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Posted Fri Dec 06, 07:30 pm ET
by Zacks Equity Research
On Dec 5, we reiterated our recommendation on Aflac Inc. (AFL) at Neutral based on its expense management and stable core capital strength, paving way for expanded capital deployment. However, consistent weakness in Japan raises operational risks.
Why the Retention?
Estimates for Aflac have witnessed minor corrections since the company reported its third-quarter 2013 results on Oct 29. The company’s earnings and revenues of $1.47 per share and $5.89 billion, respectively, were in line with the Zacks Consensus Estimate.
However, the top and bottom line lagged the year-ago results, owing to decelerated sales from WAYS products along with a weak average yen and investment income in Japan. The sluggishness in the U.S. market also limited growth in new sales.Conversely, total acquisition, operating, benefits and claim expenses decreased from the prior-year quarter.
Following the release of the third-quarter results, the Zacks Consensus Estimate for 2013 inched down 0.3% to $6.18 per share in the last 60 days. Moreover, the estimates for 2014 fell 2.3% to $6.39 per share during the same period. On a year-over-year basis, earnings are projected to decrease 6.4% in 2013 but nominally grow by 3.5% in 2014.
Overall, with the Zacks Consensus Estimate for both 2013 and 2014 showing no clear directional pressure on the stock in the near term, the company now has a Zacks Rank #3 (Hold).
Aflac’s growth is sustained by its modest earnings guidance, healthy capital ratios and stable ratings. Incremental share buybacks and the latest dividend hike also instil confidence in investors. Nonetheless, intense global competition coupled with sluggish interest rate environment and currency fluctuations deter the desired upside in the stock.
Overall, Aflac’s investment restructuring, new product introduction and the Japan Post agreement should help it gather momentum in the long run, negate interest and currency risks and provide more profitable investment opportunities. Management expects earnings growth to rebound 2015 onwards.
Other Financial Stocks That Warrant a Look
While we remain on the periphery in the near term for Aflac, better-ranked stocks in the financial sector include Employers Holdings Inc. (EIG), Euronet Worldwide Inc. (EEFT) and FleetCor Tech Inc. (FLT). All these stocks sport a Zacks Rank #1 (Strong Buy).
Posted Fri Dec 06, 07:20 pm ET
by Zacks Equity Research
As a boost to its efforts to expand its coronary business globally, Medtronic Inc. (MDT) received CE Mark (Conformité Européenne) in Europe and Therapeutic Goods Administration (TGA) listing in Australia for two of its Symplicity line of products.
According to the company, during renal denervation procedures for patients with uncontrolled hypertension, these two systems, viz. 4 Fr multi-electrode Symplicity Spyral catheter and Symplicity G3 radio frequency (RF) generator, are expected to substantially reduce ablation time and provide ease of deliverability.
Uncontrolled hypertension is directly linked with a high risk of heart attacks, stroke, heart failure, kidney disease and even death. Under traditional therapy, patients are prescribed with 3-5 classes of anti-hypertensive medications that can have a number of side effects.
Given almost 120 million high blood pressure patients worldwide suffering from uncontrolled hypertension, with systolic blood pressures at or above 140 mm Hg, we remain confident about the global market adoption of this new system, given that it hardly has any side effect.
In renal denervation, Medtronic is currently investing in developing referral networks, reimbursement, technology development, and clinical and economic evidence to further strengthen its leadership position and grasp the long-term opportunity in hypertension treatment.
Currently, the company is perusing research and development in renal denervation worldwide and has many ongoing clinical studies. Last month, the U.S. Food and Drug Administration (FDA) approved an Investigational Device Exemption (IDE) allowing Medtronic to initiate SYMPLICITY HTN-4, the first randomized trial to investigate renal denervation for the treatment of moderate uncontrolled hypertension in patients in the U.S. This is presently available only for investigational use in the country.
The study will evaluate the Symplicity renal denervation system in patients with moderate uncontrolled hypertension (systolic blood pressure greater than or equal to 140 and less than 160 mm Hg, despite being administered to treatment with three or more anti-hypertensive medications of different classes).
Moreover, the Symplicity HTN-3 U.S. pivotal study – the first and only pivotal U.S. clinical trial of the Symplicity renal denervation system for uncontrolled hypertension, completed enrollment of 535 patients across nearly 90 U.S. medical centers in May 2013. The results are expected to be available during the first half of 2014.
Currently, Medtronic carries a Zacks Rank #3 (Hold). Better-ranked medical device stocks such as Hill-Rom Holdings, Inc. (HRC), Natus Medical Inc. (BABY) and NuVasive, Inc. (NUVA) are also expected to do well. While Hill-Rom and Natus Medical sports a Zacks Rank #1 (Strong Buy), NuVasive holds a Zacks Rank #2 (Buy).
Posted Fri Dec 06, 07:10 pm ET
by Zacks Equity Research
Nashville, TN-based manufacturer and distributor of building products, Louisiana-Pacific Corporation (LPX), and resource management service provider, Casella Waste Systems Inc. (CWST), have recently divested their respective interests in the US GreenFiber, LLC joint-venture to the private equity firm, Tenex Capital Management. The sale, announced on Dec 5, 2013, is valued at $18.0 million.
GreenFiber is primarily engaged in manufacturing natural fiber insulation products required for the construction of residential, home refurbishment and manufactured housing. It was formed in 2012 after a joint-venture deal with Casella Waste Systems and Louisiana-Pacific. GreenFiber boasts a strong presence in the U.S. market for the past 12 years and has achieved the status of one of the largest companies in the insulation industry.
Louisiana-Pacific is highly optimistic about the divestiture. We believe that the company has taken the strategic move to invest the resources in more profitable areas and streamline its business. Excluding working capital, debt and other transaction costs, both Louisiana-Pacific and Casella Waste Systems will receive net cash proceeds of $7 million from the sale.
Louisiana-Pacific is a premier supplier of building materials, delivering innovative, high-quality commodity and specialty products to its retail, wholesale, homebuilding and industrial customers.
The company posted lower-than-expected earnings and revenues during the third quarter of 2013. Lower Oriented strand board (OSB) pricing, a slower recovery in the housing market and higher operating costs seem to be responsible for such disappointing performance. We believe that the overall economic recession will continue to affect the company’s business.
Louisiana-Pacific currently carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the sector are Universal Forest Products Inc. (UFPI) with a Zacks Rank #1 (Strong Buy) and Boise Cascade Co. (BCC) with a Zacks Rank #2 (Buy).
Posted Fri Dec 06, 07:00 pm ET
by Zacks Equity Research
On Dec 5, we downgraded, Vocus Inc. (VOCS), to Neutral based on the company’s disappointing third quarter results and disappointing outlook for the fourth quarter.
Why the Downgrade?
Though Vocus’s third quarter revenues of $46.6 million increased 1.9% from the year-ago quarter,it missed the Zacks Consensus Estimates of $47 million. Fourth quarter revenue guidance of $45.1 - $45.5 million was also disappointing.
Vocus’ expansion plans are taking a toll on its operating results. Adjusted gross margin decreased to 82.9% from 83.7% in the year-ago quarter. Moreover reported operating margin was 5.3%, down from 8.7% in the year-ago quarter. Adjusted operating expenses also increased 5.0% year over year, primarily due to growth in direct sales capacity, higher commission and investments.
Additionally, Vocus lost 317 net customers as against 479 additions in the previous quarter and 1,015 additions in the year-ago period, primarily due to higher marketing suite prices and discontinuation of renewals for the small-business version.
We believe international expansion is crucial to business growth and success. Vocus’ significant exposure in Europe, risks of foreign currency fluctuations and changes in international businesses are expected to impact fourth quarter results. Further expansions could adversely impactthe results, going forward.
Additionally, continuous decline in demand for its legacy PR solution, lesser focus on selling low-end solutions to small businesses, margin contraction, currency fluctuations and competition from Marketo, Inc. (MKTO) could prove to be headwinds.
Nonetheless, Vocus has successfully capitalized on strategic acquisitions. The company continued to acquire more customers for its marketing suite, which reflects growing demand. Moreover, the company is targeting more customers and cloud opportunities in the small and medium business space, which will boost its software portfolio and expand its geographical reach.
Other Stocks to Consider
Vocushasa Zacks Rank #3 (Hold). Better-ranked stocks in the technology sector include SanDisk Corp. (SNDK) and Microchip Technology Inc. (MCHP), carrying a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively.
Posted Fri Dec 06, 06:50 pm ET
by Zacks Equity Research
Genworth Holdings Inc., a direct subsidiary of Genworth Financial Inc. (GNW), has priced the offering of its $400 million senior notes.
The company is offering the notes that carry a coupon rate of 4.8% per year and are scheduled to mature in 2024. The notes are guaranteed by Genworth.
As government-sponsored and government-owned enterprises are expected to raise the required capital balance of a company for it to qualify as a mortgage insurer, Genworth intends to deploy the net proceeds to capitalize one or more of its U.S. mortgage insurance subsidiaries. Alternatively, the company may also use the net proceeds for corporate purposes.
The rating agency Moody’s Investors Service of Moody’s Corp. (MCO) assigned a senior debt rating of “Baa3” with a stable outlook to the new notes issued by Genworth.
Along with the public offering, Genworth is also focused on deleveraging its balance sheet. Recently, the company sold its wealth management business to make payments for the near-term debt maturities.
As of Sep 30, 2013, the debt-to-capital ratio for Genworth was 0.23x, which increased 200 basis points (bps) from the 2012-end level. With the current issuance of $400 million notes, the same is expected to increase by another 200 bps to 0.25x.
Though the new issuance will increase the debt level, the company remains focused to deleverage its balance sheet. The proceeds from the divesture of its wealth management business were utilized to pay down the near-term debt maturities.
The new issuance is also expected to push interest expense of Genworth higher that had inched down 1.6% year over year to $124 million in the third quarter of 2013. Nonetheless, Genworth’s solid operational performance generates enough funds to service debt uninterruptedly.
Among others in the life insurance industry, in Jul 2013, American Equity Investment Life (AEL) offered 6.625% senior unsecured notes worth $400 million with maturity scheduled on Jul 15, 2021.
Recently in the financial sector, XLIT Ltd., a subsidiary of XL Group plc (XL) has priced the offering of its $600 million senior notes. A.M. Best Co. assigned a debt rating of “bbb” with a positive outlook.
Genworth presently carries a Zacks Rank #3 (Hold).
Posted Fri Dec 06, 06:40 pm ET
by Zacks Equity Research
Pacira Pharmaceuticals, Inc. (PCRX) submitted a Prior Approval Supplement (PAS) with the U.S. Food and Drug Administration (FDA) for an additional manufacturing site for Exparel.
Assuming that the FDA accepts the PAS for review, Prescription Drug User Fee Act (PDUFA) action date is expected in early Apr 2014.
Pacira’s pain management drug Exparel is currently approved by the FDA for administration into the surgical site to produce postsurgical analgesia. The drug was approved by the FDA in the final quarter of 2011 and launched in Apr 2012.
Exparel generated $25.1 million of revenues in the first year of launch. In the third quarter of 2013, net Exparel revenues were $20 million, up 31.6% sequentially. At the end of Sep 2013, Exparel had a customer base of 1,732. Pacira reported an average of 23 new customers per week in the reported quarter.
Exparel is evaluated in two phase III nerve block studies – one where it is studied as a femoral nerve block for patients undergoing total knee arthroplasty while the other study evaluated the safety and efficacy of Exparel in intercostal nerve block for posterolateral thoracotomy. The first part of femoral nerve block study showed positive results and the final part is in progress. The intercostal nerve block study did not achieve its primary endpoint. As per FDA a single study meeting its primary endpoint is sufficient to gain approval for the nerve block indication. Pacira plans submit supplemental New Drug Application in early 2014.
Enrolment for a phase IV study in lower abdominal soft tissue surgeries is in progress. The program will evaluate the timing of the procedure as well as the dose and volume of Exparel, while measuring the opioid-sparing opportunity. Data from the study is expected by the end of 2013 or early 2014.
Pacira carries a Zacks Rank #4 (Sell). Some better-ranked stocks include Aeterna Zentaris Inc. (AEZS), Actelion Ltd. (ALIOF) and Jazz Pharmaceuticals plc (JAZZ), each carrying a Zacks Rank #1 (Strong Buy).
Posted Fri Dec 06, 06:33 pm ET
by Zacks Equity Research
Nebraska-based investment brokerage firm, TD Ameritrade Holding Corporation (AMTD) has modified its agreement with Canadian bank, The Toronto-Dominion Bank (TD). The amendment extends the existing agreement’s date of expiry from Jan 24, 2016 to Jan 24, 2021. It also enables TD Ameritrade to carry out more stock buybacks.
However, shareholders’ agreement with Joe Ricketts – founder of TD Ameritrade – will terminate on Jan 2016. This implies that Ricketts will be bereft of the authority to appoint TD Ameritrade’s board of directors after expiry of its agreement with Toronto-Dominion Bank.
According to the amended agreement, if any share repurchases by TD Ameritrade leads to Toronto-Dominion Bank having more than 45% interests, the latter will have to shed its stake. Notably, as of Sep 30, Toronto-Dominion Bank owned 42% stake in the brokerage firm.
The new agreement also permits the bank to keep 2% of securities from its stake for clients and other general business purposes. The permit under the current agreement is 1%. Additionally, Toronto-Dominion Bank will sell ordinary securities within six months of exceeding 1% of outstanding common stock.
Under the amended agreement, if the ordinary stock exceeds 1% of TD Ameritrade’s outstanding stock as well as any excess stock over 45%, Toronto-Dominion Bank will be entitled to vote in the same proportion as shareholders in corporate governance matters.
TD Ameritrade’s tie-up with Toronto-Dominion Bank provides it an opportunity to cross sell products. This is expected to be a significant growth driver for TD Ameritrade’s organic assets.
Also, innovations in online trading, long-term investment in products and services, delivery of advanced customer service, creative as well as cost-effective marketing and sales are expected to boost TD Ameritrade’s trading and investing business. However, a low interest rate environment and stringent regulations are challenges.
TD Ameritrade carries a Zacks Rank #3 (Hold). Some better-ranked brokerage firms include Interactive Brokers Group, Inc. (IBKR) and Evercore Partners Inc. (EVR). Both these stocks have a Zacks Rank #2 (Buy).
Posted Fri Dec 06, 06:30 pm ET
by Zacks Equity Research
CONSOL Energy Inc. (CNX) completed the sale of its Consolidation Coal Company (CCC) subsidiary to an unit of Murray Energy Corporation for $3.5 billion. The divestiture was announced in late October this year.
The divestment was intended to intensify focus on achieving gas production targets of 210–225 Bcfe for 2014 and gas production growth of 30% annually in 2015 and 2016.
The assets of the CCC subsidiary include five longwall coal mines – McElroy, Shoemaker, Robinson Run, Loveridge and Blacksville No. 2 mines – in West Virginia that produced a combined 28.5 million tons of thermal coal in 2012. In addition, the company will also sell its river and dock operations with a fleet of 600 barges and 21 towboats.
The sales consideration comprises $850 million cash and Murray Energy assuming $2.4 billion of CONSOL’s liabilities. Additionally, nearly $184 million is expected as future payment from the retention of a royalty on select reserves and tolling fees at CONSOL Energy's Baltimore Terminal.
Murray Energy is also assuming CONSOL's UMWA 1974 Pension Trust obligations worth approximately $941 million at present. The transaction, in a way, has also helped CONSOL deleverage its balance sheet.
The transaction also includes CONSOL guarantying some of the commercial liabilities acquired by Murray Energy or will become the direct payee of Murray Energy for future payments, though for a transitional period. However, it will not impact CONSOL materially.
Due to the divestiture, CONSOL expects to record a pre-tax gain of about $1.3 billion along with a cash tax-benefit. Moreover, the company expects to lower its administrative expenses by $65 million annually, favorably impacting margin expansion.
CONSOL also expects to pay regular dividend effective from the first quarter of 2014 at a quarterly rate of 6.25 cents per share. The annualized rate implies a yield of 0.7% based on yesterday’s closing price. The company seeks to better align its dividend policy reflecting its growth strategy, though the yield still lags the industry average substantially.
Arch Coal Inc. (ACI), another player from the same industry closed the sale of its Canyon Fuel subsidiary on August for net cash proceeds of $423 million. The assets included Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation as well as a total of 105 million tons of coal reserves in Utah.
CONSOL presently carries a Zacks Rank #3 (Hold). However, some better-ranked coal stocks include Alpha Natural Resources, Inc. (ANR) and Suncoke Energy Partners, L.P. (SXCP). Both the stocks carry a Zacks Rank #2 (Buy).
Posted Fri Dec 06, 06:25 pm ET
by Zacks Equity Research
Eastman Chemical Company’s (EMN) Board has hiked its quarterly cash dividend by 17% to 35 cents per share from the prior payout of 30 cents. The increased dividend will be paid on Jan 2, 2014, to stockholders of record as of Dec 16, 2013.
Prior to this, on Dec 6, 2012, Eastman Chemical increased its quarterly cash dividend by 15% to 30 cents per share from the previous payout of 26 cents. The increased dividend was paid on Dec 31, 2012, to stockholders of record as of Dec 17, 2012.
Eastman Chemical has now hiked dividend for three years in a row. This dividend hike testifies the Board’s confidence in the company’s ability to generate continued earnings growth and strong cash flow. Eastman Chemical is committed to maintaining a strong financial position by executing its strategy to deliver consistent and superior value.
The dividend hike was backed by Eastman Chemical’s healthy earnings for the third quarter of 2013. The company’s adjusted earnings (from continuing operations) of $1.68 per share for the reported quarter topped the Zacks Consensus Estimate by 4 cents and exceeded the year-ago adjusted earnings of $1.57. Strong performance in Additives and Functional Products and Advanced Materials divisions drove the better-than-expected earnings.
Eastman Chemical’s profit (from continuing operation) doubled year over year to $308 million or $1.97 a share from $154 million or 99 cents a share a year ago. The bottom line was boosted by higher sales and lower costs.
Revenues rose roughly 3% year over year to $2,338 million, beating the Zacks Consensus Estimate of $2,316 million. Sales were driven by gains across the Additives and Functional Products and Advanced Materials divisions, which more than offset the decline in the Adhesives and Plasticizers division. The company saw higher sales across all geographic regions in the quarter.
The dividend increase is also a testimony to the company’s healthy balance sheet. Eastman Chemical ended the third quarter with $222 million of cash and generated operating cash flows of $427 million during the quarter.
Eastman Chemical’s diversified chemical portfolio and its integrated and diverse downstream businesses remain its strength. The company should continue to benefit from the synergies of its Solutia acquisition. It also stands to gain from business restructuring, cost-cutting measures and increased capacity additions.
However, Eastman Chemical, a Zacks Rank #4 (Sell) stock, remains exposed to raw material cost pressure. Uncertainty regarding the timing of a recovery in Europe also remains an overhang.
Posted Fri Dec 06, 06:24 pm ET
by Zacks Equity Research
Steel giant ArcelorMittal (MT) has been acknowledged by the U.S. Department of Energy (DOE) for its leadership in the Better Buildings, Better Plants Programme. The program supports the Obama administration’s target of increasing energy productivity in the U.S. by 2030.
ArcelorMittal joined the program in Aug 2013 and is committed to reducing its energy intensity by 10% across 17 plants. The company remains optimistic about working with the department of energy and other partner companies to enhance its energy management efforts, thereby reducing greenhouse gas emissions, protecting the environment and improving the sustainability of its operations.
As part of the Better Buildings, Better Plants Programme, ArcelorMittal conducted an energy efficiency training program. Through it, the staff was given hands-on technical training to help find new opportunities for cutting energy use and saving money.
Energy is one of the most expensive factors in steel-making process with more than $200 billion spent on powering commercial buildings, and another $200 billion on expenses for power manufacturing facilities across the U.S. Thus, to ensure energy bill savings, President Obama introduced the Better Buildings challenge in 2011.
Furthermore, through the Better Plants Programme, the U.S. energy department is partnering with more than 120 manufacturers across the country. The energy department also recognized Alcoa Inc. (AA) under the programme after ArcelorMittal.
ArcelorMittal, is expanding its steel-making capacity and raw materials self-sufficiency through a combination of brownfield growth, new greenfield projects and acquisition opportunities, mainly in emerging markets. The company is also highly focused on narrowing debt, lowering costs and improving efficiency. On the cost-saving front, ArcelorMittal is progressing with a new $3 billion cost optimization program that mostly focuses on variable cost reductions in its plants.
ArcelorMittal currently carries a Zacks Rank #3 (Hold).
Better-ranked companies in the steel and related industries include Companhia Siderurgica Nacional (SID) and United States Steel Corp. (X). While Companhia Siderurgica holds a Zacks Rank #1 (Strong Buy), United States Steel has a Zacks Rank #2 (Buy).
The content contained in this weblog feature may have been abstracted from a complete Zacks Equity Research report.
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