Roadrunner Transportation Systems Announces Closing of the Merger With Prime Logistics Corporation and Related Financing
CUDAHY, WI--(Marketwire - Aug 31, 2011) - Roadrunner Transportation Systems, Inc. (
We have recently changed our long-term recommendation for Liberty Property Trust (LRY), a leading real estate investment trust (REIT), from Underperform to Neutral as we anticipate it to perform in line with the braoder market. We also have a Neutral rating for Duke Realty Corp. (DRE), one of the competitors of Liberty Property.
Liberty Property provides leasing, property management, development, construction management, design management, and related services for a portfolio of industrial and office properties. The company focuses primarily on prime suburban properties in the Southeast, Mid-Atlantic, and Midwest regions of the U.S. In addition, the company also owns certain assets in the U.K.
The company’s assets are designed to accommodate various types of tenants and space requirements. Liberty Property specifically focuses on metro-office, multi-tenant industrial and flex properties and markets that have strong demographic and economic fundamentals, which ensure a steady revenue stream for the company.
The company operates in multiple markets, enabling it to mitigate geographical risk. In each of these markets, the company offers an appropriate mix of office and industrial properties, sufficient to be recognized as a significant participant in the market. Furthermore, Liberty Property is continuing its portfolio repositioning program as it focuses on higher growth markets characterized by better job and rent growth prospects.
However, Liberty Property generates a significant amount of revenue from its office portfolio. Office demand is highly correlated to job growth. With fears of a double-dip recession looming large, operations in the company’s office portfolio is likely to suffer as most companies have shelved expansion plans and trimmed jobs.
In addition, the continuous acquisition spree of Liberty Property involves significant upfront operating expenses with limited near-term profitability. New properties usually take time to generate revenues, and will continue to drag down margins before they break even.
Liberty Property also has a large development pipeline, which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays, and lease-up risk.
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Statoil Petroleum AS, a fully owned subsidiary of Norwegian oil company Statoil ASA (STO), has encountered a marginal discovery near the Sleipner East field in the Norwegian North Sea.
The affiliate is on the verge of completing the drilling operations of wildcat well 16/7-10, which met a thin gas/condensate column in a 115-metre thick reservoir. The well − situated in the Statoil Petroleum operated production license (“PL”) 569 − was drilled 16 kilometers northeast of the Sleipner field.
Ocean Vanguard drilled the well that was proposed to prove petroleum in Paleocene reservoir rocks and the licensees will continue to assess the discovery together with other nearby discoveries. The well stands as the pioneer exploration well in production license 569, which was awarded in the Awards in Predefined Areas (or APA) 2010.
The latest find follows Statoil’s small hydrocarbon discovery last week, the third one in a row near the prospective Gullfaks South area, following the earlier Rutil and Opal finds. The company completed exploration wells – 34/10-52 A and B – in its production license 50 in the neighborhood of its Gullfaks South field in the North Sea off Norway.
According to the preliminary approximation, the discovery in PL 50 holds between 0.5 and 1.5 million cubic meters of recoverable oil equivalent.
These discoveries, although trivial in nature, demonstrate Statoil’s relentless effort to reinvigorate recovery in the mature fields, with an emphasis on the Norwegian Continental Shelf. Statoil is facing production glitches of late and is continuously shifting its focus to the still unexplored areas of the Norwegian Sea, projecting an equity production of above 2.5 MMBOE by 2020. Our long-term Neutral recommendation on Statoil remains unchanged at this stage.
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In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported a marginal rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This can be primarily attributed to an increase in the tally of land rigs searching for oil.
The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors such as Transocean Inc. (RIG), Diamond Offshore (DO), Noble Corp. (NE), Nabors Industries (NBR), Patterson-UTI Energy (PTEN) and Helmerich & Payne (HP) in gauging the overall business environment of the oil and gas industry.
Rigs engaged in exploration and production in the U.S. totaled 1,975 for the week ended August 26, 2011. This is up by 1 from the previous week’s rig count and represents the highest level since November 7, 2008.
The current nationwide rig count is more than double that of the 6-year low of 876 (in the week ended June 12, 2009) and significantly exceeds the prior-year level of 1,656. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.
Rigs engaged in land operations climbed by 4 to 1,925, offshore drilling decreased by 1 to 33, while inland waters activity was down by 2 at 17 rigs.
Natural Gas Rig Count
The natural gas rig count decreased for the first time in 4 weeks to 898 (a drop of 2 rigs from the previous week). As per the most recent report, the number of gas-directed rigs – which slid to a 16-month low of 866 in May but recovered to touch 900 last week – is down approximately 9.5% from its 2010 peak of 992, reached during mid-August.
The current natural gas rig count remains 44% below its all-time high of 1,606 reached in late summer 2008, but have rebounded strongly after bottoming out to a 7-year low of 665 on July 17, 2009. In the year-ago period, there were 973 active natural gas rigs.
Oil Rig Count
The oil rig count was up by 3 to 1,069. The current tally – the highest in 23 years – is considerably more than the previous year’s rig count of 672. It has recovered strongly from a low of 179 in June 2009, rising almost 6 times.
Miscellaneous Rig Count
The miscellaneous rig count (primarily drilling for geothermal energy) at 8 remained steady compared to the previous week.
Rig Count by Type
The number of vertical drilling rigs fell by 2 to 607, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was up by 3 at 1,368. In particular, horizontal rig units rose by 2 in the latest week to hit a new all-time high of 1,140.
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We downgrade our recommendation on SIRIUS XM Radio Inc. (SIRI) to Neutral based on its high-level of current valuation and the recent debt crisis in the U.S., which may delay its economic recovery. SIRIUS XM reported mixed financial results for the second quarter of 2011. While EPS beat the Zacks Consensus Estimate driven by huge cost cutting, revenue fell below it.
In the previous quarter, SIRIUS XM performed poorly with respect to several operating metrics. Average revenue per user (ARPU) was $11.53 compared with $11.81 in the year-ago quarter. Average self-pay monthly churn rate was 1.9% compared with 1.8% in the prior-year quarter. Similarly, conversion rate was 45.2% compared with 46.7% in the prior-year quarter.
We remain concerned regarding the ongoing economic headwinds and its effect on satellite radio industry. The U.S., together with Europe, is at present suffering from serious debt crisis. Recently, Standard & Poor’s downgraded the century long coveted AAA sovereign rating of the U.S. to AA+.
A rising unemployment rate, slow GDP growth, and an expected government budget cut may result in lower disposable income on the hand of consumers to purchase satellite radio subscription.
SIRIUS XM’s business depends to a large extent upon automakers. The sale and lease of vehicles with satellite radios is the most important source of subscribers for both the XM and SIRIUS satellite radio services. Any turmoil in the U.S. auto sector will have disastrous affect on SIRIUS XM’s businesses.
Pandora Media Inc. (P) offers Internet radio services that can detect settings from iPhones or iPods, which can be transformed into convenient access to create customized music stations for individual users while driving. Pandora has 80 million registered users in the U.S. and provides a unique algorithm that increases the intrinsic quality of the music. In addition to iPhone, Pandora has also developed streaming services for BlackBerry and Android-based smartphones. Spotify.com Internet radio service also increased competitive pressure.
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Zacks Investment Research
For more Voice of the People, visit http://at.zacks.com/?id=7872
Featured PostOpportunity: Government to Block AT&T and T-Mobile Merger
The telecom sector is down today due to the announcement that the government is going to sue to block the AT&T and T-Mobile merger. AT&T (T) is down at the moment to it's previous support level.
I see this as an opportunity for me to buy AT&T at a very favorable price for a long hold to lock in a dividend yield of over 6% on a solid company leader. AT&T is currently priced this morning in the 28 to 28.15 range. It could drop even more during the day. If interested, one can purchase (as I am) an incremental amount right now and see where it goes later in the day for additional purchasing.
Another play, with AT&T down today is to get the upped premium on AT&T puts. One can write a put and collect the premium betting that AT&T would not drop to the strike price. For example, the premium on AT&T 27 OCT's is .82
Post Update: Noon. I also wrote a put on AT&T OCT 26...getting $55.00 premium pocket change. If I get assigned AT&T at 26 my dividend yield will be a whopping 6.75% as my cost basis would be 25.45 (excluding commissions).
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A leading supplier of communications equipment and services, Harris Corp. (HRS) recently won a follow-on contract worth $16 million from Lockheed Martin. The total value of the contract from Lockheed Martin including the recent win is approximately $200 million.
As per the deal, Harris will deliver nearly 100 Harris Highband Networking Radio (HNR) systems to the U.S. Army's Warfighter Information Network.
The Highband Networking Radio system supports beam technology, which ensures smooth long distance communication facility and avoids fixed network infrastructure or operator intervention as it automatically selects the best communications path, and creates a self-forming, self-healing network.
Harris remains the leader in the public safety and professional communication market and boasts products ranging from IP voice and data networks, industry leading multi-band, multi-mode radios, public safety-grade broadband voice, video and data solutions that support 500 systems globally. Recently, the company declared its fourth quarter 2011 financial results, where both revenue and earnings per share (EPS) surpassed the Zacks Consensus Estimate.
Accretive share repurchase plan and the recent dividend hikes will act as positive catalysts for the stock going forward. Moreover, continuous contract wins and huge order back logs will support future growth.
However, the company remains exposed to stiff competition from companies like Boeing Co. (BA), General Dynamics Corp. (GD) and Raytheon Co. (RTN), which also provide high-end public safety communication systems.
We, thus, maintain our long-term Neutral recommendation for Harris Corporation. Currently, Harris Corporation has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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Ann Arbor, Michigan-based Domino’s Pizza, Inc (DPZ) recently franchised 30 company-owned restaurants in Atlanta to four experienced local owner-operators. The company operated 38 company-owned restaurants in Atlanta and further expects to franchise the remaining restaurants going forward.
Mike Orcutt, one of the leading franchisee of Dominos in U.S, purchased 14 restaurants and thus became the second largest franchisee of the company in the U.S with ownership totaling 93 restaurants. Other franchises Greg Fox, Todd Dyrda and Tim Garrett purchased 9, 7 and 2 restaurants, respectively.
Domino’s is primarily a franchise company with 9,009 stores out of 9,436 franchised. The company has 50% franchised stores in the domestic market and 50% in the international market. During the first quarter of 2011, Domino's franchised 26 Minneapolis-based company owned units.
Domino’s continues to focus on expansion through franchising as it reduces capital employed and increase cash flow generation. Additionally, growing free cash flow will allow the company to further invest for enhancing brand recognition as well as shareholders’ return. The margin of the company is also expanding due to a change in the revenue mix attributable to fewer company-owned stores and increased franchise royalty revenue.
Moreover, the company continues to expand in the international market based on its master franchise model, which provides international franchisees with exclusive rights to operate stores, sub-franchise the store in agreed-upon market areas, as well as operate their own supply chain systems. Domino's currently boasts a presence in over 70 markets outside the U.S with more than 4500 franchised international stores.
During the second quarter of 2011, Dominos further expanded in Turkey by opening additional 30 stores. Domino’s international stores have generated positive quarterly same-store sales growth for 70 consecutive quarters.
Domino’s competitors including McDonald’s Corp. (MCD) also continues to focus on refranchising strategy, which involves a shift to a greater percentage of franchised restaurants. Currently, around 81% of McDonald’s total restaurants are franchised.
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One of the leading railroads in the U.S, CSX Corporation (CSX) announced its plans to invest approximately $59 million in intermodal freight terminal expansion in Columbus, Ohio.
The expansion is a part of the company’s ambitious multi-year National Gateway project, which aims at improving the efficiency of freight network between the Mid-Atlantic ports and the Midwest markets.
National Gateway project is estimated to involve a total investment of $850 million, of which CSX Corp. expects to contribute approximately $575 million. A portion of the public fund needed to complete the National Gateway has been secured and CSX Corp. is working with its state partners to apply for the additional funding required to complete the project.
Upon completion, National Gateway is expected to reduce truck traffic and increase intermodal capacity on key corridors without increasing the number of trains. We believe that this will improve the efficiency and profitability of the company.
CSX Corp. has already commenced a key part of this project, the Northwest Ohio Intermodal Terminal in early 2011 with an investment of approximately $175 million. This high capacity terminal improves market access to and from ports in the east coast. Additionally, this terminal is equipped with eco-friendly technology.
Intermodal freight transportation is rapidly gaining grounds with the customers given its potential advantages over truck in terms of cost and capacity. Consequently, railroads are increasingly focusing on building infrastructure through heavy capital investments in order to support growing intermodal demand.
Other railroads like Norfolk Southern (NSC) are also seeking expansion in intermodal networks with major Intermodal corridor initiatives such as the Heartland, Crescent, Meridian, Titusville, Tennessee, Alabama and Pennsylvania. Norfolk continues to make strategic long-term investments and expects to invest $2.2 billion in 2011 with half of it dedicated toward Intermodal development.
Currently, we maintain our long-term Neutral recommendations on CSX Corp. and Norfolk with short-term (1-3 months) Zacks #2 Rank (Buy) for both.
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Medical technology company Conmed Corporation (CNMD) reported that its Linvatec arthroscopy division has launched the GENESYS Matryx interference screw. The new product is primarily indicated for fixing soft tissue in the reconstruction of the anterior cruciate ligament (“ACL”) and posterior cruciate ligament (“PCL”) of the knee. The smaller diameter screws are also indicated for reattachment of soft tissue to bone, offering flexibility for repair in other parts of the body.
Interference screw fixation is often used in the reconstruction of a damaged ACL or PCL of the knee. The placement of the ligament and interference screw into the bone tunnel facilitates natural healing of the failed ligament. The GENESYS Matryx interference screw supports bone formation, leading to bone reconstruction and integration of the replacement ligament.
The new interference screws represent significant advancement in biocomposite material technology. Leveraging a proprietary microfiltration process, Linvatec is able to make one of the smallest biocomposite interference screws currently available on the market for fixation of ACL and PCL grafts.
Conmed is a medical products maker specializing in surgical instruments and devices. Its second-quarter fiscal 2011 adjusted earnings of 35 cents a share matched the Zacks Consensus Estimate while profit surged roughly 19% year over year on the back of higher revenues and lower restructuring costs.
Revenues rose narrowly year over year to roughly $183 million, missing the Zacks Consensus Estimate. Growth across Powered Surgical Instruments, Electrosurgery and Endosurgery businesses was partly masked by lower Arthroscopy sales. Management’s cost-cutting initiatives contributed to an expansion in operating margin.
Conmed is experiencing healthy growth for its single-use disposable products. A large percentage of the company’s products are designed for minimally invasive surgery, a trend that is extremely popular these days.
However, Conmed operates in a highly-competitive orthopedic surgery market against much larger, more technically-competent companies, such as Johnson & Johnson (JNJ), Smith & Nephew (SNN) and Stryker Corporation (SYK). Moreover, it is exposed to pricing pressure and a still weak hospital capital purchasing environment.
Given the challenging capital purchasing backdrop, the company has trimmed its revenue expectation for fiscal 2011. Currently, we are Neutral on Conmed.
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