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August 2018

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We still wait for any positive developments before we may decide on a bullish stance on the $9 billion company

TheCountryCaller has held bearish views on Canadian drug maker Valeant Pharmaceuticals Intl Inc’s (NYSE:VRX) stock for a while now. As we looked at the big picture and did not focus on the little positive developments, there was a wave of uncertainty that existed. Hence, we were not convinced to suggest a buy call at that time. Now that the bubble has burst, it becomes a lot more visible that the company was over rated on the future potential, while the present did not seem to be too enticing either.

Our article dated August 31, we discussed all the dangers that surrounded the company at that type, which is why we termed it as “shadows stronger than light”. The case of Valeant needs to be comprehensively reviewed, rather than just looking at new leadership of Joseph Papa and his diversification plans. Although both of these are positive points, the fact remains that the company is facing some litigation challenges that amount to more than $70 billion, seven times more than its market value.

While that may be a bigger challenge in the lot, the management seems to be confident that it will be able to deal with all these challenges effectively. However, it is important to deal with these challenges before we start considering it for our bullish books. It won’t be wrong to say that the street’s expectations were defied in a big way. Even when the stock prices were above $30, we used to discuss the consensus PT, which then stood above the $50 mark.

Now that the prices have plummeted more than 10% from those levels, only a few brokerages such as Duetsche Bank and Piper Jaffray have realized that the company has no fruit until it deals with all its challenges. Nonetheless, we still wait for any positive developments before we may decide a bullish stance on the $9 billion company.

Analyst believes that U.S. Department of Justice doesn’t have any ground to block the deal

Time Warner Inc (NYSE:TWX) and AT&T Inc. (NYSE:T) announced a few weeks ago about a definitive agreement under which the latter will acquire the former for a consideration of around $85 billion. Following the news, there has been a lot of speculation regarding the approval of the said by regulatory authorities, and the opinion among the analysts regarding the probability of an approval remains divided.

Credit Suisse analyst Omar Sheikh has said in his latest commentary that there is not a single reason that US Department of Justice can use to block the acquisition proposed by AT&T and it is almost certain that it will happen. The analyst expects the department of justice to review the deal, which makes the approval more likely; but even if it were to be forwarded to FCC for a review, the chances of the deal happening will not diminish significantly. The analyst views the transaction as a vertical integration of two companies and it doesn’t in any way disturb the balance of the involved industries.

The analyst put forth the example of Comcast and NBCU deal in 2011 and commented that the dynamics of Time Warner and AT&T are very similar to it. It would make little sense to disallow the said.

Despite being positive that the deal will happen, the analyst commented that if the deal is blocked due to some unforeseen reasons, the upgrade of Time Warner to Outperform from Neutral rating is still justified. The company’s business has been gaining traction and the underlying trends suggest that the downside risk of the stock is very limited in the next few quarters. The price target of Time Warner was reaffirmed at $107.50.

There are 34 analysts rating Time Warner out of which 10 rate the stock as Buy, 7 Outperform, 16 Hold, and only 1 analyst rates it Underperform. The stock traded at a price of $87.74 and gained 1.56% during the session.

Advanced Micro Devices, Inc. left behind breadcrumbs for us to pick up

The past month played host to numerous reports from major publications about more powerful versions of PlayStation 4 and Xbox One that were all based on either industry insiders, or rumors and speculations. It has now come to light that Advanced Micro Devices, Inc. (NASDAQ:AMD) had already mentioned the hardware upgrades in its Q4 2015 earnings report in January.

While the company’s quarterly earnings report was publicly available for months now, it took only one Reddit user to take a closer look & read between the lines. An excerpt from the report refers to the expectation of increased revenue for the company in the second half of 2016 through “new design” and “new semi-custom business” from its EESC (Enterprise Embedded and Semi-Custom) division, a separate business unit that directly caters to AMD’s console market. 

Furthermore, AMD mentions the upcoming new semi-custom products as “design wins,” suggesting that the company is working on more than one semi-custom silicon device which it expects to release later this year.

The current word on the street is that Sony Corp. (NYSE:SNE) is frantically working on a more powerful version of the PlayStation 4 console, which it intends to release before the launch of PlayStation VR in October. Dubbed “PlayStation 4.5,” it’s said to be able to run games in native 4K resolution, as well as delivering a high-end virtual reality experience.

Microsoft Corporation (NASDAQ:MSFT) was thinking along similar lines for its Xbox One console. However, Xbox Boss Phil Spencer stepped forward recently to completely shut it down, stating that the idea did not interest him.

Nintendo NX is en route for an official unveiling this summer, strongly suggesting that the company’s new console could see to an official launch before the end of the year.

Both Sony and Microsoft currently have custom AMD chips powering their respective consoles. The Red Team is also heavily rumored to be involved with the Nintendo NX.

Considering the wordings of AMD’s Q4 2015 earnings report, it can be said that we’ll see the release of at least two new semi-custom silicon-powered devices this year. Seeing Microsoft’s recent backtrack for an upgraded Xbox One model, we can only assume the Nintendo NX and Sony’s PlayStation 4.5 to be the likely candidates.

Users will now be able to determine whether an app is ad free or not, without actually having to install it in the first place

For those who were annoyed with having to deal with apps that featured extensive ads, Alphabet Inc.’s (GOOGL) Google has released a handy new feature for the Play Store. This feature informs users whether an app has ads or not before they download it. The feature was first spotted by a Reddit user, after which it was extensively covered by VentureBeat.

Now that Google has started flagging apps with ads, users will find it easier to decide whether or not they want to install a free app. Seeing how many free apps there are already present on the Play Store, there was previously no way of telling whether it featured apps until it was installed. Fortunately, this will not be a problem anymore.

Users can easily tell whether an app has ads by checking below the download button. The feature will make it easier for users to make informed decisions while deciding apps, and this did not come as a surprise, since app developers had already seen this coming.

The idea behind the move is simple, Google wishes to make trusted and high quality content available for its users and it is safe to say, several other similar steps will be taken in the future to make this possible.

Google may have just come up with a brilliant way to make Play Store easier to use and convenient for those who want to make sure they get high quality content without having to deal with ads. This could give the platform a much needed boost and could potentially encourage app developers to tone down the number of ads being placed on their apps.

Analyst expects Russia to comply with the agreement and contribute toward the planned oil cut

The start of the new year marks the implementation of Oil Producing and Exporting Countries agreement to cut oil supply. This is expected by various analysts to make OPEC relevant again in the oil market. Energy giants including Chesapeake Energy Corporation (NYSE:CHK) and Chevron Corporation (NYSE:CVX) are likely to benefit from this development.

The year 2017 is supposed to mark the revival of oil prices to new heights. The OPEC’s decision to cut oil supply has led oil prices to rise to over $50 a barrel. It is being expected by investors that the prices will cross the $100/per barrel mark. However, some analysts have also estimated that oil prices might just be able to reach the $60/per barrel mark in the first six months of the new year.

The OPEC announced last year that it would cut oil supply by over 1.8 million barrels a day from this year. Many investors were sceptical about this move. Past records have suggested that these cuts are only met with 60-80% compliance. It has been also covered in our earlier articles that the sentiment on the deal suggests it would fail in the first six months of the year.

Virendra Chauhan, an analyst at Energy Aspects, expects an 80% compliance rate on the agreement. She also added that non-OPEC producer Russia will keep its commitment as it expects oil prices to rise.

Since the deal was announced in November last year, oil prices have risen considerably. The volatility in prices has also increased. As of 4:57 AM ET today, the price of WTI Crude depicted a 2.49% increase as it stood at $55.06 per barrel. Similarly, the Brent Crude price has risen 2.41% as well, as it is reported to stand at $58.19/barrel.

Chesapeake Energy shares closed at $7.02 Friday, losing 1.96% of their value. Chevron Corporation stock also dipped 0.10 to close at $117.70.

The contracts are aimed at the provision of pressure control equipment services

With the energy market’s rout taking a slight stabilization turn following the positive outcome of the latest OPEC talks with other oil producers, energy companies are back in form again, ramping exploration programs and entering into energy contracts. As per latest updates by Reuters, Schlumberger Limited. (NYSE:SLB) has won a couple of ten year contracts with Transocean LTD (NYSE:RIG) aimed at the provision of pressure control equipment services. Value of the contracts stands close to $350 million.

According to the terms of one contract, Schlumberger has to manage the risers in the Gulf of Mexico owned and operated, Cameron, a Schlumberger company. The management would include inspection, storage, maintenance as well as recertification on the rigs.

On the other hand, the second contract would provide for a range of solutions needed for the maintenance and servicing of pressure control equipment and blowout preventer systems for nine rigs that come under Transocean. Via these contracts, a decrease in total ownership cost for the pressure equipment would occur. In addition, the uptime related to the pressure control equipment would also be soared. Solutions that would enhance the technicality, operations and commercial aspect of the pressure equipment would also be provided via these agreements.

Hunter Jones, President of Drilling systems at Schlumberger stated: “This agreement leverages the core competencies of Transocean and Schlumberger’s capabilities as an original equipment manufacturer. Our leadership in technology, hardware and software along with the ability to enhance the value of the data provides a foundation for improving operational performance and availability of pressure control equipment.”

Alphabet Inc relationship with Twitter Inc has been noted for the degree of engagement between the two companies with Detwiller Fenton speculating on whether the time is ripe for an acquisition

Alphabet Inc (NASDAQ:GOOG) and Twitter Inc (NYSE:TWTR) increased level of cooperation has become the subject of a note by Detwiller Fenton that speculates whether Google might acquire the social platform to compensate for its own lack of having one. The various dealings between the companies have been speculated upon previously with Detwiller being the latest company to report on the matter.

According to Detwiller Fenton analyst, Alex Arnold, in the last 52 week period, Google and Twitter have interacted jointly in a number of enterprises to the advantage of both companies. What has drawn attention to this is the fact that while Google and Twitter are competitors in the advertising space and in terms of engaging more users to their platforms, the companies have cooperated well to their joint benefit.

In the latest development, Twitter released information regarding how it was integrating with Google’s Accelerated Mobile Program (AMP,) meaning that Twitter’s content will load immediately on the android ecosystem. Twitter in tuhas retained a relatively open ecosystem that allows links to open on publishers’ sites unlike Facebook’s attempts to keep publisher content within its own ecosystem.  It is likely that as with google search, Twitter will be given preference on AMP as well. With Facebook growing rapidly in the digital advertising space using its social platform, it looks like it’s time for Google to do the same but for that, it will need to partner with an experienced social platform running entity to and might just bring Twitter under its own roof.

The Country Caller reviews the earnings predictions for Ascena Retail Group and Lennar Corporation, ahead of their quarterly releases

Both Ascena Retail Group Inc. (NASDAQ:ASNA) and Lennar Corporation (NYSE:LEN) are expected to release their earnings for the upcoming season soon. Ascena Retail Group would provide earnings details for the fourth quarter of fiscal year 2016, after the closing bell on Monday, September 19. It had previously impressed investors by beating their expectations, including top and bottom level beat in the last season. Compared to this, Lennar Corporation is expected to provide its earnings for 3QFY16 before the market opens on Tuesday, September 20. It has shown similar beat trends in the past, including surpassing expectations in the previous quarter for the both top and bottom lines.

Ascena Retail Group

The Street is looking forward to the retailer posting earnings per share of 17 cents in the upcoming results. This is equivalent to the figure issued by earningswhispers.com. Thus, if the women’s clothing provider produces 17 cents in earnings for the season, it would grow its EPS by 13.33% subsequently as it reported 15 cents in EPS in the previous quarter. Moreover, the earnings would dramatically increase by 183.33% year-over-year as the company announced EPS of six cents in 4QFY15.

Additionally, the Mahwah-based business has also been projected by the consensus to declare net sales of $1.79 billion for 4QFY16. This would imply Estimize.com’s earnings estimate miss by $0.018 million as it has issued a number of $1.77 billion for the revenues of the season. If the Street is successful, net sales would climb by 52.56% YoY as it declared revenues of $1.17 billion for the same quarter of FY15. The net sales gains of 6.95% would also be observed on sequential basis as it published total revenues of $1.67 billion in the previous quarter.

Lennar Corporation

The Country Caller also took a deeper look into the earnings of the construction company whereby it found out that Street analysts have projected EPS of 88 cents for the season. However, earningswhispers.com is poised on beating the Street on bottom line by seven cents as it has estimated EPS of 95 cents, which is in line with the earnings produced by the company in the previous quarter. Nonetheless, the earnings of the Florida-based business is expected to decline 8.33% YoY as it announced EPS of 96 cents in the same quarter of the previous year.

The Street is also anticipating the $9.1 billion business to provide net sales of $2.66 billion, roughly $0.018 million lower than estimize.com’s figure. Estimize.com has given out total revenue projection of $2.68 billion for the season. If consensus estimates are held true in the earnings call, revenues would climb roughly 6.52% YoY as it gave $2.5 billion in revenues for 3QFY15. However, sequentially speaking, net sales would decline by 1.37% as the home builder provided net revenues of $2.7 billion for the previous quarter.

ConocoPhillips 2Q results, how much upside should investors expect?

ConocoPhillips (NYSE: COP) announced that it would be reporting its financial results for 2Q on July 28. The lower oil and gas prices in 1Q hampered the company’s performance, and all eyes would be on Conoco’s 2Q results to see how it performed after commodity prices recovered to an extent as compared to 1Q.

Earlier in Q1, Conoco reported operational cash flows of around $421 million, as compared to 4Q last year when it generated around $1.6 billion. Out of that, it spent around $313 million to fund its dividend payments. In addition, the company also burned $1.8 billion of cash for funding Capital Expenditure (CAPEX). It is to be noted that the CAPEX in upcoming quarters is expected to be at the lower end, as Conoco’s yearly guidance for CAPEX is of $5.7 billion.

In 1Q, the average price for US benchmark of crude oil, West Texas Intermediate (WTI) stood around $33.27 per barrel and Brent crude stood at $33.89 a barrel. As of now, both WTI and Brent prices have gained a little, and touched $50 a barrel mark before hovering at $45 a barrel in recent weeks. With substantial recovery in oil prices, investors would hope that Conoco’s earnings reflect the same.

Henry Hub, which is US natural gas’ benchmark, averaged at $2.09 per Million cubic feet (Mcf) in 1Q. Now, it trades in range of $2.70-$2.80 per Mcf, which presents another positive aspect for investors to await the company’s results. With recovery in commodity prices, it is widely anticipated that its operating cash flows have improved.

Conoco’s stock has lost 10.32% of its value in its Year-to-Date (YTD). The future movement in stock entirely depends on how well it has managed to take advantage of the recovery in commodity prices when it reports its 2Q results.

RBC Capital believes Oil Field Services Company’s stock would advance further higher

RBC’s positive stance on oilfield companies came on the back of recovering crude oil prices which have soared by a hefty 80% since their lowest level back in February this year. The report highlighted that the stock index of oilfield services companies has increased 30% since January this year.

The equity research firm said that from their current lows, oilfield services stocks would go further higher. While noting its favorite stocks in the sector, the firm mentioned names such as Halliburton Company (NYSE:HAL), Nabors Industries Limited (NYSE:NBR), Schlumberger Limited. (NYSE:SLB), Baker Hughes Incorporated (NYSE:BHI), and Weatherford International plc (NYSE:WFT). The year-to-date (YTD) stock performance of oilfield services stocks has been detailed below:

YTD Stock Performance

Halliburton Company

19.39%

Schlumberger Limited

6.21%

Nabors Industries Limited

-0.41%

Weatherford International

-32.94%

Baker Hughes Incorporated

0.74%

 

 

The above table highlights that apart from Weatherford International, other stocks have also shown growth especially Halliburton and Schlumberger. Although the stock appreciation lacked fundamental improvement for the companies as oil prices remained at lower levels, the future performance is expected to improve considering recent rebound in oil prices.

Note that such capital appreciation has come despite the fact that oil prices have remained lower for most part of this year, resulting in poor demand for oilfield services as energy companies continue to cut back their capital expenditures.

Because of curtailment in capex by energy companies, the first quarter performance of oilfield services companies has also been sluggish.

The price targets analysts at the Street give these companies is mentioned below. It shows that all the stocks rated as favorites at RBC Capital have significant upside potential.

 

Current Price

Average Price Target

Halliburton Company

$40.72

$45.48

Schlumberger Limited

$74.03

$87.74

Nabors Industries Limited

$8.41

$11.44

Weatherford International

$5.56

$8.32

Baker Hughes Incorporated

$46.39

$50.68