The Wolfe Industrials team hosts a webcast on Fridays at 11:00AM ET to discuss industrials and transports news and themes for the week. Presenting analysts include Scott Group (Airfreight & Surface Transportation), Hunter Keay (Airlines and Aerospace & Defense), Nigel Coe (Electrical Equipment & Multi-Industry), and Rod Lache & Dan Galves (Autos, Auto Parts, & Auto Technology).
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The Wolfe Healthcare team hosts a webcast on alternate Fridays at 10:30AM ET to discuss healthcare news and themes for the week. Presenting analysts include Justin Lake (Healthcare Services), Steve Baxter (Healthcare Technology & Distribution), Tim Anderson (Global Pharma), Akash Tewari (SMID Cap Biotech & Spec Pharma), and Steve Beuchaw (Life Science Tools & Dental).
This morning the WSJ reported that more than 20 states have rejected an opioid litigation settlement framework that would have led to the distributors paying out $18B over 18 years. Instead the group of dissenting states have asked that distributors contribute $22-$32B. There was nothing in the report on whether the requested payment timeframe has changed. We note that the $27B midpoint of the new “ask” is only modestly worse than the $25B we assume in our target prices, which is generally consistent with our view of investors’ line of demarcation here before today’s news – meaning that any settlement less than this amount would be viewed positively.
Increasingly, over the past year, we’ve been focused on identifying potential short stock ideas/avoiding stock blow-ups. Our short screens comprise the 14 most potent valuation, earnings quality, capital creation, capital allocation, and sentiment metrics we’ve found to be most useful in searching for ideas on which to complete additional fundamental analysis. These short screens represent the backbone of the process we use into which to dig deeper and identify the most compelling short ideas.
AstraZeneca reported 4Q19 financial results on Friday morning before market open and gave first-time 2020 guidance. Q4 results were a touch light on various fronts; 2020 guidance was decent (even if slightly below consensus) when considering the potential impact of “coronavirus” on this large, fast-growing segment of revenues (~20% of AZN’s top line comes from China, more than 2x the exposure of competitors). Even with this impact – which has been a big source of investor angst in recent days/weeks - growth in 2020 (per new guidance) is likely to sit at the top end of the peer group, with sales growth possibly touching double digits % and EPS high teens %. But, the full impact of coronavirus is TBD – in our view, as a self-limited phenomenon, this is a blip that can/should be largely ignored (unless it turns into a sustained pandemic).
Yesterday at 10am ET, NESR announced the acquisition of Sahara Petroleum Services Company (SAPESCO) in a cash & stock transaction. With estimated adj EBITDA of $20 million, SAPESCO represents both a geographic & portfolio tuck-in for NESR, a well-timed entry into a burgeoning Egyptian exploration market (on both land & offshore) with access to unique industrial services (pipe cleaning/inspection - SAPESCO had previously helped execute the Zohr pipeline project). The 4.35x EBITDA transaction multiple is accretive (vs. NESR 5.5x currently trading at ’19 EBITDA), with the ~$87M deal consideration comprised of $27M in cash & $30M in debt (both funded with NESR cash/revolver), in addition to the issuance of ~3.0mm NESR shares (based on earn-outs and priced at $10/sh minimum, bolstering the accretion metrics).
Today the Osaka Government issued a statement on the candidates for an integrated resort, which shows MGM/Orix listed as the only participating applicant, implying no other bids. Note Osaka has gone the furthest in the bidding process for one of three Japanese integrated resorts, with plans to officially select an operating partner by June 2020, as they are hopeful for an opening (likely partial) prior to the World Expo in 2025.
We lay out our expectations for key guidance items at UAL’s 3/5 analyst day, we forecast 2020-22 capex on a monthly basis, and we speculate about an outcome for a new pilot CBA. Updating estimates, too.
4Q19 product sales of $6.25B vs. our $6.43B and consensus $6.30B. Collaboration Revenue (“Externalization”) was $414M ($250 sales milestone and $100 option from MRK) vs our $145M. 4Q19 EPS of $0.89 vs. our $0.90 and consensus $0.96. Lower gross margin as % of sales (Epanova inventory write-down) and higher SG&A were offset by lower tax (core 14.6% for 4Q).