Data on Elan & Biogen’s Tysabri – Analyst Blog
Biogen Idec (BIIB) and Elan Corporation, plc (ELN) recently announced the publishing of research from the Tysabri risk management program in the New England Journal of Medicine.
The research was based on data from Tysabri trials, post-marketing studies and an independent Swedish registry to estimate the incidence of progressive multifocal leukoencephalopathy (PML) in patients on Tysabri.
Three risk factors, the presence of anti-JC virus antibody, prior treatment with immunosuppressants and treatment duration with Tysabri, were used in the analysis.
Patients with anti-JC virus antibody, who had taken immunosuppressant therapy before Tysabri and had been on Tysabri for 25 to 48 months, demonstrated the highest risk of PML. The number of PML cases in these patients was 11.1 per 1,000 patients.
On January 20, 2012, Biogen and Elan announced that the U.S. Food and Drug Administration (FDA) approved a label change for Tysabri. As per the updated label, anti-JC virus antibody status is a risk factor for developing PML, a rare and life-threatening brain infection. This step will enable doctors to assess the patients’ risk benefit matrix better.
Tysabri is approved in the U.S. for relapsing forms of multiple sclerosis (MS) in patients who show inadequate response to or are unable to tolerate other treatments. In the E.U., Tysabri is approved for highly active relapsing-remitting MS (RRMS) in adult patients who have severe RRMS or have failed with beta interferon treatment.
In the E.U., Tysabri was approved in 2006, while in the U.S.; it was initially approved in 2004. The product was withdrawn from U.S. markets in 2005 due to the PML concern. The drug was reintroduced by Biogen and Elan after a year with a strict warning regarding the occurrence of PML.
In-market net sales of Tysabri climbed 14.2% to $399 million in the first quarter of 2012. The increase was driven by higher global demand and higher price in the U.S. market. The sales of Tysabri recorded by Elan rose 17.5% to $288.2 million.
Our Recommendation
We currently have a Neutral recommendation on both Biogen and Elan. While Elan carries a Zacks #2 Rank (Buy rating) in the short run, Biogen carries a Zacks #3 Rank (short-term Hold rating).
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MasterCard Sticks to Neutral – Analyst Blog
Recently, we reiterated our Neutral recommendation on MasterCard Inc. (MA) based on its accelerated growth momentum, risk-free balance sheet and competitive advantage, which are partially offset by higher acquisition and operating expenses.
The company’s first-quarter 2012 operating earnings per share of $5.36 modestly surpassed the Zacks Consensus Estimate of $5.30 and also outpaced the year-ago quarter’s earnings of $4.29 per share. Net income for the reported quarter stood at $682 million, spiking 21.4% from $562 million in the prior-year quarter.
The year-over-year upbeat results were primarily due to better pricing, an increased number of processed transactions, strong gross dollar value (GDV) growth and lower tax rate. While MasterCard is steadily gaining share of the U.S. debit card market, its latest acquisitions DataCash and Access Prepaid have started contributing to the earnings. However, higher-than-expected acquisition and operating expenses partially limited the margins upside.
MasterCard continues to drive growth through increased cross-border volumes, improved pricing along with consistent growth of processed transactions, which rose 29% year over year in the first quarter of 2012. Moreover, the slow but steady recovery in macro-economic factors is leading to improved consumer, business and government spending, eventually impacting the top line and margins positively.
Meanwhile, the debit card business also continues to post modest growth now as MasterCard is able to process about half of the U.S. debit cards. The company continues to diversify its product portfolio through innovations that include ecommerce, mobile payments (m-commerce), prepaid cards, smart cards and other value-added services in order to realign itself to capitalize on the most promising growth opportunities from both geographic and product development standpoints.
MasterCard also enjoys strong cash and available-for-sale investment position along with strong retained earnings and no long-term debt for over a couple of years now. A strong operating cash flow along with a $2.75 billion unused credit facility further provides acquisition opportunities as well as scope for liability reduction, stock repurchase and capital expenditure that will enhance the operating and competitive leverage against arch-rival Visa Inc. (V).
MasterCard remains focused on its inorganic growth, through acquisitions and alliances, as part of its long-term growth strategy. The two latest acquisitions – DataCash in 2010 and Access Prepaid in 2011 – have increased MasterCard’s operational efficiencies by about 25% so far, thereby complementing the company’s long-term growth strategy.
On the flip side, though, MasterCard continues to face headwinds in maintaining the cost of operations of its vastly expanded business. While personal costs are trending up due to severance-related charges, the company’s expenses on fixed operations, acquisitions, rebates, incentives, legal, interest and other non-operating expenses continue to weigh significantly on the bottom line.
Moreover, currency and interest rate fluctuations along with higher rebates and incentives are passed on to the customers and intermediaries continue to weigh on the margins of the company. Going ahead, intense competitive pressure and higher expenses in the midst of the ongoing weak global cues could saturate the margins and bottom-line results.
MasterCard’s history of operations have also been tainted by several state and federal lawsuits such as litigation cases where interchange rates are violated, as well as some involving currency conversion practices and pricing structure. The outlook is further hampered by the ongoing regulatory challenges that are being faced by the card industry, and which does not leave MasterCard unscathed.
In the future, any substantial payment of damages would not only have an adverse effect on the financials, but generating less expensive cards, given the strict regulation on higher-end cards, is also projected to trim a chunk of the top line.
Overall, based on the pros and cons, the Zacks Consensus Estimate for the second quarter earnings is currently pegged at $5.62 per share, shoring up about 18% year-over-year. In the last 30 days, 17 of the 27 firms covering the stock have raised their estimates upward, while 6 downward revisions were witnessed.
Additionally, MasterCard carries a Zacks Rank #2, indicating slight upward pressure on the shares over the near term and suggesting a Buy recommendation. However, the long-term stance remains Neutral.
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Starbucks Makes Management Changes – Analyst Blog
Starbucks Corporation (SBUX) recently announced certain management changes to speed up the company's growth worldwide.
Lucy Lee Helm, a partner at Starbucks for more than 12 years, was named executive vice president, general counsel and secretary. Arthur Rubinfeld was named chief creative officer and president, Global Development and Evolution Fresh Retail. He was the one who designed the company’s first Evolution Fresh juice store in Bellevue, Washington which opened in March 2012. Annie Young-Scrivner will take over as executive vice president and president, Starbucks Canada from September 2012. Other than these changes, the company appointed Colin Moore as the senior vice president, Enterprise Optimization and Craig Russell as the senior vice president, Global Coffee.
Last month, Starbucks announced reported earnings of 40 cents per share for fiscal second quarter 2012, beating the Zacks Consensus Estimate by a penny. Quarterly earnings increased 18% year over year driven by a solid top line, improved efficiencies and cost control. Total sales for the second quarter increased 15.0% year over year to $3.2 billion, driven by strong global same store sales and substantial top-line growth in the Channel Development segment.
The company also raised its fiscal 2012 outlook due to improving business trends and strong first half results. The fiscal 2012 earnings outlook was raised to a range of $1.81–$1.84 from the prior band of $1.78–1.82, representing annualized growth of 19% to 21%. Earnings are expected to be stronger in the latter half of the year as management expects commodity cost pressures to ease in the period. The top line is expected to grow in the low teens in fiscal 2012 driven by mid-single-digit comparable store sales growth, net new store openings and strong growth in the Channel Development business. The company plans to open 1000 new stores in fiscal 2012.
Our Recommendation
We currently have a Neutral recommendation on Starbucks. The stock looks more appealing near term with a Zacks #2 Rank (a short-term ‘Buy’ rating).
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FDA Approval for BSX Epic Stent – Analyst Blog
Boston Scientific’s (BSX) focus on portfolio expansion is yielding results with several product approvals. Recently, the company received approval from the US Food and Drug Administration (FDA) for its Epic vascular stent, which is meant to open blocked arteries in patients with iliac artery stenosis. This condition is associated with severe leg pain caused by insufficient blood flow. The Epic vascular stent is CE Mark approved and was launched in Europe and other international markets in 2009.
Earlier this year, Boston Scientific had announced that the Orion trial met its primary clinical endpoint. The Epic vascular stent recorded only 3.4% of major adverse events in the nine-month period (in the intent-to-treat population), significantly lower than the pre-specified performance goal of 17%.
The FDA approval of the Epic stent will strengthen the company’s Peripheral Interventions portfolio and will complement its Express LD balloon-expandable iliac stent. This segment recorded an 8% increase in sales to $190 million during the most recent quarter.
The FDA approval of Epic vascular stent comes on the heels of CE Mark approval and subsequent launch of Innova self expanding bare metal stent earlier this week. The Innova stent is designed to treat peripheral vascular lesions in arteries above the knee.
Boston Scientific is continuing with patient enrollment in the SuperNOVA clinical trial to support its application for US approval of the Innova stent. The trial expects to enroll up to 300 patients at 50 sites in the US, Canada and Europe, and is expected to be completed in the first half of 2013.
Boston Scientific’s focus on portfolio expansion is inevitable in the face of severe headwinds in its core segments of stents and defibrillators. Other players in the medical devices space such as Medtronic (MDT) and St Jude Medical (STJ) are also resorting to various alternatives to revive their flagging top line.
Some of the other significant products in the company’s pipeline include the fourth generation Synergy drug eluting stent (CE Mark expected in late 2012 with full launch in 2013) and Vercise deep brain stimulation program for the treatment of Parkinson's disease. Both these technologies are expected to contribute to revenues from 2013 and incrementally in 2014.
We have a Neutral recommendation on Boston Scientific. The stock retains a Zacks #3 Rank (hold) in the short term.
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Facebook – It has begun… – Real Time Insight
The Facebook craze culminated this morning as shares began trading on the New York Stock exchange. Hate it or love it, the IPO priced at the very top of its range at $38 a share, valuing the company at over 104 billion dollars on annual income of 1 billion, which puts subscribers to the IPO at a 104 price to earnings (P/E) buy-in.
While buying a stock that is selling for over 100 times the profit they make in a year seems steep, many of you didn’t get to buy FB at $38. Even with all the hype, perhaps investors are wise to the flaws in the FB valuations - Right now the stock is trading at $41, up only $3 or about 8%, a far cry from the $100 target some were setting for the first day of trade.
Even at $41, valuations are high at roughly 110 times earnings.
It’s the same as buying a lemonade stand that made $1000 a year for $110,000. If income stayed the same, it would take you 110 years to get your original investment back.
Given the fact that the S&P 500 is currently trading at about 13 times earnings and investors are selling with fervor, then why in the heck would anyone buy a company 847% more than the average price of a stock in the market? The simple answer is excitement and more importantly the hope and prospects for growth; both being the main drivers for a stock like FB or any hot growth stock that seems pricey. To attract buyers, high priced companies need to prove that they can grow profits in an extraordinary way.
LinkedIn Love
LinkedIn (LNKD) was trading at almost 1000 times earnings when it came public and still is selling for more than 300 times earnings; their stock is up enormously in the past 5 months. Of course the stock dropped 50% just after the IPO due of doubts about their growth, it came roaring back once the earnings report affirmed their expected growth.
The reason why folks paid so much for LNKD was the SPEED at which it said it could grow earnings. A problem arises if they miss an earnings report, because that speed (or trajectory) is then lowered, often resulting in a catastrophic selloff, which has happened a couple times in LNKD, which I consider the FB for professionals and perhaps the best gauge for the behavior of FB in the marketplace.
The bigger the P/E, the bigger the expectations and subsequent selloff if they disappoint.
Is Facebook Really that Great?
Getting back to FB, I personally don’t see super stellar growth within the company. Ad revenue actually dropped between Q42011 to Q12012. Coincidentally, GM announced that they are pulling all their ads from FB moving forward noting the lack of return on capital. If last quarter Ad revenue slowed and this quarter will see the departure of GM and perhaps more clients, then where does FB’s big growth come from?
Sure they are adding users still, but being that the bulk of their revenue is derived from their ads (which I have never clicked on) and those ads are in question, do they really deserve such a rich valuation?
Just 2 weeks ago an advertizing buyer for American Apparel said that he too has pulled all ads from FB because “They just don’t work.” Searching the net for blogs and articles from reputable media outlets has led me to opinions and facts that support this same thesis.
By the way, Facebook has been unable to monetize its mobile users to date and frankly I don’t know how they are going to do it. The basic application is slow and crowded as is and obviously free if you start sticking banners all over it you’re going to deter users from even wanting to log on and for those who just post photos, videos and status updates; they won’t even see the ads.
So again, I fail to see where this windfall of growth is coming from…
Did I mention that it took almost 2 years for Facebook to double their ad revenue from Q22010? Apple doubled its earnings in a year. If Apple had just ¼ of Facebook’s current valuation, their stock would be trading way over $1200...
Just a thought. I think Apple is not only a bargain at its current levels, but offers better prospects for growth than the almighty Facebook and its ruler, the ever-cocky Mark Zuckerberg…
So I am curious if anyone out there completely disagrees with me and is buying Facebook at these levels (and why)?
I am also wondering where everyone thinks Facebook will be trading 6 months from now?
(I thought I'd take my colleague Brian's challenge a bit further)
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Sempra, BP Team Up on Wind Project – Analyst Blog
Sempra U.S. Gas & Power, a subsidiary of Sempra Energy (SRE), will build the Auwahi Wind farm in southeastern Maui, Hawaii in collaboration with BP Wind Energy, a subsidiary of BP plc (BP). The project with a generating capacity of 21 MW will be sufficient to provide power to 10,000 homes at Maui on an average.
The wind farm will utilize eight Siemens wind turbines for the generation of power. Under a long-term power purchase agreement, the entire power from the wind farm will be sold to the Maui Electric Company. It will install a battery storage unit with a storage capacity of 4 megawatt hours of renewable power which will allow constant wind power and a valuable source of grid stability for Maui Electric Company. Besides creating 150 jobs during the peak construction period, the project will help Hawaii to accomplish its clean energy goal of securing 40% of its electricity from renewable sources by 2030.
The initial construction activities have begun and the companies expect construction to go into full swing by second-quarter 2012 end. They expect the project to come online by the end of fiscal 2012. Post completion, Sempra will continue to be responsible for the development and operation of the Auwahi Wind project.
Sempra U.S. Gas & Power and BP Wind Energy had earlier come together on a number of projects. In Kansas, the companies are building the 419 MW Flat Ridge 2 Wind Farm and are tying up in joint venture agreements for a 51 MW expansion project. In Pennsylvania, their 141 MW Mehoopany Wind Farm is under construction. The companies expect both these wind farms to be in commercial operation by the end of 2012. They are also into equal partnership on the 200 MW Fowler Ridge 2 Wind Farm in Indiana and the 250 MW Cedar Creek 2 Wind Farm located in northeastern Colorado. Recently, in January 2012, the companies announced an expansion of their strategic relationship by jointly investing more than $1 billion to build 560 MW of wind power.
Sempra Energy is an energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas.Its diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. The company is also implementing infrastructure improvement programs focused mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate. We believe that the project will be an added advantage to its portfolio.
However, these positives are offset by near-term trepidation in natural gas prices and pending regulatory cases. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.
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Pepco Lowered to Neutral – Analyst Blog
We have downgraded our recommendation on Pepco Holding Inc. (POM) to Neutral from Outperform, as we felt the delay in the service date of Mid-Atlantic Power Pathway (MAPP) transmission project will impact the company’s earnings.
Pepco Holding has gradually transformed itself into a regulated utility by divesting its unregulated businesses. It has a stable customer base, spread across commercial, residential and government customers. Besides, the company is also making investment on infrastructure to develop its transmission systems and provide better services to its consumers.
However, like other regulated utility companies, Pepco is also subject to regulation by various federal, state and local regulatory agencies, which could significantly impact operations. Inconsistent weather patterns have of late impacted the Power Delivery and retail energy supply businesses to a great extent.
The utility companies make capital investments to improve and upgrade its transmission and distribution systems, to ensure uninterrupted supply of power to its customers. The regulated companies recover the investment through rate increase filing. Presently, Pepco Holdings has five pending electrical regulatory rate cases. Any unfavorable outcome in the rate cases could hurt the prospects of the company and its ability to carry on with developmental expenditures.
Pepco failed to meet our top-line expectation in the first quarter of 2012 due to lower contribution from all the three operating segments of the company. Pepco expects earnings per share for 2012 to be in the band of $1.15 to $1.30. The guidance assumes normal weather pattern for rest of the year, which remains dubious.
Pepco Holdings currently retains a Zacks #3 Rank (short-term Hold rating). Another utility operator in the region American Electric Power Co., Inc. (AEP) presently retains a Zacks #4 Rank, which translates into a short-term Sell rating.
Based in Washington, District of Columbia, Pepco Holdings, through its two operating divisions, Power Deliver and Competitive Energy, involves in transmission and distribution of electricity, as well as delivery and supply of natural gas.
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Institutions Are Buying These Stocks – Weekend Wisdom
Big institutions run the market. They account for more than 70% of all the trading action. They spend millions on research and countless hours to determine which stocks to buy...something the little guy cannot replicate.Few investors would want to get into a stock that they knew powerful institutions were selling. And conversely, many would want to buy into a stock these powerhouses were building large positions in.
Unfortunately these pros go to great lengths to cover their tracks. Gladly, they do leave a small trail of bread crumbs for us to follow. If you know where to look.
In this article I will share with you specifics on how to interpret and, better yet, profit from this trail of information that the smart money leaves behind. Let's get started.
You Have to Know Where to Look
By law, institutions that manage $100 million or more are forced to file with the SEC when they trade in a company in which they have a 5% stake or more. They are also forced to show all their holdings. But the holdings data is often stale and not worth as much as the newer, more voluminous filings.
Institutions have to file 13G, 13D and 13F forms with the SEC, and they are available for everyone to see. The information contained in these filings includes the dates they bought and/or sold and the amount of shares. Oftentimes, we see big institutions buying and selling the same name, so several filings for the same stock are likely.
There are two filings that hold the key to success. The 13Gs and 13Ds, which have to be published 10 days after an institution takes a 5% stake. That information is fresh and actionable. We learn what the big boys have been buying, and it is still timely as they are likely to continue to build their position depending on the stock.
Sounds easy?
Not so fast. First, you need a team of people to grab the mountain of filings in real time and get it into a database. Then you need to also have a firm understanding of who the players are in this game. What is their focus? Their current and past holdings? Their level of trading success? Are they a leader or a follower in the field? And much more.
Gladly, we here at Zacks have marshaled our resources to bring this to life. Here are some examples of what we have found to date.
More...
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They Don't Want You To Get In Early
Big institutional plans and funds try hard to keep others from spotting their key stock moves too soon. They move their assets slowly and want to buy in at the lowest prices.
Now a Zacks research breakthrough can alert you to the very best of this "smart money" at the first sniff. Even through downturns and corrections, these gains are expected to easily surpass the Zacks #1 Strong Buys average of +26% per year. Access to this brand-new strategy is limited, and will soon close to new investors.
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From Theory to Action
Case in point would be the March 12, 2012 filing that FMR took a 14.99% passive stake in Threshold (THLD). That is a lot of stock no matter the size of the company. Plus, it's FMR, which the common investor might not recognize, but when FMR is decoded into Fidelity Management & Research then it becomes a little clearer.
On March 12, when this information was disclosed, THLD closed higher by $0.10 to $6.56. A mere 16 days later on March 30, the stock closed at $8.80, a 34% increase. As a Zacks #2 Ranked stock at the time, this large trade was something that our resources alerted us to. The subsequent move higher in the stock was proof positive that following the smart money pays off.
Here is another great example. In early February 2012, a filing came across from an institution that is widely followed. Capital Research Global Investors announced that it now owned 2.8 million shares of LeapFrog Enterprises [LF]. That position of 5.8% of LeapFrog forced the filing when the stock was only at $6.83.
In the days following the initial 13G filing, we saw several other positions being made by other institutions, including another 5% position by LiteSpeed Master Fund. In less than three months' time, the stock closed at $9.34. The +36.8% gain told us we were on to something here.
Not All Institutional Trades Are Made Equal
Some institutions are well known for spectacular returns. They have earned their reputations over time with market beating performances. These are the thought leaders of industries. And these are the folks worth following.
The task is made difficult as they try to hide their fillings by changing CIK codes and other tricks up their sleeves. The other institutions keep track of the thought leaders so that when a hot hand announces a new position in a stock, we often see several other institutions pile on top.
This is the "monkey see, monkey do effect" that happens rather frequently. And those who have a technological advantage to mine this information can get in early to enjoy the ride higher.
And yes, Zacks does have that advantage in place.
What to Do Next?
Beat the big institutions at their own game with the Zacks edge. That's why we're introducing our latest service, Zacks Follow the Money Trader, so you can join the "smart money" as they ride the price of their stock buys up before the rest of the market catches on. I'll lead you through every step of the way as editor.
You're invited to become a Charter Member and receive our first moves along with explanations of why they're recommended. Demand is running high and available spots are already filling fast, so I suggest you look into this right away.
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Good Investing,
Brian Bolan
Brian is our Aggressive Growth Strategist and provides commentary and recommendations for the brand-new Zacks Follow the Money Trader.
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GM Recalls Aveo in China – Analyst Blog
General Motors Company’s (GM) joint venture with Shanghai Automotive Industry Corporation (SAIC), Shanghai GM, will recall 47,415 units of Chevrolet Aveo cars in order to fix their faulty brake fluid sensors. The cars belong to the model year 2012.
The General Administration of Quality Supervision, Inspection and Quarantine revealed that it is a supplier’s fault. The defect could fail to alert drivers about low brake fluid levels. The company will fix the sensors free of charge.
This is the third vehicle safety recall of GM in China since December last year. Late December, Shanghai GM had recalled 9,862 units of 2011 Cadillac SRX model due to defective transmission systems.
Then, earlier in March, GM recalled 16,618 units of Chevrolet Captiva and Opel Antara crossover sports utility vehicles in China due to a problem with the antilock braking system in the vehicles. The recall involved vehicles that were manufactured between April 11, 2006, and November 9, 2009.
Automotive safety recalls were brought into focus by media after Toyota Motors’ (TM) announcement of the largest-ever global recall of 3.8 million vehicles in September 2009, triggered by a high-speed crash that killed 4 members of a family.
Later on, a string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts. The Transportation Department of U.S. also imposed a fine of $48.4 million on the company due to late recall of millions of defective vehicles.
Auto sales in China grew 5% to 1.62 million vehicles in April after recording a slack first quarter. However, sales in the first four months of the year slid 1.3% to 6.4 million vehicles owing to tighter credit policies and slower economic growth.
GM’s total sales in China grew 11.7% to 227,217 vehicles during the month. Shanghai GM sales went down 2.2% to 94,101 units while SAIC-GM-Wuling sales went up 27 % to 127,362 units.
GM, a Zacks #3 Rank (Hold) company, reported a $100 million fall in profits to $1.6 billion in the first quarter of 2012 from $1.7 billion in the same quarter of 2011, before special items, due to lower profits from its European operations.
On per share basis, adjusted profits were 93 cents during the quarter, down 2 cents from the first quarter of 2011. However, it exceeded the Zacks Consensus Estimate of 84 cents. Adjusted earnings before interest and taxes (EBIT) dipped to $2.2 billion in the quarter from $2.0 billion in the year-ago quarter.
Revenues in the quarter went up 4% to $37.8 billion on a 3% rise in unit sales to 2.3 million vehicles globally. It was higher than the Zacks Consensus Estimate of $36.4 billion. The automaker occupied a worldwide market share of 11.3% during the quarter, compared with 11.4% a year ago.
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Retaining Celanese at Neutral – Analyst Blog
We are reaffirming our Neutral rating on leading chemical maker Celanese Corporation (CE) following its mixed first-quarter 2012 results. Its adjusted earnings of 72 cents a share missed the Zacks Consensus Estimate by a nickel.
Sales moved up 3% year over year to $1.63 billion, beating the Zacks Consensus Estimate. Revenue growth was driven by higher pricing and volume in the Acetyl Intermediates and Industrial Specialties segments. However, softness in Europe impacted results in the AdvancedEngineered Materials division.
Moving ahead, the company envisions the challenging market conditions in Europe and Asia to last longer in 2012 than expected. Celanese, however, remains optimistic that leading technologies, low cost operations and a strong presence in emerging economies will enable it to deliver incremental earnings in 2012.
Celanese is among the world’s largest producers of acetyl products as well as the leading global producer of high-performance engineered polymers. It competes with BASF SE (BASFY), Methanex Corp. (MEOH) and E. I. Du Pont de Nemours & Co. (DD).
Celanese continues to accelerate growth in the emerging markets, including Asia. Its expansion initiatives in China are expected to support earnings growth. The company’s integrated chemical complex in Nanjing, China, serves as a base for expansion in Asia, supporting the region's increasing demand.
Celanese recently received all government approvals necessary to modify its existing integrated acetyl facility at the Nanjing Chemical Industrial Park. The facility, which is scheduled to go live in mid-2013, is expected to boost ethanol production for industrial use in China.
Celanese plans to cut costs and run its plants better to counter weak demand. Moreover, the company continues to generate strong cash flows and remains focused on returning value to its shareholders.
However, Celanese is exposed to volatility in raw material (natural gas, ethylene and methanol) pricing and intense competition. Moreover, the company’s balance sheet leverage is also relatively high, limiting its financial flexibility.
Celanese is witnessing weak acetyl demand in China and Europe. The company is also seeing softness in some of the advanced interim market segments due to weak automobile builds in Europe. Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
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