Wednesday, July 30, 2014

NOV (follow up)

I want to follow up on my blog post from yesterday, I want to talk about why the stock reacted the way it did to seemingly strong results. As soon as the company released earnings the stock jumped about 2% in early morning trading, however, after the conference call, it quickly started to decline, ending at down 1.52% for the day. I believe the reason for this is managements commentary on limited orders for new floaters into the third quarter and a couple quarters beyond that this decrease in demand is due to lower dayrates along with contracted capacity already coming to the market. However, they feel this is a challenge that will rollover into the first half of 2015 when they start seeing strong demand pick up. With this being said, I believe we should look passed the softening in demand for new floaters, and look at what will continue to support their strong revenue and earnings growth. Their impressive backlog with about 180 offshore newbuilds currently underway, strong demand for equipment in order to maintain and test offshore rigs over the next five years, their is growing demand for general equipment used to upgrade offshore rigs for float capacity, and lastly, their growing backlog for land rigs and land equipment. The reasons aforementioned will surely offset the softening in orders for new floaters.I intend to see some mixed results within each business segment of the company, but all in all I am still optomistic about this company and feel there is still plenty of room for capturing more upside.

Tuesday, July 29, 2014

NOV Q2 earnings

National Oilwell Varco reported Q2 earnings today. NOV reported non-GAAP EPS were $1.61, beating our estimate of $1.57 and streets of $1.44. Net sales came in at $5.26B, up 12% from the year ago period but coming up short from ours and the streets estimates of $5.5B. The increase in revenue is due to increased demand in North America. I updated the model as well as ran a new regression including the second quarter results. Due to what i feel was a strong quarter, I am comfortable with raising my FY2014 EPS to $5.92, which is $0.02 below street consensus. As of now I have a price target of $89 which represents an upside of about 7%.

Monday, July 28, 2014

Precision Castparts Corporation Q1 2015 Earnings

Precision Castparts Corp. (PCP) reported its first quarter 2015 results, missing on both earnings and revenue projections by consensus. Earnings came in a t $3.32 per share, missing the target of $3.35 while revenue came in at $2.53 billion, missing the target of $2.60 billion. The stock reacted by falling nearly 6 percent the day of the earnings report. Despite missing the target, all three operating segments for the company reported strong revenue growth.

In their investment cast products segment, revenues increased 1% year over year, being offset by about $5 million in contractual material pass-through pricing. There was a decline in military and regional aerospace of roughly 8% in the past, which started to move back up in Q1 by about 1%. In their forged products segment, revenues rose about 3%, driven by the increase in regional/business jet sales while military and large commercial sales remained relatively flat. Oil and gas shipments dropped 9% for the quarter, despite interconnect pipe sales surging 50%. Airframe products saw the greatest increase of all the division, surging 18% year over year. The segment saw an improvement in consumer orders, with shipments and demand both increasing. Increased volume that is tied into acquisitions will need to be focused on in the future, leveraging operation execution to meet increasing customer demand. PCP’s cash increased about 3.3% to $373 million, while their debt level stood at $3.9 billion.

Looking forward, the company has stressed 787 components as being crucial to their success, with those components being established as a stronghold. The commercial airplane sector is expected to be an area of growth, while PCP will continue to utilize its vertical integration in its processes. PCP has continued to maintain its strong relationships with its partners and will continue to do so going forward, mitigating the risk involved with them. The acquisition of TIMET should continue to benefit the company through its internal processes, creating more efficiency. Despite the fact that PCP missed earnings, our investment thesis is still intact and our position remains strong.

Sunday, July 27, 2014

Gilead Sciences (GILD) 2nd Quarter Earnings Release July 23rd, 2014

Gilead surprised the market with total product sales of $6.41B, representing a 236% year over year (YoY) increase from $2.77B, and Non- GAAP EPS of $2.36, representing a 470% increase YoY from $0.50. These both beat analyst expectations of $5.86B and $1.79 respectively. These strong second quarter results had Sovaldi, the company’s HepC wonder-drug, in the driver’s seat leading Gilead’s product sales with $3.48B. The high profit margin gained from the strength of Sovaldi sales generated an operating cash flow for Gilead of $4.19B, of which it used $1.2B to repurchase 15.2M shares and has almost $2B left in its share buyback program which ends in September. The company also announced an additional $5B buyback program following the completion of the current one. In addition, the company updated its annual 2014 guidance revising forecasted total product sales of $11B to $21B-$23B. After all this news Gilead remained relatively flat around $90 in the following 24 hours as there are some questions looming about the pricing of Sovaldi.


Sovaldi sales in the second quarter came in at $3.48B compared to analyst estimates of $2.6-$2.9B. As it stands now Sovaldi is the fastest growing drug…ever and it’s sales could pass the world’s top grossing prescription drug from 2013, Humira (an arthritis drug from AbbVie) if it keeps its sales pace. Domestic (US) sales increased to $4.82B year to date (ytd), treating 70,000 patients, with Europe sales also increasing to $1.3B ytd, treating 10,000 patients. Patients in 34 different countries are now being treated which has resulted in 9,000 people to date being cured of HepC however some physicians are delaying the treatment (warehousing) in anticipation for an all-oral treatment. Gilead is also anticipating Sovaldi approval in Japan, in early 2015. As for pricing problems, two members of the Senate have requested price justification for Sovaldi after Medicaid and health insurance companies have been feeling the pressure of Sovaldi’s unwavering demand. One option being looked at is the duration of the treatment, which is currently at 12 weeks but if it was lowered to 6 weeks would cut the price in half to $42,000. Could it be that the reason Gilead is experiencing a price pushback is due to the fact that HepC is primarily caused by drug users and derived from the use of needles? As it stands now a financial support system has been setup that helps patients who are underinsured, have no insurance, or have financial need to gain access to Sovaldi, called Support Path. The competitive atmosphere in the HepC market is also rising as Merck, Bristol Meyer, and AbbVie all are coming out with HepC drugs in the next year. The market is a bit uncertain on Gilead as pricing problems have clouded the future. The outlook for the drug remains positive and even if the price comes down the company is still looking to have a bright future.


Gilead received FDA approval on July 23rd for Zydelig, which will treat three types of blood cancer. This was a breakthrough, however was overlooked by the market as Oncology is an area that receives high speculation. Gilead does have a drug currently in phase III, momelotinib, but the outlook is that they need to get more drugs in Oncology to really make a footprint in this segment.


Some of the risks associated with Gilead are:
-       Price justification
-       Delayed FDA approval
-          Warehousing (physicians delaying prescriptions)
-          Competitive drugs (AbbVie, Bristol Meyer, Merck)
-          General market acceptance (seeing with Oncology)

Source: Bloomberg