zacks Equity Research

Dr. Reddy’s Laboratories Ltd. (RDY) announced the launch of its therapeutic equivalent generic version of Lupin Atlantis Holdings, S.A. Corp.’s Antara capsules (43 mg and 130 mg).

Antara is indicated as an adjunctive therapy to diet to reduce elevated total cholesterol (total-C), low density lipoprotein cholesterol (LDL-C) and apolipoprotein B (apo B). Antara also increases high density lipoprotein cholesterol (HDL-C) in adult patients with primary hypercholesterolemia or mixed dyslipidemia.

According to IMS Health, Antara and its generic versions generated U.S. revenues of approximately $74 million MAT (moving annual total) for the 12 months ending Feb 2014.

Revenues at Dr. Reddy’s Global Generics segment rose 41% to $475 million in the third quarter of fiscal 2014 ended Dec 31, 2013. Strong sales in North America and the emerging markets led to the upside. Strong sales of the generic versions of Vidaza, Dacogen, Aricept, Toprol XL and Depakote ER boosted segmental results.

Generics revenues increased in North America (76%), Russia and other CIS (Commonwealth of Independent States) markets (21%), rest of the world or RoW (35%) and India (5%). Revenues in India were, however, tempered by the new pricing policy. Revenues in Europe declined 4%.

During the third quarter of fiscal 2014, Dr. Reddy’s filed two abbreviated new drug applications (ANDAs) with the U.S. Food and Drug Administration (FDA). The company had 62 ANDAs pending approval with the FDA, of which 38 were Para IV filings and 8 were first-to-file at the end of the last reported quarter.

Dr. Reddy's carries a Zacks Rank #2 (Buy). Others stocks that look attractive include Salix Pharmaceuticals Ltd. (SLXP), Impax Laboratories Inc. (IPXL) and Enanta Pharmaceuticals, Inc. (ENTA). Salix Pharma and Enanta carry a Zacks Rank #1 (Strong Buy) while Impax Labs carries a Zacks Rank #2.

Genworth Australia Finally Heads for IPO

Posted Wed Apr 23, 06:55 pm ET

by Zacks Equity Research

After about two years of initial plan, Genworth Financial Inc. (GNW) announced that its subsidiary Genworth Mortgage Insurance Australia Limited has filed prospectus with the Australian Securities and Investments Commission for an initial public offering (“IPO”) of 40% of its shares.

In the third quarter of 2011, Genworth Financial announced its plans to go for an IPO of its Australian mortgage insurance business. The IPO was an effort to reorganize the business portfolio, fund future growth opportunities for the Australian business with greater access to the capital markets, maintain control positions of strategic mortgage insurance platforms in Australia, and free material capital for redeployment. Back then, the IPO had been planned for the second quarter of 2012. However, prevailing market conditions at that time were not conducive for equity offering. As a result, the company decided to push forward its IPO to early 2013 that was postponed even further.

With improving performance of the Australian operations of late – Australia Mortgage Insurance business has been performing well, witnessing favorable loss experience, generating sturdy returns and paying dividends – the company decided to initiate the IPO.  The company also noted that IPO activities in Australia have gained pace over the last year. It is likely that the company found the time suitable to capitalize on the improving market conditions and hence headed for the IPO.

Upon culmination, gross proceeds from the IPO are estimated between $400 and $700 million while fees and expenses in connection with the offering are projected between $23 million and $32 million. The company assumes exchange rate of 0.92 for the Australian dollar.

Proceeds from the IPO is expected to be deployed to pay down some of the intercompany funding arrangements with subsidiaries, and then will be distributed to Genworth.

Genworth is scheduled to release its first-quarter earnings on April 30, 2014. Last quarter, the company had reported a positive earnings surprise. However, out proven model does not conclusively show that Genworth is likely to beat earnings this quarter. This is because though it carries a Zacks Rank #3 (Hold), which increases the predictive power of a positive surprise, when combined with zero Earnings ESP, it makes prediction difficult.

Some better-ranked life insurers worth reckoning are Primerica, Inc. (PRI), Protective Life Corporation (PL) and Sun Life Financial Inc. (SLF). All these stocks sport a Zacks Rank #2 (Buy).
 

DTE Energy Poised to Beat Earnings Again

Posted Wed Apr 23, 06:45 pm ET

by Zacks Equity Research

DTE Energy Company (DTE) will release its first quarter 2014 financial results before the market bell on Apr 25, 2014. This energy company registered a positive earnings surprise last quarter. We expect the company to beat again this quarter.

Why a Likely Positive Surprise?

Our proven model shows that DTE Energy is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is the case here.

Positive Zacks ESP:  This is because the Most Accurate estimate stands at $1.47 while the Zacks Consensus Estimate is $1.41, resulting in +4.26% ESP. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank #3 (Hold): DTE Energy’s Zacks Rank #3 combined with a positive ESP increases the possibility of an earnings beat. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

What is Driving the Better-than-Expected Earnings?

DTE Energy has been generating stable returns from its regulated electric and gas utilities in Michigan. The improvement in Michigan’s economy is driving demand for utility services. This has helped DTE Energy to increase its pool of customers and sustain a solid run.

In addition, operational improvement and cost management have enabled the company to rein in operational and maintenance expenses and spread the benefit to its customers. DTE Energy aims to lower surcharges by $615 million over the 2013-2014 time period, cutting down on customer bills.

Infrastructure investments have helped the company to generate 7% earnings growth since 2008. DTE Energy’s Bluestone Pipeline and Millennium Pipeline are functioning full tilt and are contributing to the company’s financial results.

To build up from its current position DTE Energy plans to invest $6.7 billion in electric and $1.2 billion in its gas operations over the next five years.

Other Stocks to Consider

Here are some other companies tied to the Electric utility industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.

Entergy Corporation (ETR) has an earnings ESP of +12.00% and carries a Zacks Rank #1 (Strong Buy).

Calpine Corp. (CPN) has an earnings ESP of +50.00% and carries a Zacks Rank #2 (Buy).

Public Service Enterprise Group Inc. (PEG) has an earnings ESP of +8.79% and carries a Zacks Rank #2 (Buy).
 

Novartis Signs Deals With GlaxoSmithKline & Eli Lilly

Posted Wed Apr 23, 06:40 pm ET

by Zacks Equity Research

In an attempt to realign its portfolio, Novartis (NVS) announced that it has entered into an agreement with GlaxoSmithKline plc (GSK) for the exchange of certain assets.

Under the terms of the agreement, Novartis would acquire GlaxoSmithKline’s oncology products for $14.5 billion and up to $1.5 billion as milestone payments. The agreement also provides Novartis with opt-in rights to GlaxoSmithKline’s current and future oncology R&D pipeline. In exchange, Novartis would divest its Vaccines business (excluding flu) to GlaxoSmithKline for $7.1 billion (of which $5.25 billion is upfront and up to $1.8 billion in milestone payments)  along with royalties. We note that the Vaccines Division generated sales of $1.4 billion in 2013.

Meanwhile, Novartis has initiated a separate sales process for its flu business.

Novartis expects to close the deal with GlaxoSmithKline by the first half of 2015. In addition, the two companies will create a joint venture (JV), thereby combining their consumer divisions (Novartis OTC and GSK Consumer Healthcare) to form a larger  consumer healthcare business. Novartis will own 36.5% share of the JV and will have four of eleven seats on the JV’s's Board.

In order to focus on its core portfolio of pharmaceuticals, eye care and generics, Novartis also entered into a definitive agreement with Eli Lilly and Company (LLY) to divest the Animal Health Division for $5.4 billion in a separate transaction. Novartis expects to close this transaction by the first quarter of 2015. We note that the Animal Health Division generated sales of $1.1 billion in 2013.

Our Take

Novartis has a strong oncology portfolio with drugs like Afinitor, Exjade, Femara, Gleevec, Jakavi among others. The pipeline at Novartis includes 25 new molecular entities targeting key oncogenic pathways and 24 pivotal trials are underway exploring 16 new candidates for various indications. The addition of oncology products from GlaxoSmithKline will further strengthen its oncology business as it expands Novartis' position in targeted therapies and small molecules.

In particular, the addition of two recently approved products for metastatic melanoma, Tafinlar and Mekinist along with Votrient for renal cell carcinoma will strengthen Novartis’ position as a leader in treating melanoma. Novartis also acquired Tykerb for HER2+ metastatic breast cancer, Arzerra in chronic lymphocytic leukemia, and Promacta for thrombocytopenia. Total sales of the acquired oncology products from GlaxoSmithKline in 2013 were approximately $1.6 billion.

Meanwhile, the JV of Novartis OTC and GlaxoSmithKline’s Consumer Healthcare would establish a business with approximate annual sales of $10 billion with strong focus in four key OTC categories - Wellness, Oral Health, Nutrition and Skin Health.

We are positive on Novartis’ efforts to transform its portfolio. We remind investors that Novartis divested its blood transfusion diagnostics unit to Grifols S.A., for approximately $1.7 billion in cash in Jan 2014. The acquisition of oncology products from GlaxoSmithKline and divestment of Vaccines business is a step in the right direction. It will broaden Novartis’ portfolio and enable it to focus better on its core capabilities besides contributing immensely to the top line. Margins are also expected to get a significant boost.

Novartis currently carries a Zacks Rank #3 (Hold). Investors looking for better-ranked stocks may consider Johnson & Johnson (JNJ) with  a Zacks Rank #1 (Strong Buy).
 

Enterprise Plans Gulf Coast Export Facility

Posted Wed Apr 23, 06:35 pm ET

by Zacks Equity Research

Enterprise Products Partners L.P. (EPD) announced its plan to construct a fully refrigerated ethane export facility on the Texas Gulf Coast.

The facility is expected to have a total loading rate of about 10,000 barrels per hour or about 240 thousand barrels per day (mbpd).The partnership has carried out long-term contracts to support the development of the facility and is slated to commence operations in the third quarter of 2016.

The development of the ethane facility highlights Enterprise’s commitment to serve growing demand for higher U.S. energy needs. Currently, U.S. ethane production capacity exceeds U.S. demand by 300 mbpd and is estimated to exceed demand by about 700 mbpd by 2020.

The ethane export facility will be incorporated in Enterprise’s Mont Belvieu complex. The facility will comprise over 650 mbpd of natural gas liquid (NGL) fractionation capacity and 100 million barrels of NGL storage capacity.

Enterprise’s recently completed ATEX ethane pipeline links the Mont Belvieu complex to the increasing supplies of ethane from the Marcellus and Utica shale regions. The Mont Belvieu complex obtains NGL supplies from the major producing basins across the U.S. Enterprise’s integrated NGL system will offer supply assurance and diversification to the export facility.

Enterprise, a leading master limited partnership (MLP), is engaged in providing a wide range of midstream energy services to the producers and consumers of natural gas, NGL, and crude oil.

Enterprise is viewed 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 largest fully-integrated midstream service providers with a positive long-term outlook given its significant geographic and business diversity.

Enterprise carries a Zacks Rank #2 (Buy). Stocks in the oil and gas industry looking good with a Zacks Rank #1 (Strong Buy) include Range Resources Corp. (RRC), Unit Corp. (UNT) and Helmerich & Payne, Inc. (HP).
 

Updated Research Report on Concur

Posted Wed Apr 23, 06:30 pm ET

by Zacks Equity Research

On Apr 16, 2014, we issued an updated research report on Concur Technologies Inc. (CNQR). The company had earlier reported better-than-expected quarterly results. The company’s first quarter saw new customer growth across all its segments, thereby strengthening its travel management business. Concur’s performance in SMB, enterprise and in its federal business remained strong in the quarter. This apart, we remain positive about the mounting opportunities for the company driven by the increased demand for the managed travel expenses by the corporate industry across the globe.

Concur has delivered positive earnings surprises in three of the last four quarters, with an average positive beat of 46.8%. However, in the first quarter non-GAAP earnings (excluding one-time items) of $0.21 per share compared favorably with the Zacks Consensus Estimate of net loss of $0.9 per share. Nevertheless, earnings surged 31% year over year.

Additionally, management provided an encouraging outlook for fiscal 2014. Concur expects non-GAAP revenue for second-quarter 2014 to grow about 30% year-over-year and expects non-GAAP pre-tax income per share to be at 14 cents a share.

For fiscal 2014, non-GAAP revenue is expected to grow approximately 26% year-over-year and non-GAAP pre-tax income per share is projected to be at least $0.93 a share. For fiscal year 2014, the company expects non-GAAP operating margin to be in the range of 10% to 14%. Cash flow from operations in in the year is predicted to be at least $72 million, while capital expenditures are expected to be 8% to 9% of fiscal 2014 revenue.

The company has a well-defined software development methodology, which allows it to deliver products that satisfy business needs of customers and meets commercial quality expectations. Its systems development and programming group teams up with the marketing department to assess market needs and requirements. It also uses independent development firms or contractors, when needed, to expand the capacity and technical expertise of its internal research and development team. Concur has also added ‘system integrators’ to its business. Recently, Concur unveiled a new travel and expense (T&E) trend analysis solution that was developed in partnership with Oversight Systems. The application based on T&E Cloud Platform will aid the travel management companies to obtain critical insights about corporate spending patterns. The company aims to add more partners going forward to meet the growing customer demand while developing its solution delivery capabilities.

Additionally, the company’s Perfect Trip initiative, that was started a couple of years back, has been benefiting the company by increasing its distribution capacity. Concur’s distribution capacity has already increased by more than 100% to date. Also, as this initiative is being increasingly accepted by the company’s customers, partners, developers, and suppliers across the globe, the growth trend is expected to continue going ahead. This initiative is driven by the presence of an open platform that makes travel ecosystem more efficient and competitive. The company is also likely to benefit from increasing investments in these open platforms and its open booking service, TripLink, launched in the first half of fiscal 2013. Concur also intends to add a number of new solutions to its portfolio like Tripit Pro, an innovative mobile tool designed to simplify and enhance corporate traveling experience. In a research by Concur’s TripIt application, it was found that the number of leisure travels is likely to increase. This uptrend will bode well for company’s profits and interests.

However, though the macroeconomic environment has improved, the rate of improvement in mature markets is still in a nascent stage. The company has a significant portion of revenues coming from its European businesses, which continue to be impacted by the after effects of the European financial crisis, thereby providing limited visibility into the company’s future.

Concur currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Stocks that are worth considering within this sector are Ansys Inc. (ANSS), Candence Design Systems Inc. (CDNS) and Pegasystems Inc. (PEGA), all three carrying a Zacks Rank #2 (Buy).

Encouraging Results from Pfizer's Xeljanz

Posted Wed Apr 23, 06:20 pm ET

by Zacks Equity Research

Pfizer Inc. (PFE) announced encouraging top-line results from two pivotal phase III studies from the Oral treatment Psoriasis Trials (OPT) Program (OPT Pivotal #1 and OPT Pivotal #2) on Xeljanz (tofacitinib:5mg and 10mg). Xeljanz, an oral Janus kinase (JAK) inhibitor, is being developed for the treatment of moderate-to-severe plaque psoriasis.

Xeljanz showed statistically significant superiority at week 16 in the proportion of subjects achieving a Physician’s Global Assessment response of “clear” or “almost clear” over placebo. The candidate also showed superiority in the proportion of subjects achieving at least a 75% reduction in Psoriasis Area and Severity Index over placebo. Psoriasis Area and Severity Index are the two commonly used measures of efficacy in psoriasis.

In Oct 2013, Pfizer announced top-line data from the other two phase III studies (OPT Compare and OPT Retreatment) under the OPT Program evaluating Xeljanz (tofacitinib) for the treatment of adults with moderate-to-severe chronic plaque psoriasis.

Results from the OPT Compare study were mixed with Xeljanz (10 mg) meeting the primary endpoint of non-inferiority to Amgen’s (AMGN) Enbrel but failing to meet the non-inferiority criteria to Enbrel at the 5 mg dose. Results from the OPT Retreatment study showed a higher number of patients who continued Xeljanz treatment maintained their response during the treatment withdrawal phase compared to patients who switched to placebo.

Based on the results from these four studies under the OPT Program and a long-term extension study, Pfizer plans to make regulatory submissions for Xeljanz in various countries for the treatment of adults suffering from moderate-to-severe chronic plaque psoriasis. Pfizer will filings a supplemental New Drug Application (sNDA) for Xeljanz in the U.S. in early 2015.

Xeljanz is already available in the U.S. for the treatment of moderate-to-severe active rheumatoid arthritis (RA) in adult patients who have not responded adequately to or cannot tolerate methotrexate (MTX). Xeljanz is the first oral treatment to gain approval in a new class of medicines known as JAK inhibitors. The product represents a new treatment option for patients who respond inadequately to or are unable to tolerate MTX. Xeljanz sales were $114 million in 2013.

We are encouraged by Pfizer’s progress with Xeljanz. Label expansion of the drug will boost its sales potential.

Pfizer, a large-cap pharma stock, currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Allergan Inc. (AGN) and Johnson & Johnson (JNJ). Both sport a Zacks Rank #2 (Buy).

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