Sunday, October 30, 2011

Endo Pharamceuticals (ENDP) Q3 Results

Endo Pharmaceuticals reported earnings for the third quarter, and beat analyst expectations for both top-line revenues and EPS. ENDP revenues increased 71% to $759 million, driven by organic growth in the branded drugs division and growth in the generics division. Opana ER, Voltaren Gel, and Lidoderm grew 66%, 35%, and 3% respectively, for a total growth in the branded division of 17%. The company continues to effectively integrate acquired companies such as Qualitest, which provided a boon to the generic division and helped grow generic revenues by 17%. The combination of organic growth in the branded division and integration of the generic division has led to impressive sales growth and top-line revenues which exceeded analyst expectations by $9 million.

Operating expenses grew to $271 million from $162 million after acquisitions, but expenses as a percentage of sales remained flat. The company saw $48 million in net income, and EPS of $1.25, representing EPS growth of 45%. Additionally, the firm continues to generate strong operating cash flows, which it will use to pay off debt. The firm continues to perform strongly, as had reaffirmed guidance of $2.8 billion in sales and $4.65 in EPS for the fiscal year. The firm also sees a smooth integration of AMS and Qualitest, and believes the firm will be able to capitalize on more synergies than initially thought.

Friday, October 28, 2011

Ford 3Q11 Earnings

Ford reported third quarter earnings Wednesday that beat the mean street estimate, but fell short of its year over year figure. Revenues beat expectations by a wide margin, coming in at 33.1 billion, an increase of about $4 billion or 14%.Vehicle wholesales were 1.3 million units, up 93,000 or 7% from 2010. Pretax operating profit was $1.9 billion or $0.46 per share – down $111 million from 2010. The Pretax operating profit includes a one-time charge of $350 million for un-realized market-to-market adjustments on commodity hedging for future periods. Third quarter net income was $1.6 billion, or 41 cents per share, a $38 million decrease from third quarter 2010. Ford generated positive automotive operating-related cash flow of $400 million in the third quarter.

In the quarter Ford took a one-time-charge of $350 million to write down valuations of commodity hedging contracts (market-to-market), caused by the swift decline in commodity prices. However CEO Alan Mulally stated that this charge “could be reversed” if commodity prices rise in the future or the company recognizes the benefits from lower input costs. If the one-time charge is taken out, considering it could be reversed at some point in the future, earnings would actually be near $2.3 billion, beating the year-over-year figure.

Also, Ford paid down $1.3 billion in debt over the quarter, positioning the company closer to their target of $10 billion in debt by mid-decade. Ford’s Automotive gross cash exceeded debt by $8.1 billion, an improvement of $10.7 billion from the third quarter a year ago.

Share of Ford traded down ~6% on Wednesday. The negative impact on the stock was a result of management failing to declare a dividend or comment on when dividends will be resumed, despite recently having their credit rating upgraded to one-notch below investment grade. Additionally, management issued end of year guidance that indicated overall sales would be toward the lowering end of the 13 million units the company had previously estimated.

Shares of Ford closed Friday up 0.25% to $12.00

Thursday, October 27, 2011

EW Reports Q3 Earning, SAPIEN valve close to approval

Edwards Lifesciences reported third quarter sales growth of 18.4% ($1.25 billion) from Q3 of last year. Sales were driven by an increased demand for their transcatheter heart valves, along with “sustained strength in clinical care.” Transcatheter heart valve sales for the quarter were reported at $82.6 Million, a 69.1% increase over 2010, making up the largest segment of YTD sales growth. Heart valve therapy sales amounted to $246.1 million, representing 22.7% growth over last year. Diluted EPS came in at .38 a share (compared with 0.43 in the prior year quarter), a penny short of analyst consensus, but in line with management guidance.

EW is currently awaiting FDA approval for SAPIEN, a new, non-invasive transcatheter heart valve implant that would give them a significant lead over their competitors. Management expects SAPIEN sales of $20-$25 Million within the first three months of launch, and $150 to $250 Million in it’s first year. Because of this heavy dependence on SAPIEN sales, EW stock has proven to be highly sensitive to speculation as evidenced by a 5% drop in price on 10/18/11 following rumor that FDA approval would be delayed by 9 months. Following release, EW’s stock rose 6.21% to $72.00 per share. Since then, the stock has climbed an additional 4% and is currently trading at $75.15.

- Chris Garcia, Junior Analyst
- Deven Gould, Healthcare Sector Head

Monday, October 24, 2011

MCD 3Q Review .. 100 Consecutive Months of Positive Global Comps

McDonalds reported stellar third quarter earnings on Friday before the open. Revenue rose 13.7% to $7.1bn from $6.3bn in the year-ago period. Earnings rose to $1.45 per diluted share, a 12% increase from $1.29 last year. Sales were driven by growth across all areas of the world, and comparable same store sales of 5.0% versus 3.9% consensus.

MCD has increased prices two times this year to offset rising commodity prices (particularly beef), but management commented that prices at supermarkets are rising faster than restaurant prices which provides the company with some cushion. An increasingly diverse menu, with a focus on keeping prices competitive versus peers, has allowed McDonalds to thrive in the current environment – driving in-store traffic and allowing MCD to gain market share.

Jim Skinner, CEO, made some interesting comments regarding the economy and consumer. "We are officially out of the recession, but it hardly feels that way," he said. "Consumers everywhere continue to be cost conscious and hesitant to spend." Estimates are under review but results this quarter support our bullish thesis on shares of MCD. The stock traded up ~3% on the day and has increased ~20% so far this year.


Sunday, October 23, 2011

UASBIG invests in the Albany Community

On Sunday October 23rd UASBIG participated in the Pine Hills community clean up along with deans leadership council and the Pine Hills Neighborhood Association. About 130 University at Albany students were involved with the event that lasted from 9am to 12pm. UASBIG analysts played an important part in the cleanup and Hudson avenue saw great improvement as a result. Thanks to all who participated!


Saturday, October 22, 2011

Verizon Communications 3Q11 Earnings

Verision reported 3Q 2011 earnings of 49 cents per share, missing the mean street estimate of 56 cents per share. Factors contributing to the miss in earnings were as follows; 7 cents per share for a non-operational charge relating to remeasurement, based on an actuarial valuation of pension plans and a $250 million or 5 cents per share negative impact due to storm-related repair costs and a two week strike affecting the wireline segment.

Revenue in the quarter rose 5.4 percent to $27.9 billion from $26.5 billion a year ago. Total operating expenses were $23.3 billion, an increase of 0.7 percent. Consolidated EBITDA was $8.8 billion, up 19.2 percent year over year. VZ has generated $21.5 billion in cash from cash operating activities through the first 9 months of 2011. Cap-ex totaled $12.5 billion on pace to meet managements full year guidance of 16.5 billion.

The company added an additional 882,000 customers this quarter amounting to a total of 107.7 million connections, an increase of 6.5 percent year over year. VZ also saw 138,000 additional FiOS internet subscribers and 131,000 FiOS TV subscribers. The negative impact of storm-related repair costs and the two week strike affected the wireline segment.

UASBIG tech analysts believe that VZ is positioned to perform well in 4Q11 as well as into fiscal year 2011. VZ was able to deliver impressive 3Q results despite both internal and external turbulence. VZ’s fresh line-up of new smartphones, tablets and data devices as well as a pent-up demand their wireline TV and internet businesses position VZ to deliver strong growth in the fourth quarter.

Shares of Verizon, rose 32 cents Friday, to close at $37.42.

Friday, October 21, 2011

Alcoa Sold on 10/21/2011

We made the decision to sell out of our position in Alcoa Inc. Based on the fact that Alcoa missed 3Q11 earnings and the sentiment around the market for aluminum is depressed, we found that the thesis behind our purchase of Alcoa no longer held true. Alcoa now seems to be a 2-3 year long-term hold situation with very short term volatility, and we felt that is was not in our best interest to maintain our holding.

-Jeremy Pellizzari

Tuesday, October 18, 2011

Hartford Rises with Sector and Industry

Hartford Financial Services (HIG) closed up 5.63% today. A move that was in line with other large life insurance providers, including Met Life (5.16%), Prudential (5.35%), and Lincoln National (6.44%). These moves outpaced the domestic Financial Select Sector SPDR (XLF) return of 4.75%. As recently as last week, analysts feared that the poor yield environment would constrain the profitability of the whole life insurance industry because companies would not be able to sufficiently surpass the rates embedded in their products. The recent strength of equities and increases in the 10-year yield have assuaged some of that fear. It is possible that today’s move was the start of a sector rotation. It’s also possible that some shorts were squeezed because today’s performance was inversely proportional to their relative standing in the industry.


Wednesday, October 12, 2011

MSG Update

MSG fell 4.64% today following the announcement that the first two weeks of the NBA season has been cancelled. With that being said the talks are expected to continue as both sides are feeling increasing pressure as they all stand to loose a substantial amount of money. The two-week cancellation will cause around 6 game cancellations per team. UASBIG analysts will continue to monitor the situation carefully.


Alcoa Inc. 3Q11 Earnings - 10/11/11

After the close on October 11, Alcoa Inc. released 3Q11 earnings that disappointed investors. AA reported net income of $172M, or $.15/share, missing consensus estimates of $.22/share and representing a significant sequential decline. Revenue of $6.42B topped street estimates of $6.24B, but was again a sequential decline as compared to 2Q11. CEO Klaus Kleinfeld attributed the significant miss to lower aluminum prices, seasonal factors and weakness in Europe. Shares of AA are currently trading down more than 5% in after-hours trading.

Within the Alumina segment, ATOI of $154M represents an increase of 120% Y/Y but a 17% decrease sequentially. Lower prices of Alumina on the LME significantly impacted this segments top-line, over powering the Company’s efforts to offset increased energy and raw material costs with greater productivity, higher volume, and positive currency impact. The Primary Metals segment reported ATOI of $110M, a sequential decline of 45%, mainly attributed to a decline in LME cash prices. AA’s Flat-Rolled products saw both a Y/Y and sequential decline in ATOI, reporting just $60M. The significant driver behind this decline was deterioration in European markets, risings costs and seasonal plant closings. AA’s Engineered Products and Solutions segment continues to be on the cutting edge and proved so with both Y/Y and sequential increases in revenues, although they saw a sequential decline in ATOI due to unfavorable price mix and flooding at a PA. factory.

AA continued to work towards their financial targets in the quarter expanding their FCF to $250M YTD on $1.1B in cash from operations. They also improved their liquidity by raising cash on hand 6%. Continued capital spending and investment in the Company’s joint venture in Saudi Arabia, as well as a 200 basis point decline in their debt-to-capital ratio are some other highlights from the earnings call.

Alcoa had a tough quarter that was driven by a rapid decline in aluminum prices as well as a slowdown in the demand from many of their target end markets. Although global recovery and demand has slowed, CEO Klaus Kleinfeld maintains his forecast of 12% growth in demand for 2012 and is quoted as saying: “Alcoa is a confident company in a very nervous world. We are well prepared for whatever lies ahead, with more cash on hand, lower debt, and continued focus on profitable growth.” Although much of this may be true, we currently believe that AA is going to continue to have a tough time finding earnings growth as the prices of aluminum continue to drop, demand remains depressed, and input costs continue to apply pressure to margins. Over the quarter, spot prices of aluminum declined roughly 20%, leading to nearly a 40% loss in the share price of AA. A continued drop could continue to be detrimental to AA’s earnings and share price.

-Jeremy Pellizzari

Thursday, October 6, 2011

Shares of Ford Rally on UAW Deal

Prior to the United Auto Workers deal on Tuesday shares of Ford were trading at $9.37. Since, shares of Ford have rallied 17.07% to $10.97, significantly out-performing the bench mark’s 5.96% gain. The stock’s recent performance is primarily a result of the deal Ford reached with the UAW. According to the initial assessment conducted by the rating agency Moody’s, “the proposed UAW contract should enable Ford to maintain its operating flexibility, fixed cost position, break-even point, and liquidity position near current levels,". Additionally, Moody’s said if the contract was ratified and if initial assessments were maintained, Ford can get an even higher rating than what is currently being considered, returning them to investment grade. An investment grade rating for Ford would substantially lower borrowing costs which has been an encumbrance on their profitability, as well as allow them to reinstate a dividend which shows they are trying to return value to shareholders.

On another note, Ford announced that September sales were up 9% from a year ago. Brand sales were up 14%, led by utilities and pickups, with sales gains of 35% and 15% respectively. Positive trends may be a sign of a broader improvement in the automotive industry and as the economy seems to be stabilizing a little bit, there are a lot of people who had been postponing buying new vehicles who are now finally coming to replace their vehicle. Ford has positioned itself well to attract these consumers and their sales reflect it.

UASBIG analyst will closely monitor both the final negotiations of the UAW contract and Moody’s review to return Ford to investment grade in the coming weeks.

Monday, October 3, 2011

10/3/2011 - Alcoa dips 7%

On Monday, Alcoa (AA) traded down 7% which is believed to reflect a few factors including the downgrade and price target cut by Deutsche Bank from “hold” to “buy”, the price target cut by Morgan Stanley, the worries of American Airlines bankruptcy, as well as further concern over global debt levels.

Deutsche Bank downgraded Alcoa’s rating to “hold” from “buy” and adjusted their price target to $14 from $20. The reasons for the downgrade is based on the high leverage of the company, recent declines in metal prices and concern over the demand for industrial metals with uncertainty in Greece and a slowdown in Emerging Market growth. Morgan Stanley cut the price target on Alcoa from $22 to $13, as well as downgrading AA competitors due to risks associated with the slowing of the global economy. The bankruptcy worries for American Airlines may be affecting Alcoa’s stock price due to the increasing use of aluminum as a light-weight and efficient substitute for steel in the production of airplanes. Alcoa has significant exposure to the Boeing Company, which signed a deal over the summer with American Airlines for the production of 200 narrowbody airplanes. The fear of bankruptcy may disrupt the order for Boeing, which will in turn hurt the demand for aluminum from Alcoa.

Going forward, the dismal economic outlook will continue to suppress the demand and more importantly the prices for aluminum. At this point, the prices of aluminum are already below its average marginal cost of production which is close to $2,500 per ton. This leads us to believe that Alcoa will continue to have a tough time increasing revenues and earnings going forward. Alcoa announces 3Q11 Earnings on October 11th, which will uncover many implications about the future of demand and earnings going forward. Our group will continue to evaluate in the next few days whether or not we believe it is in our best interest to maintain our position through the earnings release, as we expect a large revision in the company outlook for 4Q11 and 2012.

-Jeremy Pellizzari