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>>> Hain Celestial's (HAIN) Transformation Strategy Bodes Well
Zacks
July 7, 2020
https://finance.yahoo.com/news/hain-celestials-hain-transformation-strategy-225810092.html
The Hain Celestial Group, Inc. HAIN appears strong on its sturdy transformational efforts. Its transformation strategy is aimed at simplifying portfolio, identifying additional areas of productivity savings, enhancing margins and improving cash flow. Strength in the company’s Project Terra and Stock Keeping Unit (“SKU”) rationalization also bodes well. Impressively, the natural and organic foods company’s shares have appreciated 42.4% in a year, against its industry’s 3.7% decline. A VGM Score of B further speaks of potentials of this Zacks Rank #3 (Hold) stock.
Let’s Explore
As part of its transformation efforts, Hain Celestial remains on track to simplify its business to focus on high-growth areas like core packaged-foods business. The company’s transformation strategy is adding to its solid quarterly performance, and such efforts are expected to help the company continue delivering robust margin performances.
In the third quarter of fiscal 2020, adjusted gross margin expanded 282 basis points (“bps”) to 24.3%, thanks to productivity efforts that resulted in lower supply-chain expenses. While adjusted operating margin rose 120 bps to 5.8%, adjusted EBITDA margin expanded 199 bps to 11%.
Additionally, Hain Celestial is on track with Project Terra, which is aimed at identifying global cost savings and cutting complexity. It expects to generate total cost savings worth $350 million through fiscal 2020 and remove complexity from business. To achieve these savings, the company intends to optimize plants, co-packers and procurement, along with rationalizing product portfolio. Meanwhile, the SKU rationalization has helped eliminate SKUs based on lower sales volume or weak margins.
Coming to Hain Celestial’s quarterly performance, the company put up a stellar third-quarter fiscal 2020 performance with a raised view for the fiscal year. In fiscal third quarter, the company delivered its third straight earnings beat and second consecutive positive sales surprise. For fiscal 2020, Hain Celestial expects adjusted EBITDA growth of 15-21% to $190-$200 million compared with the earlier projection of 7-16% growth to $177-$192 million.
Additionally, Hain Celestial envisions adjusted earnings per share of 75-82 cents, which suggests growth of 25-37% from fiscal 2019. Previously, management projected earnings per share of 62-72 cents, which suggested growth of 3-20%. The Zacks Consensus Estimate for fiscal currently stands at 79 cents.
Given the strong aforesaid factors, we expect Hain Celestial to continue with its robust show in the future.
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GE - >>> Larry Culp Cut Costs and Repaid Debt. That Helped GE Weather Today’s Storm.
By Al Root
June 27, 2020
https://www.barrons.com/articles/barrons-top-ceos-2020-general-electrics-lawrence-culp-jr-51593221128?siteid=yhoof2&yptr=yahoo
Larry Culp was hired to turn around an American icon, and the early evidence suggests he is succeeding. The first outsider brought in to run General Electric since its founding in 1892, he never expected to manage the company through a global pandemic and economic crisis. Then again, Culp, 57, is no stranger to calamity; he led Danaher successfully through 9/11 and its troubled aftermath. “What you want is a steady hand during a time of crisis,” he told Barron’s in a recent phone interview.
The company that Culp inherited two years ago had fallen on hard times after bad bets on insurance and power generation left it with more debt and less cash flow than was healthy. Acting quickly because, as he said, “time is rarely your friend,” he sold assets, paid down debt, and cut staff in GE’s largest division, GE Aviation. “It’s never pleasant,” said Culp, adding that he’s not betting on a rapid post-Covid-19 recovery to bail out the company. “It will be a multiyear journey.”
Culp’s bold action might have saved GE, especially considering this year’s challenges. The debt load is far more manageable today than when he took charge. And even though the stock has fallen during his tenure, Wall Street now talks about the shape of its aerospace recovery, not whether creditors might come calling.
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Norwegian Cruise Line (NCLH) -
>>> Investor turns $100,000 into $2.2 million — now he’s banking on a cruise line to reach his early retirement goals
MarketWatch
May 27, 2020
By Shawn Langlois
https://www.marketwatch.com/story/investor-turns-100000-into-22-million-now-hes-banking-on-a-cruise-line-to-reach-his-early-retirement-goals-2020-05-27?siteid=yhoof2&yptr=yahoo
The buy-and-hold approach to the stock market generally isn’t a celebrated strategy among Reddit’s “Wall Street Bets” bunch, but more than a few glasses are being raised for one member of the meme-making trading community who claims to have made an absolute killing in recent years.
IKnowTheCodings, as he goes by on Reddit, says his portfolio, which includes the occasional options play, has multiplied 20X since he got started about four years ago.
Of course, he wasn’t hailed as a hero by everyone. Not in this group. ”Making millions over 4 years isn’t what this forum is about, 1 week or nothing,” Paradox501 wrote.
Most, however, prodded him for some tips and insight, and he was happy to oblige, answering dozens of questions as his post continued to attract attention.
So what’s his secret?
“Only trade money you can afford to lose, watch the stock for a while before taking a position. Don’t chase, if it runs before you get a position you like, move on to something else. And don’t cut your winners too soon,” he told MarketWatch. “Nearly every lesson you think you’ve learned will be the wrong lesson to apply at some point in the future.”
He said that he usually focuses on a single position, sometimes as much as 90% of his portfolio will be concentrated on his conviction pick. At the moment, he’s “the most diversified” he’s ever been, with his portfolio split between AMD AMD, -0.84% and Norwegian Cruise Line NCLH, +9.73%.
It’s the latter of the two that he’s most excited about going forward.
“They have 18 months of liquidity. If cruises aren’t back by then there are a WHOLE lot of other businesses that will be going under in the meantime,” he said. “I’m planning to hold until at least 40 and think it could be a year to a year and a half. Other cruise/travel stocks probably good too but NCLH is my favorite. I’m considering moving some more from AMD over in the next couple months.”
If Norwegian hits his target, IKnowTheCodings said he will consider hanging it up. “I like my job [as a web developer],” he said. “I’d probably be more tempted at 4M.”
Assuming his trading tale is true, his push toward early retirement took a baby step forward on Wednesday, as shares of Norwegian rallied almost 5% amid a broader market advance.
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>>> Worst Performing ETFs Of The Year
ETF.com
by Sumit Roy
May 13, 2020
https://finance.yahoo.com/news/worst-performing-etfs-123000220.html
For a year in which the S&P 500 is down nearly 9% on a year-to-date basis, things sure don’t feel all that bad. In fact, based on where things stand now, investors probably feel like they dodged a bullet. The economy is in the midst of its worst contraction in the postwar era and unemployment is approaching Great Depression levels. When you put it like that, down 9% is a win.
But while the S&P 500 and ETFs linked to U.S. stocks haven’t done that badly, the same can’t be said for all ETFs. Pockets of the U.S.-listed exchange-traded fund universe are doing horribly—most notably, any product tied to crude oil.
Oil and energy ETFs are among the worst performers this year, with losses upward of 80%. They’ve dominated on the downside, making up nine of the 10 worst-performing ETFs of 2020, and 13 of the 20 worst performers.
Below, we run through the funds that make up this unenviable group.
USO Annihilated
Coming in at the top of the worst performers list is a fund that’s been in the headlines a lot this year, for all the wrong reasons: the United States Oil Fund LP (USO). Despite being the beneficiary of a whopping $6.5 billion of inflows in 2020, the fund only has $3.7 billion in assets currently. The ETF’s 80% year-to-date loss has wiped out a lot of that new money, stunning many retail investors who hoped to use the fund to capitalize on any potential rebound in oil prices.
Oil prices have indeed rebounded, from their worst levels below zero to $25/barrel as of this writing. But a steep contango in the futures curve has prevented USO investors from participating in most of that upside.
Meanwhile, though they haven’t seen the wave of inflows that USO has, other oil-tracking ETFs have seen similarly abysmal performance. The ProShares K-1 Free Crude Oil Strategy ETF (OILK), the Credit Suisse X-Links Crude Oil Shares Covered Call ETN (USOI) and the United States Brent Oil Fund LP (BNO) each shed more than 63% on a year-to-date basis.
Worst Performing ETFs Of 2020 (ex. leveraged/inverse products)
Ticker
Fund
YTD Return
USO
United States Oil Fund LP
-80.0%
OILK
ProShares K-1 Free Crude Oil Strategy ETF
-76.7%
BDRY
Breakwave Dry Bulk Shipping ETF
-70.4%
USOI
Credit Suisse X-Links Crude Oil Shares Covered Call ETN
-68.8%
XES
SPDR S&P Oil & Gas Equipment & Services ETF
-66.6%
IEZ
iShares U.S. Oil Equipment & Services ETF
-63.2%
BNO
United States Brent Oil Fund LP
-63.2%
RJN
Elements Rogers International Commodity Index-Energy TR ETN
-63.1%
OIH
VanEck Vectors Oil Services ETF
-61.8%
AMZA
InfraCap MLP ETF
-60.7%
PSCE
Invesco S&P SmallCap Energy ETF
-59.5%
PXJ
Invesco Dynamic Oil & Gas Services ETF
-59.5%
JETS
US Global Jets ETF
-59.4%
EWZS
iShares MSCI Brazil Small-Cap ETF
-56.2%
OLEM
iPath Pure Beta Crude Oil ETN
-54.8%
GSP
iPath S&P GSCI Total Return Index ETN
-54.5%
UGA
United States Gasoline Fund LP
-54.4%
SRET
Global X SuperDividend REIT ETF
-54.0%
BRF
VanEck Vectors Brazil Small-Cap ETF
-53.3%
EWZ
iShares MSCI Brazil ETF
-52.7%
Data measures total returns for the year-to-date period through May 7
Energy Service ETFs Fare Poorly
ETFs that track oil futures took the most direct hit from oil’s demise, but products that hold stocks of companies within the energy sector haven’t fared much better. The worst among them are ETFs that target the “picks and shovels” of the energy sector: energy service companies. The SPDR S&P Oil & Gas Equipment & Services ETF (XES), the iShares U.S. Oil Equipment & Services ETF (IEZ) and the VanEck Vectors Oil Services ETF (OIH) each dropped more than 61% so far in 2020.
The InfraCap MLP ETF (AMZA), an actively managed fund that holds energy infrastructure stocks, like pipeline and storage operators, has performed just as poorly, losing more than 60% in the period.
Non-Energy Laggards
Outside of energy, the worst-performing ETF is the Breakwave Dry Bulk Shipping ETF (BDRY), down 70% on the year. As a product that holds dry bulk freight futures contracts, BDRY has been hammered as economies around the world contract, reducing the need to ship dry bulk cargo.
Another non-energy ETF to lose more than half its value this year is the US Global Jets ETF (JETS). Like USO, this is a fund that has been popular with bottom-fishing retail investors; year-to-date inflows total $659 million.
Also like USO, there has been very little bounce in the fund thus far. Stocks of companies in the airline industry are stuck near their lows as passenger traffic struggles to rebound from rock bottom levels. Based on the latest estimates, the number of passengers on U.S. flights is still down 90% or more from year-ago levels.
Brazil ETFs Halved
Rounding out the list of the worst-performing ETFs of the year are a handful of Brazil-focused funds. The iShares MSCI Brazil Small-Cap ETF (EWZS), the VanEck Vectors Brazil Small-Cap ETF (BRF) and the iShares MSCI Brazil ETF (EWZ) have each fallen by 52% or more year to date.
Two factors may be playing a part in Brazil’s underperformance this year. One, contrary to other countries that have managed to “flatten their curves,” the number of coronavirus cases in Brazil is still rising steeply. At the same time, corruption allegations against the Brazilian president and others close to him have once again injected political risks into a country that has frequently faced scandal at the highest levels.
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>>> Teva shares soar 10% on strong revenue in first quarter
May 7, 2020
MarketWatch
By Jaimy Lee
https://www.marketwatch.com/story/teva-shares-soar-10-on-strong-revenue-in-first-quarter-2020-05-07?siteid=bigcharts&dist=bigcharts
Shares of Teva Pharmaceutical Industries Ltd. TEVA, +10.21% jumped 10.3% in premarket trading on Thursday after the company reaffirmed guidance for 2020 and beat revenue expectations for the quarter. Teva had earnings of $25 million, or 6 cents per share, for the first quarter of 2020, against a loss of $97 million, or 10 cents per share, in the same period ago.
Adjusted-per-share earnings came to 76 cents, ahead of the FactSet consensus pf 59 cents. Revenue was $4.3 billion in the first quarter, up from $4.1 billion in the first quarter of 2019. The FactSet consensus for revenue was $4.1 billion.
The company attributed the revenue growth to higher sales of generics and over-the-counter products in Europe and Huntington's disease treatment Austedo in North America. Austedo brought in $122 million in sales in the first quarter of 2020, up from $74 million in the first quarter of 2019.
In Europe, increased buying of generic drugs as a result of the COVID-19 pandemic fueled sales of those products there. "We estimate that the impact of the COVID-19 pandemic on advanced purchasing patterns was approximately $100 million," Teva said. The company reaffirmed guidance for the year, with revenues of $16.6 billion to $17 billion and EPS of $2.30 to $2.55. Its stock is up 7.3% year-to-date, while the S&P 500 SPX, +1.15% is down 11.8%.
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>>> The Hain Celestial Group, Inc. (HAIN) manufactures, markets, distributes, and sells organic and natural products. It operates in seven segments: the United States, United Kingdom, Tilda, Ella's Kitchen UK, Canada, Europe, and Hain Ventures. The company offers infant formula; infant, toddler, and kids food; diapers and wipes; rice and grain-based products; plant-based beverages and frozen desserts, such as soy, rice, oat, almond, and coconut; and flour and baking mixes, breads, hot and cold cereals, pasta, and condiments. It also provides cooking and culinary oils; granolas; cereal bars; canned, chilled fresh, aseptic, and instant soups; yogurts, chilis, chocolate, and nut butters; and juices, including cold-pressed juice. In addition, the company offers hot-eating desserts, cookies, frozen fruit and vegetables, pre-cut fresh fruits, refrigerated and frozen plant-based meat-alternative products, jams, fruit spreads, jellies, honey, natural sweeteners, and marmalade products, as well as other food products. Further, it provides snack products comprising potato, root vegetable and other exotic vegetable chips, straws, tortilla chips, whole grain chips, pita chips, and puffs; and personal care products that include skin, hair, and oral care products, as well as deodorants, baby care items, body washes, sunscreens, and lotions. Additionally, the company offers herbal, green, black, wellness, rooibos, and chai tea under the Celestial Seasonings brand. It sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and clubs, and drug and convenience stores in approximately 80 countries worldwide. The company was founded in 1993 and is headquartered in Lake Success, New York.
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>>> Beware the Big Price Tag for a Mall REIT With Roots in Sears
Barron's
By Bill Alpert
March 6, 2020
https://www.barrons.com/articles/beware-the-big-price-tag-for-a-mall-reit-with-roots-in-sears-51583548833?siteid=yhoof2&yptr=yahoo
Real estate was the ace in the hole in Eddie Lampert’s investment strategy for Sears Holdings. So in 2015—a decade after the hedge fund manager’s ESL Investments took over the struggling retail chain— Sears spun off its interests in some 260 shopping mall properties into a real estate investment trust called Seritage Growth Properties.
Before that year was out, Berkshire Hathaway CEO Warren Buffett used his own money to buy a 7% stake in Seritage (SRG) for about $35 a share. The stock hit $57 the next year amid enthusiasm that Seritage would replace the bargain rents paid by Sears with market-rate tenants. The real estate play looked like a winner to Barron’s in early 2017.
But Sears was still Seritage’s main tenant. When Sears Holdings (SHLDQ) filed for bankruptcy protection in 2018, the retailer still filled 70% of Seritage’s space.
Seritage stock now goes for about $31 a share. That prices the enterprise at $3 billion and, by most measures, values Seritage on a par with the better mall REITs. Looking closely at Seritage’s recent results, it is hard to understand why its stock deserves that generosity. Seritage and Lampert declined our requests for comment, while Buffett didn’t respond to our query.
After Sears’ bankruptcy, the chain vacated over 200 Seritage properties. Its contribution to the REIT’s rental income has dropped to 5% of the total. Revenue at Seritage in 2019 was $169 million, down sharply from the 2016 level of $250 million. Its net loss in 2019 was $64 million, or 1.77 cents a share. REITs use an operating cash-flow measure called funds from operations, or FFO, and that number sank at Seritage from a positive $16 million in 2018 to a negative $34 million in 2019, or minus 61 cents a share. It pays no dividends on its common stock.
The red ink will be about as deep this year, Wall Street says. One has to look to 2021 to find a positive forecast for Seritage funds from operations. The sole analyst polled by FactSet projects about $20 million in FFO for next year, or 38 cents a share, on revenue of $260 million. That means today’s stock price for Seritage is 80 times next year’s forecast for FFO.
By way of comparison, the classiest of the class-A mall operators, Simon Property Group (SPG)—at its current stock price of $119—trades for just nine times the consensus forecast for 2021 funds from operations. Macerich (MAC) trades for six times. A well-regarded shopping center REIT, such as Regency Centers (REG), trades for 15 times next year’s FFO.
Malls are a forlorn sector these days, but even in its unhappy class, Seritage stands out for how many of its properties stand vacant. The company’s annual report makes painful reading, with a six-page list of wholly owned properties studded with empty malls in towns like Burnsville, Minn., and Lebanon, Pa. In all, only 43% of Seritage’s 29 million square feet of space was leased at the end of December. At Simon Property, 95% of retail space was occupied.
A main theme in the Seritage strategy has been the re-leasing of Sears locations to new tenants, at rents several-fold higher. But many retail tenants are struggling, these days. In addition to the 6% of its rent roll still paid by Sears and Kmart at year end, Seritage’s top tenants included the arcade chain Dave & Buster’s Entertainment (PLAY), the At Home Group (HOME) furnishings chain, and the clothing discounter Burlington Stores (BURL)—totaling 18% of the REIT’s annual rent and all causing angst in their own investors lately, amid faltering revenue.
Seritage’s other strategy is to redevelop its retail space and parking lots as fitness centers, restaurants, medical offices, or multifamily dwellings. In recent visits with investors, Seritage executives called attention to mixed-use projects near Seattle, Dallas, and Chicago that will together cost over $325 million in just the initial phase.
The REIT has good reason for staying in touch with institutional investors. Seritage has some remaining credit facilities, but without operating cash flow, it will have to fund its billions of dollars worth of redevelopment ambitions by selling off property and by selling stock. So shareholders should brace for dilution.
Meanwhile, if you’ve got a clever use for an empty Sears store, give Seritage a call.
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Buffett - >>> Seritage Growth Properties (SRG) is a publicly-traded, self-administered and self-managed REIT with 184 wholly-owned properties and 28 joint venture properties totaling approximately 33.4 million square feet of space across 44 states and Puerto Rico. The Company was formed to unlock the underlying real estate value of a high-quality retail portfolio it acquired from Sears Holdings in July 2015. The Company's mission is to create and own revitalized shopping, dining, entertainment and mixed-use destinations that provide enriched experiences for consumers and local communities, and create long-term value for our shareholders. <<<
The Energy ETFs probably haven't bottomed yet, but looking at XLE, it now has a yield of 8.8% (!) This ETF holds the big names (see below).
Where the bottom will be for this sector is unclear, but it's hard to not be enticed by the 8.8% yield. This could be something to gradually build up a position in over time as a long term 'contrarian value' play. It may be a long time waiting for a rebound, but the possibility also exists for a full blown Saudi-Iran war that could devastate Saudi production. They were very close to that scenario last September -
Exxon Mobil - XOM - 22%
Chevron - CVX - 21%
Kinder Morgan - KMI - 5%
EOG Resources - EOG - 5%
ConocoPhillips - COP - 4%
Schlumberger - SLB - 4%
Marathon - MPC - 4%
Phillips 66 - PSX - 4%
Occidental - OXY - 4%
ONEOK - OKE - 3%
>>> Leaner, More Agile Teva Sees Brighter Days Ahead
GuruFocus.com
February 13, 2020
https://finance.yahoo.com/news/leaner-more-agile-teva-brighter-194243796.html
Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) has cleared the decks, and the company is signaling full speed ahead.
That was the message conveyed to analysts during the company's year-end earnings call on Feb. 12. A multiyear restructuring by the Israeli company is going to save about $3 billion in yearly expenses. That's the tally after Teva shed about 13,000 employees, shuttered 13 manufacturing plants--with 10 more to go--and closed 40 offices and laboratories.
Now leaner and more agile, the company is banking heavily on two of its key products to drive growth, the migraine medication Ajovy and Austedo, a treatment for Huntington's disease.
During the earnings call, CEO Kare Schultz emphasized that the pair of drugs is part of a dual strategy aimed at boosting sales for its branded medications and improving the company's operating margin, according to an article in FiercePharma.
To achieve its goal, sales of Austedo and Ajovy are going to have to blast well past analyst estimates. Teva expects this year's sales of Austedo and Ajovy will be $650 million and $250 million, respectively. In 2019, Ajovy sales came in at just $96 million and Austedo at $412 million. The company is going to need the drugs to hit their marks if it's going to overcome an 8% drop in revenue in 2019, a shortfall due in great part to the erosion in sales for Copaxone, the company's multiple sclerosis treatment that was hurt by generic competition.
Ajovy is poised to overcome a huge obstacle to its use now that Teva got the OK from the Food and Drug Administration to package the drug in an autoinjector. Until now, the drug was administered by the more intimidating and complex syringe. Now Ajovy is going to have a delivery system that puts it on par with Amgen Inc.'s (NASDAQ:AMGN) Aimovig and Eli Lilly and Co.'s (NYSE:LLY) Emgality.
"We think now that we have the autoinjector approved, we will have an offering that is really unmatched in the CGRP (a type of migraine treatment) market," Brendan O'Grady, Teva's North American commercial head, told analysts on the call. "We're quite optimistic about the continued growth of Ajovy and our competitive place in the market."
Investors are hoping Teva has righted the ship. About five years ago, the stock traded near $70, a long way off from its current price of near $13. In the past 52 weeks, the shares hit a low of about $6.
In 2019, Teva sales were about $17 billion, while adjusted earnings declined about 18% to $2.40 per share. In 2020, the company expects sales to be in the range of $16.6 billioin to $17 billion. Earnings are forecast to be somewhere between $2.30 and $2.55 per share.
The current consensus of 22 analysts is to Hold Teva. Those offering 12-month price targets have a median of $11, with a high of $16 and a low of $6.
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>>> Kraft Heinz’s Junk Downgrade Rekindles Bond Market Jitters
By Molly Smith and Jonathan Roeder
February 14, 2020
https://www.bloomberg.com/news/articles/2020-02-14/kraft-heinz-cut-to-junk-by-fitch-following-lackluster-earnings?srnd=premium
Packaged-food company cut to high yield by Fitch and S&P
More BBB debt has some investors wary that others may follow
Kraft Heinz Co., the iconic food giant created in a merger five years ago, was downgraded to junk by two credit raters, raising fresh worries among investors that a slowing economy could threaten the broader corporate bond market.
The packaged-food company was cut one level to BB+ by S&P Global Ratings, following Fitch Ratings earlier Friday. It will now become a so-called fallen angel, taking it out of investment-grade indexes.
Though Kraft Heinz, with just under $30 billion of debt, is a relatively small investment-grade issuer, it will become one of the top three in high yield. It’s just one of many companies that have wound up with a massive debt load as the result of deals, jeopardizing credit ratings in the process.
The food giant, created in a deal orchestrated by Warren Buffett and the private equity firm 3G Capital, is in the midst of a turnaround as its brands fall out of favor with consumers. It reported a drop in fourth-quarter sales Thursday that sent its bonds and stock tumbling, the latest sign that the company’s turnaround plan still has a long way to go.
“Kraft is to investment grade as Velveeta is to cheese,” said Christian Hoffmann, a portfolio manager at Thornburg Investment Management. “The ingredients dictate what something is and Kraft Heinz is junk.”
Profit Margins
That assessment is a far cry from the days of the merger when 3G went on a high-profile cost-cutting spree that was expected to eventually produce fatter profit margins. Instead, Kraft Heinz was left with a stable of tired brands and few new products that could appeal to consumers’ preference for more natural and less processed foods. Last year, it wrote down the value of its brand portfolio by more than $15 billion.
The turmoil has been a headache for Buffett’s Berkshire Hathaway Inc., whose stake over the past year has fallen to about $8.9 billion, down from $14 billion at the end of 2018. The stock was one of the worst performers last year.
S&P and Fitch cut the company one level to their highest junk rating. Kraft Heinz debt is already on the way to trading like junk. Its bonds due 2029 now yield about 3.5%, compared to the 2.88% for the average BBB company with similar duration. It’s the worst-performing issuer in both the U.S. and European markets Friday, and the cost to protect its debt against default has spiked to levels last seen in October.
Kraft Heinz bonds trade wider than BBB peers with similar duration
Fitch said Kraft Heinz may need to divest a sizable portion of its business in order to reduce debt. Kraft Heinz also needs to cut its dividend, Fitch said in August, but the company said Thursday it would maintain the annual $2 billion payout to shareholders. Fitch maintains a stable outlook, while S&P’s is negative. Moody’s rates the company one step above junk with a negative outlook as of Friday.
“We believe it’s important to Kraft Heinz shareholders to maintain our dividend during this time of transformation,” Michael Mullen, a spokesman for the company, said in an emailed statement earlier Friday. Kraft Heinz remains committed to reducing leverage “over time,” he said. The company plans to release a more detailed turnaround plan around the time of its next earnings report in early May.
Kraft Heinz was one of many companies with BBB ratings, the lowest level of investment grade, which now comprises half of the broader $5.9 trillion market. It’s grown steadily since the financial crisis, as a decade of low interest rates prompted companies to load up on debt for mergers and acquisitions, often at the expense of credit ratings.
UBS Group AG strategists led by Matthew Mish predict there could be as much as $90 billion of investment-grade debt to fall to high yield this year. That compares to just under $22 billion in 2019, close to a 20-year low, according to Bank of America Corp. strategists.
But a wave of fallen angels, which some investors fear, has yet to follow. Many strategists contend that BBB companies have the ability to defend their investment-grade ratings, whether by selling assets or cutting dividends. Companies like General Electric Co. and AT&T Inc. have done just that to stave off downgrades.
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Kraft Heinz - >>> Warren Buffett just lost $1 billion in 2 days after Kraft Heinz disappointed again
MSN Money
2-14-20
Theron Mohamed
https://www.msn.com/en-us/money/topstocks/warren-buffett-just-lost-dollar1-billion-in-2-days-after-kraft-heinz-disappointed-again/ar-BB100wu3?li=BBnb7Kz&ocid=mailsignout
Warren Buffett lost more than $1 billion this week after Kraft Heinz stock plummeted 11% in two days.
The famed investor's Berkshire Hathaway conglomerate owns about 27% of the food giant, according to Bloomberg data. The value of its stake plunged to $8.7 billion from $9.8 billion between Thursday and Friday, after a one-two punch of disappointing earnings and a credit-rating cut pummeled Kraft Heinz shares.
On Thursday, the maker of Heinz ketchup and Kraft macaroni and cheese revealed a 5% drop in fourth-quarter net sales and a 14% slump in adjusted earnings per share. CEO Miguel Patricio said the performance was "disappointing" in a press release.
On Friday, Fitch cut Kraft Heinz's credit rating to BBB- from BB+, downgrading its bonds to non-investment grade or "junk," Bloomberg reported. The credit-rating agency cited the company's large debt pile, dwindling profits, and negative outlook.
Kraft Heinz stock has nosedived almost 75% from its peak in February 2017, underscoring the magnitude of Buffett's mistake.
The so-called "Oracle of Omaha" partnered with private-equity group 3G Capital to buy Heinz for about $28 billion on Valentine's Day in 2013. The pair then cofinanced Heinz's $50 billion mega-merger with Kraft Foods in 2015. Kraft-Heinz's market capitalization is currently less than $33 billion.
"We try to buy good businesses at a decent price, and we made a mistake on the Kraft part of Kraft Heinz," Buffett said at Berkshire's annual meeting last year. "We paid too much money."
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>>> Kraft Heinz Stock Is Dropping. Earnings Were OK, but Guidance Was Missing.
Barron's
By Al Root
Feb. 13, 2020
https://www.barrons.com/articles/kraft-heinzs-earnings-dividend-sales-forecast-guidance-51581599609?siteid=yhoof2&yptr=yahoo
Food giant Kraft Heinz reported fourth-quarter earnings of 72 cents a share from $6.54 billion in sales, while Wall Street was looking for 68 cents and $6.61 billion in sales. Results look OK, but a lack of detail about 2020 was vexing investors Thursday.
Sales were about $70 million, or 1%, lighter than expected, but not too bad. Importantly, the company didn’t cut its dividend. Analysts had speculated that Kraft’s 40-cent quarterly payments might be reduced or eliminated, and moves in stock options had indicated expectations of a 20-cent cut.
But nothing happened. The company declared another 40-cent dividend, payable on March 27.
“While our 2019 results were disappointing, we closed the year with performance consistent with our expectations,” new CEO Miguel Patricio said. He took over in July 2019, hired from outside the company to help turn around its operations. “We have taken critical actions over the past six months to re-establish visibility and control over the business.”
Shares (ticker: KHC) were down 8% midmorning Thursday to $27.63. The issue was the earnings conference call. The company didn’t offer enough detail to satisfy investors. No formal 2020 earnings guidance was given, in a departure from previous years, and a detailed turnaround plan wasn’t laid out.
Investors and analysts are hungry for information. The company has a lot of debt and is predicting that operating profit will fall in 2020. Turning the company around won’t be easy. Sales fell about 2.2% year over year on a comparable basis. The company said pricing rose 2%, but changes to the volume of goods sold, and the mix of products, represented a 4.2% drag.
Debt, while a concern, did fall about $3.1 billion year over year. Kraft has about $27 billion of debt on its books. It made some progress in 2019 on its balance sheet.
The company also took another asset write-down, for $453 million. The charge, like declining sales, isn’t great news, but last year the company wrote off $15.4 billion of goodwill and other intangible assets because the values of its brands were falling. The 2020 write-down doesn’t come close to that. The psychological blow for investors won’t be close to the 2019 shock, either.
The results cap a tough year for the company. Shares were down almost 38% over the past 12 months as of Wednesday’s closing price, trailing far behind comparable gains of the S&P 500 and Dow Jones Industrial Average.
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>>> Kraft Heinz Could Have Bad News. It’s Time to Buy the Stock.
Barron's
By Al Root
Feb. 7, 2020
https://www.barrons.com/articles/kraft-heinz-could-have-bad-news-its-time-to-buy-the-stock-51581073202
Kraft Heinz makes, arguably, the best-tasting ketchup in the world. Yet the merger that created the company has left a bad taste in investors’ mouths. With a new CEO on board, it may be time to start nibbling on shares—even in the face of a likely dividend cut.
When Warren Buffett’s Berkshire Hathaway (ticker: BRK.A) and Brazilian investment firm 3G Capital created Kraft Heinz (KHC) in 2015, it looked like a perfect match: two iconic food companies brought together by two savvy investors. It hasn’t worked out that way. Kraft Heinz has lost about 60% of its value since then, suffering double-digit share-price declines in each of the past three years.
The big problem is sales, which are down about 7% from peak levels. The drop was part of the reason that Kraft Heinz took a $15.4 billion noncash impairment charge in 2018.
Still, hope remains. Last July, Miguel Patricio became the new CEO. He arrived from Anheuser-Busch InBev (BUD), where he served as global chief marketing officer from 2012 to 2018. He’s expected to provide his strategic vision early this year, perhaps on the fourth-quarter earnings call on Feb. 13. If he can lay out a credible path forward, Kraft Heinz stock could pop. Its cheap valuation, particularly relative to other consumer staples, makes the risk-reward attractive. The beaten-down stock trades at about 11.5 times estimated 2020 earnings. Peers trade at about 20 times estimated earnings.
Patricio has his work cut out for him. Kraft Heinz’s earnings before interest, taxes, depreciation, and amortization have been steadily declining since 2017, when it earned about $2 billion a quarter in Ebitda. By the first quarter of 2019, Ebitda had fallen to $1.3 billion. This coming week, Kraft Heinz is expected to report fourth-quarter Ebitda of about $1.5 billion from sales of $6.6 billion.
Margins haven’t been the problem. Cost-cutting has kept them well above 20% for years—about seven percentage points higher than peers. In fact, margins might be too high: The company’s lack of brand investment is part of the reason that sales are down.
And there’s the company’s debt—about $30 billion. Combine that with falling sales and Ebitda, and investors are worried about the security of the company’s $1.60 annual dividend.
That’s why Patricio’s turnaround plan is so important. We don’t know what he has in store, as Kraft Heinz declined to make him available before the earnings call. But we can hazard a guess based on what another struggling U.S. icon, General Electric (GE), was forced to do over the past year. GE’s new CEO sold assets, paid down debt, and cut the dividend to preserve cash. Investors cheered, and the stock jumped more than 50% in 2019.
Kraft Heinz is almost certainly going to start selling off assets—and it has a lot to sell. Its iconic brands include Heinz ketchup, Kraft mac and cheese, Oscar Mayer, Jell-O, and Philadelphia cream cheese, among many others.
Some of the more challenged brands suffering market-share declines—such as Velveeta, Planters, and Maxwell House—might benefit from a combination with another industry player. (Mr. Peanut may have to go for good this time.) Bernstein analyst Alexia Howard worries that the prices the company will fetch might be underwhelming. It’s a valid concern, but acting fast is better than hanging on and attempting to fix all of the brands at once.
“One key question is how to reshape the portfolio through divestitures to enhance Kraft Heinz’s competitive positioning,” Howard says.
The cash coming from asset sales could be used to pay down debt. A goal of about three times debt to Ebitda—down from about five times, based on estimated 2020 earnings—would calm investor concerns. S&P and Moody’s might still decide to cut Kraft Heinz’s investment-grade rating to junk, but the company has only $2 billion in debt to refinance in the next two years. What’s more, Kraft Heinz bonds aren’t trading at distressed levels.
That could mean part of Kraft Heinz’s dividend is salvageable, though some cut appears baked into today’s share price. The company pays out about $2 billion in dividends each year and spends another $2 to $3 billion on plant and equipment, plus interest. But it also generated $3 billion in free cash over the past 12 troubled months. A dividend cut to zero seems unlikely.
Still, at 5.5%, its dividend yield is certainly high. The Dow Jones Industrial Average yields 2.2%, while the S&P 500 index yields 1.8%.
GE cut costs to help bring troubled divisions back to profitability. That’s not likely at Kraft Heinz, which, after years of slashing costs, should start spending again. In fact, investors might cheer costs going up if it meant sales growth and market share gains.
Kraft Heinz earned $3 a share over the past four quarters. But Wall Street believes that its current debt and margin structure is unsustainable. If the company executes a smart plan under Patricio, it could still earn $2 to $3 a share in 2021. That’s a wide range, but asset sales are a wild card.
At a market price/earnings ratio of 17 times 2021 earnings of $2.50 a share, the stock could hit $43, up more than 40% from a recent $29.
That’s one optimistic scenario. If asset sales don’t bring in enough cash and the stock keeps trading at a discount, shares could hit $26 over the next 12 months. Still, that’s down only about 10% from recent levels. The risk-reward ratio—a 40% gain or a 10% loss—looks attractive for investors willing to accept a little volatility.
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>>> GE’s stock soars after earnings, as CEO Culp says turnaround is ‘gaining traction’
MarketWatch
By Tomi Kilgore
Jan 29, 2020
https://www.marketwatch.com/story/ges-stock-soars-after-earnings-as-ceo-culp-says-turnaround-is-gaining-traction-2020-01-29?siteid=yhoof2&yptr=yahoo
GE shares reach 15-month high on heavy volume; BofA analyst Andrew Obin turns bullish on upbeat free cash flow outlook
Shares of General Electric Co. climbed toward a more than one-year high Wednesday, after the long-struggling industrial conglomerate reported profit, revenue and free cash flow beats, and commentary from Chief Executive Larry Culp suggested the worst is behind the company.
After calling 2019 a “reset” year, Culp capped his first full calendar year in charge of GE by saying on the post-earnings conference call with analysts that he was seeing “evidence of momentum” across the company. “Despite areas of volatility in aggregate, we have a positive trajectory in 2020,” Culp said, according to a transcript provided by FactSet.
While 2019 was the “year one” in a multi-year transformation, he said the “lean transformation” was gaining traction this year.
The stock GE, -0.39% shot up 10.0% on heavy volume by Wednesday afternoon, on track for the highest close since October 2018. Volume spiked to 181.8 million shares, more than triple the full-day average of about 55.8 million shares, and enough to make the stock the most actively traded on major U.S. exchanges.
The stock has now run up 42% over the past three months and 51% the past 12 months. In comparison, the Dow Jones Industrial Average DJIA, +0.04% has gained 6.4% the past three months and has rallied 17% the past year.
Bank of America analyst Andrew Obin was quick to turn bullish on GE, citing an improved trajectory for free cash flow (FCF) in 2020 after years of being weak. He said GE’s guidance for industrial FCF of $2 billion to $4 billion this year was “materially higher” than his forecast of $1.8 billion. The FactSet consensus was $1.22 billion.
Obin raised his rating on GE to buy from neutral and boosted his stock price target to $16, which is 24% above current levels, from $12.
“GE’s turnaround will likely have ups and downs, but [the] company is making progress on key FCF drivers,” Obin wrote in a note to clients.
GE also said it expects industrial revenue to grow “organically” in the low-single-digit percentage range in 2020, industrial profit margin to expand organically in a range of zero to 75 basis points (0.75 percentage points) and adjusted earnings per share in the range of 50 cents to 60 cents. The FactSet EPS consensus was 67 cents.
The outlook for 2020 includes assumptions that Boeing Co.’s 737 MAX planes, which have been grounded since March 2019, and which GE builds engines for, will return to service in mid-2020, as per Boeing’s latest guidance.
For the fourth quarter, GE reported net income that fell to $538 million, or 6 cents a share, from $575 million, or 7 cents a share, in the year-ago period. Excluding non-recurring items, such as losses from non-operating benefits costs, BioPharma deal expenses and unrealized gains, adjusted earnings per share rose to 21 cents from 14 cents, beating the FactSet consensus of 17 cents, as industrial profit margin improved to 6.4% from 1.8%.
Total revenue fell 1.0% to $26.24 billion, above the FactSet consensus of $25.67 billion.
Within GE’s business segments, aviation revenue grew 6% to $8.94 billion to beat the FactSet consensus of $8.84 billion and renewable energy revenue rose 2% to $4.75 billion to top expectations of $4.44 billion.
Power revenue nudged up to $5.401 billion from $5.381 billion, but was below the FactSet consensus of $5.478 billion, while healthcare revenue inched up to $5.402 billion from $5.398 billion, to come up shy of expectations of $5.462 billion.
BofA’s Obin said the power business’s performance “was welcome” after a relatively weak third-quarter, while strength in the aviation business also contributed to his bullish view.
GE Capital, which completed asset reductions of about $8 billion during the quarter, and $12 billion in 2019, swung to a profit of $6 million from a loss of $177 million.
CRFA’s Jim Corridore reiterated his buy rating on GE and raised his price target to $14 from $12, saying he believes GE is “making strides” in its business transformation.
“Overall, we think the quarter showed solid improvement, and we think GE is on the right trajectory,” Corridore wrote.
Culp said he was planning to provide a “detailed” 2020 outlook by business segment on March 4, when it holds its investor call.
He also addressed those who may still be skeptical that the reported results for 2019 formed a platform to deliver “long-term profitable growth”:
“This year, much of our substantial progress was in areas less visible to those of you outside of GE,” Culp said. “This starts with how we run the company on a daily basis. We’re in the early days of a lean transformation developing leaders capable of identifying and solving problems alike, establishing standard work and embracing values of candor, transparency and humility.”
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>>> Teva, Drugmakers in Talks With U.S. to End Generics Probes
Bloomberg
By Riley Griffin, Emma Court, and David McLaughlin
November 25, 2019
Updated on November 25, 2019, 10:16 AM EST
Deferred prosecution agreements among resolutions discussed
Long-running price-fixing probe closely watched by Congress
https://www.bloomberg.com/news/articles/2019-11-25/teva-other-drugmakers-in-talks-with-u-s-to-end-generics-probes?srnd=premium
Teva Pharmaceutical Industries Ltd. and other generic drugmakers have held talks with the U.S. Justice Department in the past six months about resolving a long-running criminal antitrust probe of alleged price-fixing by the companies, according to people familiar with the matter.
Among the possible outcomes that have been discussed are deferred prosecution agreements in which the companies would admit to certain allegations but would be shielded from indictment in exchange for cooperating with the investigation and paying fines.
Talks are being held with drugmakers individually, and any one or all of the negotiations could fail to result in an agreement, according to the people, who asked to remain anonymous because the discussions are private. The timetable for reaching any accord isn’t clear. The government could still decide to indict any of the companies, a person familiar with the talks said.
In addition to Israel-based Teva, a unit of Indian generics giant Sun Pharmaceutical Industries Ltd. has also been in talks with federal prosecutors.
“We continue to cooperate with the DOJ’s investigation,” said Teva spokeswoman Kelley Dougherty. “As with any government investigation or litigation, we are willing to entertain possible resolution but only if it makes sense for the company, our shareholders and the patients that we serve. We will continue to defend ourselves vigorously in these matters.”
The Justice Department declined to comment on the status of its probe. Sun spokeswoman Vinita Alexander declined to comment.
Teva’s U.S.-traded shares jumped as much as 6% in New York on Monday. The company’s bonds were among the top gainers in the U.S. high-yield market, according to Trace bond-trading data.
Prosecutors have been investigating allegations that generic drugmakers conspired to prop up the prices of certain widely used medications for more than five years, and have hinted several times this year that charges could be imminent. Nine of every 10 prescription drugs dispensed in the U.S. are generics, and lawmakers say the alleged illegal coordination on pricing has cost federal health programs billions of dollars.
At the same time, generics makers are grappling with extraordinarily forbidding economics. Profit margins in the business have always been thin. As more drugs come to market and drive prices even lower, new alliances among insurers and pharmacy-benefit managers have also eroded the companies’ pricing power.
The case has also forced the government to wrestle with competing priorities: On the one hand, the Trump administration wants to make drugs as affordable as possible, and broaden access to a range of medicines. But a criminal conviction could lead to a drug company being barred from doing business with Medicare and Medicaid -- and drive up costs by narrowing the options of government drug purchasers.
Those tectonics could make deferred prosecution pacts attractive to both sides. Under such an agreement, drugmakers could continue to do business with government, preserving billions in annual sales.
For prosecutors, such an accord could avoid a conviction that would inadvertently limit competition and increase the prices of common medications. It would also help wrap up a case that has targeted the biggest names in the industry but has yet to produce charges against any major company, even as state officials have accused the drugmakers in civil cases of a sweeping conspiracy to raise prices.
Numerous Obstacles
Bloomberg has previously reported that the multiyear antitrust investigation, which has targeted more than a dozen companies, has faced numerous obstacles. Congress has recently pressured the department to disclose the status of the long-anticipated investigation.
The Justice Department reached a deferred prosecution agreement with closely held generic drugmaker Heritage Pharmaceuticals Inc. in May, providing a potential roadmap for subsequent pacts. Previously, two executives from the drugmaker pleaded guilty to charges connected to the federal probe.
Teva has met multiple times this summer and fall with prosecutors to discuss deferred prosecution agreements, according to people familiar with the matter. Chief Executive Officer Kare Schultz said on a Nov. 7 call with investors that the company had provided federal prosecutors with more than a million documents.
“We have not found any evidence that we were in any way part of any structured collusion or price-fixing,” Schultz said on the call, “but we remain of course in dialogue with the Department of Justice.”
Sun Pharmaceutical, India’s largest drugmaker, has been in discussions with federal prosecutors in recent months about the case against its subsidiary Taro Pharmaceutical Industries, according to people familiar with the talks. A Sun spokeswoman declined to comment, citing ongoing litigation.
New Witnesses
Deferred prosecution agreements have been used to resolve criminal allegations in high-profile probes of HSBC Holdings Plc and General Motors Co., though the Justice Department’s antitrust unit has used them only rarely. In July, the department’s antitrust division made changes to its criminal-enforcement policy that allow for deferred prosecution agreements to be considered.
The Justice Department has struggled to secure cooperating witnesses in the generics probe, but former Teva employees and a former employee of Sandoz, the generic arm of Swiss drugmaker Novartis AG, have recently met with prosecutors to help them build their case, according to people familiar with the matter.
Novartis spokesman Eric Althoff said that the company is cooperating with investigators.
Makan Delrahim, head of the Justice Department’s antitrust unit, told the Senate in September that several additional cases are coming up in the investigation. His deputy, Richard Powers, who leads the antitrust criminal enforcement unit, said on Nov. 14 in San Francisco that the department would be making additional announcements about the probe.
In addition to the Justice Department inquiry, Teva, Sun Pharma and other generic drugmakers are facing a similar but separate civil case brought by attorneys general for 48 states, the District of Columbia, and four U.S. territories.
A settlement with federal prosecutors could help the states’ cases, as well as those of other civil litigants, said Robert Field, a professor of law, health management and policy at Drexel University. Were any drugmaker to concede facts as part of a settlement, it could expose them to additional civil liabilities.
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>>> The Pot Stock Bubble Has Burst. Here’s Why
Bloomberg
By Kristine Owram
November 16, 2019
Canopy reports ‘astounding’ loss, MedMen to fire 190 employees
‘Capital markets have gone from frothy to completely closed’
https://www.bloomberg.com/news/articles/2019-11-16/cannabis-flameout-rivals-dot-com-bust-as-legal-fears-curb-growth?srnd=premium
Wall Street’s exuberance over legal weed has quickly curdled into sober reality.
In a matter of months, white-hot cannabis companies have flamed out in spectacular fashion. Many have lost two-thirds or more of their value.
Widespread legalization has been thwarted. Bank financing has dried up. Deep-pocketed institutional investors remain on the sidelines and old-fashioned black-market dealers still provide stiff competition.
The pain deepened on Thursday, when Ontario-based Canopy Growth Corp. announced revenue that fell short of the lowest Wall Street estimate and a loss that one analyst called “astounding.” That sent shares to the lowest since December 2017. It’s still the largest pot company in the world, but at C$7.1 billion its market value is just a sliver of the C$24 billion it reached in April.
One day later, MedMen Enterprises Inc., one of the first U.S. cannabis companies to sell shares to the public, said it would dismiss 190 employees, including about 20% of its corporate workforce, as it struggles to preserve a dwindling cash pile.
“The last industry chapter was defined by growth at all costs,” MedMen Chief Executive Officer Adam Bierman said in an interview. “Now we’re transitioning out of that chapter, and that transition is harsh and quick.”
Legal Weed
It wasn’t that long ago that the cannabis industry was cruising. Big markets like Canada and California had legalized recreational use, while populous states such as New York and New Jersey were expected to follow suit. This had executives and analysts forecasting sales in the tens of billions of dollars within a few years, sending stocks to valuations that even some in the industry warned were too high.
But legalization hasn’t been the trigger to invest that many expected. Canada’s biggest provinces have allowed few retail stores to open, while companies have struggled to develop the right mix of products. In California, the legal market has had to contend with high taxes and a well-established illicit market. Legalization efforts in other states have stalled.
Despite the obstacles, many remain optimistic that bullish benchmarks will be reached, though later than expected. Cowen Inc. analyst Vivien Azer recently boosted her U.S. sales outlook to $85 billion by 2030 from a previous forecast of $80 billion, while Canopy has said it’s still on track to turn a profit in three to five years.
For the first time, with stocks at such low levels, “there’s incredible pockets of value in the space,” said Justin Ort, chief investment officer for the Measure 8 Full Spectrum Fund, which invests in cannabis. “But the Street’s not willing to see it right now.”
What would get share buyers’ attention, Ort said, is legislative easing in the U.S., including passage of the SAFE Banking Act, which would pave the way for financial institutions to do business with cannabis companies and bring large institutional investors and U.S. capital markets into the fold.
Patient Investors
But cannabis remains federally illegal in the U.S., meaning that shares are largely held by retail investors, who are less likely than institutional investors to remain patient in a downturn.
“In almost every other industry, people can make relative-value judgments,” Jeff Solomon, CEO of Cowen, said at his firm’s cannabis conference in Boston last week. “In this industry they’re like, ‘Well, it’s not really a matter of price, it’s a matter of whether or not I should even get involved.’”
That’s raised fears that many companies will go bankrupt before financing becomes available. It’s already happening to DionyMed Brands Inc., which filed for receivership last month.
“The capital markets have gone from frothy to completely closed,” MedMen’s Bierman said. “We’re now entering a stage where businesses are going to have to be self-sustaining.”
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>>> Teva Vs. Amneal: JPMorgan Sees Hope For One, Decline For The Other
by Elizabeth Balboa
•November 12, 2019
https://finance.yahoo.com/news/teva-vs-amneal-jpmorgan-sees-154709524.html
It’s been a rough 2019 for some biotechs. Amneal Pharmaceuticals Inc (NYSE: AMRX) is down 81% year-to-date, while Teva Pharmaceutical Industries Ltd (NYSE: TEVA) is down 41%.
JPMorgan sees redemption in one of the stocks — and further decline in the other.
The Analyst
Chris Schott upgraded Teva from Underweight to Neutral with an $8 price target and downgraded Amneal from Neutral to Underweight.
The Teva Thesis
With positive optics on Teva’s opioid exposure and stabilizing mid-term fundamentals, JPMorgan sees balance in the stock’s costs and benefits.
“We remain fairly bearish on the longer-term setup for the company between its lack of growth-drivers (Ajovy underperforming expectations so far, lingering LOEs, etc.) and still high-leverage (especially after taking into account potential cash flow going to opioids),” Schott said in a Tuesday note. (See his track record here.)
The Amneal Thesis
Amneal offers little opportunity for redemption, the analyst said.
After a series of poor earnings and lower guidance, the company’s turnaround depends on an unlikely pipeline success, according to JPMorgan.
“While some of the challenges facing Amneal do appear fixable (supply penalties, plant utilization, etc.), many appear fundamental (a function of the evolving dynamics in the US Gx market), and will likely take time and resources to fix (which the company is increasingly lacking at 7x leverage and with an ever-depressed equity value),” Schott said.
Price Action
Teva shares were trading 1.93% higher at $9.51 at the time of publication Tuesday, while Amneal shares were up 4.36% at $2.76.
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These billionaire bottom feeders like Sam Zell may be showing us small fry investors a good opportunity. Various sub-sectors within the Energy sector look really cheap -
iShares - US Oil Equipment and Services (IEZ)
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
VanEck Vectors Oil Services ETF (OIH)
The broader Energy ETF charts look a lot less dire, but the Equipment + Services sub-sectors are way down at/near their all time lows from 2002/03 and 2009, and look like they're trying to put in a bottom.
Looking at the individual stocks within these ETFs, the biggest holdings are Schlumberger, Halliburton, Baker Hughes, which are all way down but appear to be putting in bottoms (based on the charts).
So might be a good contrarian play for patient investors willing to sit a while.
>>> Billionaires Circle Distressed Assets in U.S. Oil and Gas Patch
Bloomberg
By Rachel Adams-Heard
November 14, 2019
https://www.bloomberg.com/news/articles/2019-11-14/billionaires-circle-distressed-assets-in-u-s-oil-and-gas-patch?srnd=premium
‘Grave dancer’ Sam Zell sees opportunities in oil industry
Dallas Cowboys owner Jerry Jones eyes Louisiana gas assets
Billionaires are circling the distressed U.S. oil and gas patch, looking to pick up assets on the cheap at a time when the state of the industry is scaring off other investors.
Sam Zell has teamed up with Tom Barrack Jr. to buy oil assets in California, Colorado and Texas at fire-sale prices from companies trying to get ahead of a coming credit crunch. Dallas Cowboys owner Jerry Jones said his Comstock Resources Inc. is in talks to acquire natural gas assets in Louisiana from struggling Chesapeake Energy Corp.
“I compared it recently to the real estate industry in the early 1990s, where you had empty buildings all over the place, and nobody had cash to play,” Zell said in an interview on Bloomberg TV Thursday. “That’s very much what we’re seeing today.“
Sam Zell: We Don't Buy Markets, We Buy Deals
Sam Zell, Equity Group Investments chairman and founder, says he’s buying distressed assets as the U.S. oil sector sees a slowdown. Leon Kalvaria, Citigroup chairman of the institutional clients group, and Bloomberg’s Sonali Basak also takes part in the conversation on “BloombergDaybreak: Americas.” (Source: Bloomberg)
Thanks to the shale revolution, the U.S. has become the world’s biggest oil producer. The investors behind that growth, however, have little to show for it. After years of churning through cash with paltry shareholder returns, independent oil and gas drillers are down more than 40% since 2014. Lenders are becoming more discerning after easy money enabled much of the original boom.
Oil and gas prices, meanwhile, remain depressed.
That’s fueling a slowdown. The number of active drilling rigs in the U.S. has declined, and some of the biggest independent producers are lowering growth plans. Chesapeake Energy Corp., once the second-biggest U.S. producer of natural gas, warned investors last week that it may not be viable as a “going concern” if low oil and gas prices persist.
Here’s Sam
Enter the billionaires.
“What we’re seeing are situations where companies are taking steps in anticipation of problems rather than responding to problems,” said Zell, 78.
He and Barrack teamed up in September to create Alpine Energy Capital LLC, a rebranded Colony HB2 Energy, which was formed in 2018 and recently closed a $320 million investment with California Resources Corp.
“The seller in that was a big company -- not in trouble but not terribly liquid, and therefore looking for ways to, in effect, get somebody else to put up the money to keep the game going,” Zell said.
A sale of Chesapeake’s Louisiana assets has been pegged as one of the few remaining options for a company that has become a poster child for the promise and peril of the shale industry.
Jones, 77, who owns 73% of Comstock, said through his assistant that a deal could be valued at more than $1 billion. That would give Chesapeake a cash infusion at a time when all eyes are on the company’s ability to pay its debts.
That cash-flush opportunists like Zell, who’s been called “the grave dancer” for his ability to buy at the bottom of markets, see value in assets belonging to an industry that’s in distressed-sale mode could signal that the bottom is here -- or, at least, close.
Real Estate
Zell can call the top of markets, too. Many people said that’s what he did with the U.S. commercial real estate market in 2007, when he unloaded a portfolio of office buildings to Blackstone Group Inc. At the time, he denied that was the case.
It remains to be seen, of course, if oil and gas prices have hit bottom. Forecasts for next year don’t paint a pretty picture, but some analysts are pointing to a slowdown in U.S. production growth as reason to believe prices will pick up at the end of 2020 and into 2021.
Unlike Jones, Zell said he’s staying away from gas for now.
“The oil situation is in much better shape,” Zell said. “And the amount of capital is disappearing.”
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>>> Sam Zell Says He’s Buying Distressed Oil Assets During the Slowdown
Bloomberg
By Rachel Adams-Heard and Alix Steel
November 14, 2019
https://www.bloomberg.com/news/articles/2019-11-14/sam-zell-says-he-s-buying-distressed-oil-assets-amid-slowdown?srnd=premium
Billionaire says he’s bought assets from California to Texas
Oil patch looks like real estate in the early 1990s, he says
Sam Zell
Real estate billionaire Sam Zell says he’s a buyer of distressed assets as the U.S. oil sector sees a slowdown.
He’s bought assets in California, Colorado and Texas at fire-sale prices from companies that are raising cash in anticipation of potential problems in the future, Zell said Thursday in an interview on Bloomberg TV. He said some oil companies are running out of money to drill and are selling their cash flow to raise more capital.
“The amount of capital available in the oil patch is disappearing,” Zell said Thursday. “I compared it to the real estate industry in the early 1990s, where you had empty buildings all over the place, nobody had cash."
The U.S. oil sector is seeing a decline in the number of active drill rigs as the equity and debt markets remain closed to most exploration and production companies. Chesapeake Energy Corp., once the second-biggest U.S. producer of natural gas, warned investors last week that it may not be viable as a “going concern” if low oil and gas prices persist.
‘Keep The Game Going’
Zell and Tom Barrack Jr.’s Colony Capital Inc. said in September that they were teaming up to create Alpine Energy Capital LLC, a rebrand of Colony HB2 Energy, which was formed in 2018 and recently closed a $320 million investment with California Resources Corp.
That deal was structured as a so-called DrillCo, in which private investors pay to drill certain fields. Once oil begins flowing, the private firm receives the majority of the cash flow until costs are recouped and pre-agreed profit targets are attained.
“The seller in that was a big company -- not in trouble but not terribly liquid, and therefore looking for ways to, in effect, get somebody else to put up the money to keep the game going,” Zell said. “What we’re seeing are situations where companies are taking steps in anticipation of problems rather than responding to problems.”
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>>> Kraft Heinz CEO talks innovation, turnaround plan
By Julia Mericle
Pittsburgh Business Times
10-31-19
https://www.bizjournals.com/pittsburgh/news/2019/10/31/kraft-heinz-ceo-talks-innovation-turnaround-plan.html?ana=yahoo&yptr=yahoo
Kraft Heinz CEO Miguel Patricio said the financially struggling company, which is jointly based in Chicago and Pittsburgh is in a better place than where it started the year, but he kept predictions modest during the Kraft Heinz third quarter earnings call Thursday.
“We are still far from where we should be,” Patricio said, during the call. “While overall performance is improving, our numbers are still negative from the prior year.”
Kraft Heinz (NASDAQ:KHC) reported total net sales of $6.1 billion, down 4.8 percent year-over-year, and U.S. net sales of $4.4 billion, down 1.6 percent year-over-year.
But according to the CEO, who took the top spot at Kraft Heinz at the end of June, the future looks brighter.
Patricio spoke about the Kraft Heinz “turnaround program,” noting some changes in the company’s leadership team in the third quarter including the appointment of Nina Barton as chief growth officer. Kraft Heinz also reinstated Paulo Basilio to Global CFO and Andre Maciel to U.S. CFO.
“I was very glad to see in this quarter we could stabilize the cost of goods sold. We are all relieved with that,” Patricio said. “…And it gives us a lot of faith and a lot of hope that we are in the right direction.”
Jennifer Bartashus, a Bloomberg Intelligence analyst who follows Kraft Heinz, said most investors saw that stabilization as a positive surprise, particularly after last quarter when the company withdrew its guidance for the year in terms of achievement expectations.
“The results today were important because it gave people a little assurance that there are short-term things the company is doing to help their performance and don’t have to wait for huge initiatives to change the trajectory,” Bartashus said.
Looking toward the future of Kraft Heinz, Patricio, edging toward simplicity, said he intends to shift innovation practices to support fewer, but more researched and developed, initiatives. In 2020, Kraft Heinz plans to reduce the number of new projects by half.
Patricio said he will also take a hard look at the products that have low margins, negative margins or very low volume and strategically remove those from shelves. It’s an effort to shift from a company focused on current success and inorganic growth to one of future success and organic growth, he said.
“I think that innovation is an area that we have to improve dramatically,” Patricio said. “…We have to do bigger innovation, we have to do fewer innovation, we have to do bolder innovation, we have to do profitable innovation and it has to be incremental instead of doing everything and throwing new products in the market that will not really generate extra profitability for our company.”
Basilio said investors should expect Kraft Heinz fourth quarter 2019 results to look similar to the third quarter, in terms of year-over-year performance. Investors will need patience, as Patricio said 2020 will remain a year of continued stabilization and rebuilding a strong foundation for Kraft Heinz as it looks toward growth in 2021.
Patricio said he will announce the Kraft Heinz formal three-to-five-year enterprise strategy to investors early in the new year.
“That will be a true transformational type of plan for the organization,” Bartashus said.
Bartashus said investors will look for evidence of portfolio optimization, or a shift into categories of high growth projections and consumer demand, in this plan. While the company had previously been looking to divest certain brand and products, the effort was put on hold during a company-wide assessment when Patricio joined the company.
Investors will also look for evidence of cost control, Bartashus said. After Kraft Heinz went through some extreme cost cutting after the 2015 merger, Bartashus said investors are waiting to hear how Kraft Heinz plans to retain its budgeting mindset while increasing profitability through finding places to make the supply chain and operations more efficient.
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>>> GE Stock Soared After Crushing Earnings Estimates. This Is Why.
Barron's
By Al Root
Oct. 30, 2019
https://www.barrons.com/articles/ge-stock-gains-as-messy-earnings-top-wall-street-estimates-51572432805?siteid=yhoof2&yptr=yahoo
There is a lot going on at General Electric these days. Third quarter earnings—reported Wednesday morning—demonstrate that. The company earned 15 cents a share from ongoing operations, easily beating Wall Street estimates of 12 cents a share. That’s good. But the company said it lost 15 cents a share when adding in all the one time expenses. That’s not.
Investors knew some charges were coming, but the report illustrate how hard it has been to turn around the iconic American manufacture.
“Our results reflect another quarter of progress in the transformation of GE,” said CEO Larry Culp in the company’s news release. “We are encouraged by our strong backlog, organic growth, margin expansion, and positive cash trajectory amidst global macro uncertainty.”
Importantly for investors, General Electric (ticker: GE) raised its free cash flow outlook for the year. Management expected full-year free cash flow to be about zero. Now the company the company thinks it can generate about $1 billion of free cash flow from industrial operations. The increased guidance comes even as the Boeing (BA) 737 MAX—which GE makes engines for—remains grounded and a cash flow headwind for both companies.
GE generate $650 million in free cash flow during the third quarter, above the $500 million Wall street had been looking for, according to Gordon Haskett analyst John Inch.
The free cash flow boost is likely what sent GE stock up $1.04 cents, or 11.5%, to $10.11 in Wednesday. For the year, GE shares are up about 39%, better than the 17% comparable gain of the Dow Jones Industrial Average.
Long term care insurance, Baker Hughes (BKR) stock sales, and goodwill generated the special charges.
Lower rates caused GE’s insurance liability to rise—something Culp telegraphed to investors in September. GE no longer owns a majority of Baker Hughes. Now GE’s Baker stockholdings are marked to market on a quarterly basis—as accounting regulations dictate. Energy stocks are down with energy prices. Again, not a surprise to Wall Street. Finally, GE wrote off some of its renewable power assets.
The power business is still tough. Power sales fell 14% year over year in the third quarter and is still losing money. The power industry continues to be buffeted by trends moving power generation away from coal. GE makes equipment for coal based power generation. Aviation sales, on the other hand, grew 8% year over year and profit margins were 21%.
Overall, the quarter should be enough for GE bulls who can point to progress on the turnaround. GE will host a conference call at 8 a.m. eastern to discuss results with analysts and investors.
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>>> The Big Short’s Michael Burry Sees a Bubble in Passive Investing
Bloomberg
By Heejin Kim and Myungshin Cho
August 28, 2019
https://www.bloomberg.com/news/articles/2019-08-28/the-big-short-s-michael-burry-sees-a-bubble-in-passive-investing?srnd=premium
Rush into index funds has punished small-cap value stocks
‘There is all this opportunity, but so few active managers’
Michael Burry shot to fame and fortune by betting against mortgage securities before the 2008 crisis, a trade immortalized in “The Big Short.”
Now, Burry sees another contrarian opportunity emerging from what he calls the “bubble” in passive investment. As money pours into exchange-traded funds and other index-tracking products that skew toward big companies, Burry says smaller value stocks are being unduly neglected around the world.
In the past three weeks, his Scion Asset Management has disclosed major stakes in at least four small-cap companies in the U.S. and South Korea, taking an activist approach at three of them.
“The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally,” Burry, whose Cupertino, California-based firm oversees about $343 million, wrote in an emailed response to questions from Bloomberg News.
Active money managers have bled assets in recent years as investors rebelled against high fees and disappointing returns -- a trend that prompted Moody’s Investors Service to predict that index funds will overtake active management in the U.S. by 2021. The shift has coincided with a multiyear stretch of underperformance by value stocks and, more recently, by small-caps.
Smaller U.S. stocks have underperformed large-caps
“There is all this opportunity, but so few active managers looking to take advantage,” wrote Burry, who was played by Christian Bale in the film version of Michael Lewis’s book on the collapse of the U.S. housing bubble and ensuing financial crisis.
While Burry is best known for his bearish wagers, he said his passion is “long-oriented investing in undervalued and overlooked situations.” He said he’s turning to activism in some cases because there’s not a “critical mass of smaller value-seeking active managers like me” and to help companies make themselves more attractive to investors.
This month Burry petitioned GameStop Corp., a video-game seller, and Tailored Brands Inc., a menswear retailer, to buy back shares. His investment firm also increased its positions in two South Korean small-cap companies -- Ezwelfare Co. and Autech Corp. -- and disclosed its intention to engage with management at Autech, a delivery truck and ambulance maker in which Scion owns a nearly 10% stake.
Burry said he’s also “watching” developments at CJ Group, a South Korean conglomerate, without providing more details in his email to Bloomberg. Listed preferred shares of CJ Corp. rose as much as 2% in Seoul on Thursday morning.
“Korea has so much potential,” Burry wrote, citing the country’s technological prowess and high education levels. “Yet Korean stocks are almost always cheap, and management teams are to blame because they do not treat shareholders equally as owners.”
Korean stocks trade below book value, less than half global level
While activists including Elliott Management’s Paul Singer have recently pushed South Korean companies to boost stockholder returns, the market still trades at one of the most depressed valuations worldwide. The benchmark Kospi index has dropped about 5% this year, compared with a 16% gain in the S&P 500.
“I have seen the mistakes Americans make with activism over the years, especially in Asia,” Burry said. “My first instinct is friendly advice. It may occasionally evolve to a more hostile situation, but that is not what I want. I most want a productive conversation.”
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>>> GameStop Corp. (GME) operates as a multichannel video game and consumer electronics retailer in the United States, Canada, Australia, and Europe. The company sells new and pre-owned video game hardware; video game software; pre-owned and value video games; video game accessories, including controllers, gaming headsets, virtual reality products, memory cards, and other add-ons for use with video game hardware and software; and digital products, such as downloadable content, network points cards, prepaid digital and prepaid subscription cards, and digitally downloadable software, as well as collectible products. It also sells collectibles comprising licensed merchandise primarily related to the video game, television, and movie industries, as well as pop culture themes; gaming-related print media, and mobile and consumer electronics; PC entertainment software in various genres comprising sports, action, strategy, adventure/role playing, and simulation; and strategy guides, magazines, and interactive game figures. In addition, the company operates e-commerce sites under the GameStop, EB Games, Micromania, and ThinkGeek brands; and collectibles stores under the Zing Pop Culture and ThinkGeek brand, as well as Game Informer, a video game magazine. Further, it operates 43 Simply Mac branded stores, which sell Apple products, including desktop computers, laptops, tablets and smart phones, and related accessories and other consumer electronic products, as well as warranty and repair services. As of April 2, 2019, the company operated 5,800 stores across 14 countries. The company was formerly known as GSC Holdings Corp. GameStop Corp. was founded in 1994 and is headquartered in Grapevine, Texas.
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>>> GE Rout Ambushes Hedge Funds After Second-Quarter Buying Spree
Bloomberg
By Brendan Case
August 16, 2019
https://www.bloomberg.com/news/articles/2019-08-16/ge-rout-ambushes-hedge-funds-after-second-quarter-buying-spree?srnd=premium
Shares dropped most in 11 years after report by Madoff accuser
CEO’s turnaround drive had won over investors during spring
GE plummeted 11% to $8.01 on Thursday, the biggest drop since April 2008.
General Electric Co.’s biggest plunge in 11 years came at an awkward time for some of Wall Street’s savviest investors.
Hedge funds added more shares of GE than any other company to their industrial investments in the second quarter, according to an initial analysis of U.S. regulatory filings compiled by Bloomberg Global Data. Their holdings of the Boston-based company increased by 25% to a total of 199.3 million shares, valued at $2.09 billion at the quarter’s end.
While some recent buyers may have sold since then, many of them were almost certainly left holding the bag when Harry Markopolos, who rose to prominence by blowing the whistle on Bernie Madoff, accused GE of “accounting fraud” Thursday. Markopolos’s report wiped out much of the company’s share gains this year, even as Chief Executive Officer Larry Culp labeled the analysis “market manipulation -- pure and simple.”
The rout highlights the perils in trying to call a bottom to a troubled stock as the company attempts a turnaround from an epic collapse. GE’s market value fell by more than $200 billion in the two years ended Dec. 31 amid weak cash flow, a slump in the power-equipment market and two CEO changes. While Culp vowed to improve financial transparency after taking over in October, Markopolos accused the company of masking tens of billions in liabilities.
GE plummeted 11% to $8.01 on Thursday, the biggest drop since April 2008. That cut this year’s advance to 10%, compared with a 13% gain in an S&P index of industrial stocks. The company is the worst performer on that gauge since the end of the second quarter, with a steady decline since it reported earnings July 31.
GE trails industrial peers after Thursday's plunge
Following the close of Thursday’s trading, GE climbed about 2% after a regulatory disclosure that Culp purchased about $2 million in shares amid the rout. He bought $3 million of stock earlier this week, a move the company said reflects “confidence in GE’s long-term strengths and its progress.”
‘Impending Losses’
Markopolos, who is working with a short seller, took the opposite stance. He said GE will need to increase its insurance reserves for a long-term care portfolio immediately by $18.5 billion in cash -- plus an additional noncash charge of $10.5 billion when new accounting rules take effect. GE also is hiding a loss of more than $9 billion on its holdings in oilfield-services company Baker Hughes, he said.
“These impending losses will destroy GE’s balance sheet, debt ratios and likely also violate debt covenants,” Markopolos said in his report.
GE defended its accounting in a statement by Culp and board member Leslie Seidman, who chairs the audit committee.
“The fact that he wrote a 170-page paper but never talked to company officials goes to show that he is not interested in accurate financial analysis, but solely in generating downward volatility in GE stock so that he and his undisclosed hedge fund partner can personally profit,” Culp said of Markopolos.
Seidman said the analysis included “novel interpretations and downright mistakes” about accounting requirements.
Hedge-Fund Holdings
For the analysis of hedge-fund investments, Bloomberg looked at 824 filings for the second quarter, which showed $1.66 trillion in total stock holdings. Industrial-sector investments accounted for $120.5 billion, or 7.2% of the value of the securities listed in the filings. The firms cut their holdings the most in railroad CSX Corp., which has fallen 17% since the end of the period.
It’s impossible to know which hedge funds may have sold some or all of their GE holdings before Thursday’s rout. The company’s shares were little changed in July before their August decline.
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>>> GE Climbs as Improved 2019 Forecast Buoys Culp’s Turnaround
By Rick Clough
July 31, 2019
https://www.bloomberg.com/news/articles/2019-07-31/ge-raises-outlook-amid-power-improvement-as-turnaround-advances?srnd=premium
CEO calls outlook ‘a sign of progress, a sign of stability’
CFO Miller to step down soon as company seeks a replacement
General Electric Co. gained after raising its outlook for the year as the long-suffering power division showed signs of improvement, boosting Chief Executive Officer Larry Culp’s efforts to rejuvenate the ailing manufacturer.
The industrial businesses will generate as much as $1 billion in cash this year, up from the previous range of no more than zero, GE said in a statement Wednesday as it reported second-quarter earnings. The company also boosted its 2019 forecast for adjusted profit by 5 cents a share. In a further break with the past, GE said Chief Financial Officer Jamie Miller will step down soon.
The brighter outlook “is a sign of progress, a sign of stability here, but you’re not going to hear us trying to extrapolate too much too soon,” Culp said in an interview. “To the extent that you saw a lot of negative surprises at the back half of last year and fewer this year, while it’s early and we’re far from perfect, I do think that is a sign.”
GE's has gained twice as much as other industrials this year
The results -- boosted by quarterly earnings above Wall Street’s expectations -- mark the second straight quarter of improved performance under Culp, who set a low bar for himself by slashing the dividend and warning of a weak outlook in power equipment after taking the reins in October. The new CEO has sought to stabilize cash flow and reduce debt to stem one of the worst slumps in the company’s 127-year history.
“Things are turning,” said Nicholas Heymann, an analyst with William Blair & Co. While GE still has more work to do, especially in nursing the power business back to health, the latest moves suggest Culp is “comfortable in his own skin right now. He knows the key levers to pull.”
The shares advanced 3.3% to $10.87 before regular trading in New York. GE climbed 45% this year through Tuesday, doubling the increase in an Standard & Poor’s index of industrial stocks. With this year’s gain, GE has recovered much of the decline during the early part of Culp’s tenure.
Beating Expectations
GE said Miller would “transition from her role.” The company has started a search for a new CFO and Miller will stay on for now to smooth the changeover.
Adjusted profit fell to 17 cents a share in the second quarter, topping the 12-cent average of analyst estimates compiled by Bloomberg. Free cash flow from the manufacturing units was minus $1 billion, at the high end of GE’s previous expectations.
The results failed to impress Steve Tusa, an analyst at JPMorgan Chase & Co. who earned a reputation for prescience in recent years after emerging as the biggest GE bear on Wall Street. He questioned whether GE’s performance merited the improved outlook for this year, and recommended selling the shares into any gains.
“The stock is up on the headlines, as it has been many times before, but, like in the past, the underlying core fundamentals are actually a bit worse,” he said in a note to clients.
737 Max
Cash flow, a closely watched metric that is considered an indicator of company performance and earnings potential, has been a central weakness during GE’s recent slump. The company had previously said it expected to run through as much as $2 billion this year before a rebound in 2020.
In the second quarter, sales rose 4.8% at GE Aviation while orders fell 10%. The division, a longtime bright spot that has run into hurdles recently, makes engines for Boeing Co.’s 737 Max and 777X, the debut of which is facing delays because of an engine problem.
Culp said GE faces a cash headwind of $400 million a quarter as long as the Max isn’t flying. The Boston-based company makes the engine for the plane -- which has been grounded after a pair of crashes killed 346 people -- through a joint venture with France’s Safran SA.
Revenue at GE Power, which has struggled through a downturn in the gas-turbine market, fell 25%. But the business showed signs of improvement, Culp said, and orders in the gas-power operation climbed 27%.
Adjusted profit this year will be 55 cents to 65 cents a share, up a nickel from the prior range, the company said.
The outlook adjustment was due in part to “improvements at power, lower restructuring and interest, higher earnings and better visibility at the half,” Culp said in the statement.
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Teva - >>> 3 Drug Stocks With Unimaginably Low P/E Ratios
by Sean Williams
Motley Fool
July 17, 2019
https://finance.yahoo.com/news/3-drug-stocks-unimaginably-low-112100045.html
Teva Pharmaceutical Industries: 2019 P/E of 3.9
More than likely the best-known drug stock on this list is Teva Pharmaceutical Industries (NYSE: TEVA), namely because it's been in the news a lot over the past two years, and not always for the best reasons.
In sum -- take a deep breath, because you're going to need it -- Teva has eliminated its dividend, reduced its outlook multiple times, been sued by 44 states over sales of opioid drugs, contended with generic-drug price weakness, seen its top-selling multiple sclerosis drug face generic competition, and settled a bribery scandal with the Justice Department that led to top executive turnover.
The icing atop all of this is that Teva, the largest generic-drug producer in the world, paid far too much to acquire Actavis Generics from Allergan and wound up saddled with around $35 billion in debt. This left Teva with little financial flexibility to grow its business once generic pricing weakness crept into the picture.
But of the three unimaginably "cheap" drug stocks listed here, Teva is the one with the real prospect of a long-term rebound. Teva CEO Kare Schultz specializes in turnarounds, and he's overseen the reduction of $8 billion in net debt in two years' time. He's also expected to have trimmed $3 billion in annual expenses off Teva's books by the end of this year -- that's about 16% of what it was spending per year before this mess began. When also added to the more than $1 billion Teva saves a year by having eliminated its dividend, the company's cost structure is well under control, and its ability to generate substantial amounts of cash flow isn't in question.
Ultimately, I view Teva as an excellent play for an aging global population. With longevity increasing in most countries, access to medical care improving, and countries like the U.S. fighting back against high-priced brand-name drug, Teva, being the largest generic-drug producer in the world, should see a significant increase in long-term pricing power.
This won't be an overnight turnaround, but Teva's P/E ratio of 3.9 genuinely does look to be a bargain.
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GE had a golden cross, the first since the death cross 2 years ago. The company still has lots of challenges (heavy debt), but the chart is starting to look promising for a rebound -
>>> 'A New Energy' Is Seen In GE As Aviation Unit Leads Transformation; GE Stock Up
Investor's Business Daily
6-19-19
https://www.investors.com/news/ge-stock-rises-potential-buy-point-ge-aviation-leads-growth/?src=A00220&yptr=yahoo
General Electric's (GE) core aviation unit is leading GE's transformation on the back of its stability and underlying growth, Citigroup said. GE stock rose.
Analysts at Citigroup acknowledged "teething issues" on the new GE9x jet engine, but said they "sense a new energy in Aviation and across GE" after meetings with management and a GE Aviation investor presentation.
"The business does seem to be operating on all cylinders," Citi analyst Andrew Kaplowitz said, citing military growth, Leap engine purchases, and aftermarket service-related growth. He also backed his buy rating and 14 target price for GE stock.
Meanwhile, GE Aviation has booked more than $52 billion in orders so far this week at the Paris Air Show. That includes $20-billion-plus orders apiece from India's Indigo airlines and Malaysia's AirAsia, as well as aircraft leasing deal with Amazon Air as Amazon (AMZN) builds out its delivery and transport network. In 2017, GE booked roughly $31 billion at the same show.
The Citigroup note highlighted more disclosure and improvement in an area closely watched by investors — cash generation. GE Aviation's $4.2 billion in free cash flow in 2018 represented 88% conversion, Kaplowitz said.
He added: "There will be expected (Boeing) Max drag in 2019 (close to $300 million in Q2 and we lower our overall GE free cash estimate for Q2 to -$1.6 billion from -$800 million to be more in-line with guidance of -$1 billion to -$2 billion), but we sense management confidence in improved cash performance moving forward (flattish Aviation working capital expected for the year) led by a strong aftermarket environment, favorable terms on new orders, and focus on 'daily' cash collection vs. an end of quarter bias."
Two Boeing (BA) Max jets were involved in fatal crashes in the past year, leading to groundings as well as a halt to deliveries and slowdown in production.
Shares of General Electric rose 0.2% to 10.44 on the stock market today, rising further above the 50-day and 200-day moving averages. While GE stock is forming a base with a potential 11.85 buy point, the entry is well below prior highs.
Fellow Boeing jet engine supplier United Technologies (UTX) was flat, while the Dow Jones Industrial Average advanced 0.2%. United Tech and Boeing are Dow Jones stocks.
The relative strength line for GE stock has been on an uptrend year to date. The RS line, shown in blue below, tracks performance against the S&P 500.
'Hard To Poke Holes' In GE Aviation
GE Aviation is testing and redesigning a compressor part in the colossal new GE9x jet engine that has delayed the maiden flight of the Boeing 777x, the world's largest twin-engine jetliner.
Citigroup's Kaplowitz noted that, but found it's "hard to poke holes" in the aviation unit's strong commercial portfolio.
The International Air Transport Association's "2019 current forecast growth of 5% is still strong and GE's visibility toward continued aftermarket-led growth is impressive," he said.
He called the Indigo deal a "large win" for GE's Leap-1A, since the airline previously used United Tech's Pratt & Whitney engines.
Simultaneously, GE Aviation's revenue from military orders is growing, Citigroup said.
Meanwhile the GE9x debuted at the 2019 Paris Air Show this week, and has received more than 700 orders. The Leap engine has reached a record 17,000-plus orders, with GE on pace to deliver more than 1,800 Leap engines this year.
General Electric is focused on its "crown jewel" aviation segment even as CEO Larry Culp accelerates efforts to return its power segment to profitability.
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>>> GE’s Larry Culp Faces Ultimate CEO Test in Trying to Save a Once-Great Company
The new chief executive is trying to summon his inner Jack Welch.
Bloomberg
June 12, 2019
https://www.bloomberg.com/news/features/2019-06-12/ge-s-larry-culp-faces-ultimate-ceo-test-in-trying-to-save-a-once-great-company
One Sunday in March, Gary Wiesner, who runs General Electric Co.’s wind-turbine-blade factory in Pensacola, Fla., received something he’d never gotten before: a personal email from the CEO. H. Lawrence Culp Jr. wanted to know if it would be OK if he came for a visit.
When Culp arrived two days later, alone, in jeans, it marked the first time a GE chief executive officer had visited the plant since the company bought it 18 years ago. He spent about two hours walking the floor and chatting with technicians, stopping only briefly for a call with the board of directors.
A longtime devotee of Toyota-style lean manufacturing, Culp was in his element. While overhead screens flashed measurements of the production pace in eight-hour increments, Culp wondered aloud if the metrics were visual enough and whether they could be broken down into 20-minute or even 10-minute slices, so workers would know sooner when they might be falling behind on their goals. At the tour’s end, he urged them to face up to production issues as early in the process as possible—or, as he put it, “Let’s make it red, make it ugly, let’s go fix them,” Wiesner recalls. A half-hour after leaving, Culp sent another email promising to return.
The wind turbine business is among the least of Culp’s worries. GE’s balance sheet is lopsided with debt, its GE Power division is shedding millions of dollars in cash daily, the stock price is barely in double digits, and the Securities and Exchange Commission is investigating the company’s accounting practices. Nonetheless, Culp’s Pensacola visit is a telling example of how the first outsider to run GE is trying to fix it, metric by metric.
Since taking over as CEO on Oct. 1, he’s eschewed the company’s Boston headquarters for frequent travel, spending day-and-a-half sessions with GE units around the world and meeting with CEOs at Boeing, Duke Energy, and Safran, among other customers. In May, the night before his appointment to see FedEx Corp. CEO Fred Smith, he flew to Memphis to watch a million-odd packages handled in the “night sort” at the company’s main shipping hub. Culp ordered almost 50 GE business heads to take off June 10-14 for an on-the-factory-floor, “true-lean” manufacturing boot camp that he’s helping to teach.
None of this would surprise people who worked with Culp in his 14 years as CEO at Danaher Corp., the low-profile industrial conglomerate. On his watch, Danaher grew fivefold in revenue while Culp, in the mold of GE legend Jack Welch, oversaw scores of acquisitions. And like Welch, Culp isn’t the sort to buy a company and forget it. It wasn’t unusual to see Culp moving equipment around in factories or strolling trade shows seeking time with customers. While studying an orthodontics company Danaher had bought, Culp decided he could best understand its customers by testing the product himself. “Probably he didn’t need braces, but he got braces,” says Vicente Reynal, who ran that business for Culp.
Culp retired from Danaher four years ago at the age of 51. The behemoth he’s charged with rescuing is, with $120 billion in annual revenue, six times the size of that company, with quadruple the number of employees. GE Power, which produces electricity-generating equipment, is by itself larger than Danaher. Whereas Culp expanded his former company with acquisitions, his first job at GE will be to shrink it. At Danaher he could mostly ignore an outside world that mostly ignored him—a luxury he no longer enjoys.
Culp is an “inspired choice,” but the skills he honed at Danaher—buying companies and making them more efficient—don’t prepare him for the mess at GE, concluded research firm Paragon Intel in a recent report. JPMorgan Chase & Co. analyst Stephen Tusa, who predicted GE’s collapse before his peers, has argued that there still hasn’t been a true accounting of the extent of the company’s problems.
Culp’s many acolytes aren’t fazed. Jim Lico, who worked for him at Danaher and now runs Fortive Corp., a Danaher spinoff, says that when he heard of his old boss’s new job, he bought a “meaningful” chunk of GE stock. “And I think most of the people that have worked for him did, too,” Lico says. “When you look at how Danaher changed over the course of his CEO tenure, there might not have been as many zeros behind the numbers, but the work he did to build Danaher was every bit as risky” as what he confronts at GE.
Culp himself doesn’t seem terribly worried, either. “Is it more challenging? I can’t say that it is,” he said in a brief phone interview in January, sounding supremely confident, or deeply delusional, or possibly both. “I wish I had more hours in the day, I wish we had started sooner, but I can’t deal with any of that. We’re just trying to make progress a little bit every day.”
The magnitude of GE’s fall probably helps Culp by giving him a longer leash with investors than his predecessors. Wall Street was always skeptical of Welch’s successor, Jeffrey Immelt, who overpaid for some early acquisitions and later committed the cardinal sin of cutting the dividend. Then John Flannery was too busy dousing fires during his short reign to build rapport with shareholders. Culp brought his gleaming Danaher résumé and zero GE baggage. Although it’s not at all clear that he can return GE to its past glory, he probably can’t make things much worse.
GE shares got a nice little bump when the company announced on April 30 that it had burned only $1.2 billion in cash in the first quarter, a third of what most analysts expected. “No news is good news, I guess, in the eyes of some investors,” Culp said in another brief phone chat. In fact, no news has been almost the only good news the past two years, as the rat-a-tat of negative revelations prompted investors to knock $150 billion off GE’s value, or more than the entire market cap of Nike Inc. or General Motors Co.
The descent began decades ago. GE preserved its public bearing as one of the world’s greatest companies partly because of its name: Everyone wanted to believe in General Electric, maker of lightbulbs and jet engines, corporate child of Thomas Edison, keystone of 20th century industrial America. Welch could do no wrong in the eyes of most investors and business media.
The reckoning also was deferred because GE’s questionable accounting and selective disclosures made it almost impossible for shareholders to see which businesses were truly thriving and which weren’t. The company pioneered the euphemistically named practice of earnings management; it could sell a handful of assets at the end of the quarter to give earnings a boost. GE routinely met or beat Wall Street expectations, which of course juiced shares. Further obscuring the picture, its in-house bank, GE Capital, was so vast that troubled businesses such as long-term-care insurance or subprime mortgages could fester without drawing much attention.
Cracks finally became visible under Immelt, who ran GE much like Welch, constantly buying and selling companies. When the 2008 financial crisis hit, GE almost collapsed. Immelt cut the dividend for the first time since the Great Depression. The SEC charged the company with misleading investors, saying it “bent the accounting rules beyond the breaking point.” GE paid $50 million to settle the case without admitting fault, but it would no longer get a free pass when fiddling with earnings.
By the time Nelson Peltz’s activist Trian Fund Management disclosed it had bought a $2.5 billion stake in 2015—usually not a good sign for top managers—Immelt had made two fateful decisions that would help pave the way for Culp’s ascension. The first was GE’s $10.6 billion acquisition of the energy business of France’s Alstom SA. A maker of natural gas power turbines, Alstom had poor profitability as fossil fuels faced growing competition from renewables, but the purchase bolstered GE’s position as the world’s largest maker of gas turbines. The global market for those products was crashing when GE closed the Alstom deal in late 2015.
Then, in selling the bulk of GE Capital, Immelt cashed in on strong assets while hanging on to weak ones, such as the long-term-care insurance business that last year forced GE to set aside $15 billion to cover potential future losses. On the day in June 2017 that GE announced Immelt would retire, the stock rose 3.6%, its biggest one-day jump in almost two years.
GE veteran Flannery, one of four finalists inside the company to succeed Immelt, took over in August 2017. Two of the other candidates resigned before the year was over. “Things will not stay the same,” Flannery vowed. He was right; things worsened as the power business continued to deteriorate and investors inured themselves to hearing one bad-news bombshell after another. Investor Trian, with its sizable GE stake and a board seat, grew concerned about both Flannery and the shallow bench behind him, says a source who isn’t authorized to speak publicly.
Early last year, GE took the extraordinary step of overhauling its board, shrinking it to a dozen directors from 18. Flannery sought advice on new members from, among others, Kevin Sharer, a GE alumnus and former Amgen Inc. CEO, who was teaching at Harvard Business School. Sharer raved about his fellow HBS lecturer and golf-fishing-and-skiing buddy Culp. After Culp joined the board, he threw himself into learning everything about the giant company, even visiting factories. Analysts began to speculate that he’d soon become CEO. Sharer says there was no such plan, though Flannery “knew very well Larry’s background and his capability.” In one of Culp’s first conversations with the then-CEO, Flannery said he admired what Culp had done at Danaher. Culp replied, “We were simply doing what we thought you were doing.”
Unless you’re a Danaher shareholder or a fan of Harvard case studies, you probably don’t know much about the company. It’s an oddly frequent focus of academic inquiry, perhaps because its executives seem more willing to speak with professors than the media, which Danaher tends to ignore. The company didn’t respond to requests for interviews for this story.
Its headquarters are on the eighth floor of a glass building wedged between a federal credit union and an upscale restaurant in the Washington, D.C., neighborhood of Foggy Bottom. The name “Danaher” doesn’t appear on the building’s exterior. The company evolved from a real estate firm that brothers Mitchell and Steven Rales founded in 1969. (It’s named for a tributary of a Montana river they liked.) By the mid-1980s, it had acquired hundreds of small and midsize industrial companies.
Danaher was one of the first U.S. companies to adopt Toyota Motor Corp.’s kaizen process of increasing productivity with tiny, continuous improvements. Its own version is called the Danaher Business System, or DBS, which in some ways resembles the Six Sigma quality-assurance regimen Welch embraced in the 1990s. DBS relies heavily on measurable facts, including not only profits and sales but also nonfinancial metrics such as on-time delivery. These are measured on monthly, weekly, daily, and even hourly bases, depending on a project’s urgency. From the moment Culp joined Danaher in 1990, he embraced it like a religion.
Danaher was Culp’s first job out of HBS. Classmates sought out big-name companies, but Culp thought Danaher’s relative obscurity would give him the chance to have a bigger impact quickly, he told students in a talk last year at Montgomery College in Maryland. One of his first assignments was helping assemble air conditioners at a plant in Japan—his introduction to lean thinking. In 2001, at age 38, he became CEO. Immelt succeeded Welch at GE the same year.
Over the next 14 years, Culp oversaw $25 billion in acquisitions. They included makers of digital microscopes, dental implants, water purifiers, and advanced packaging tools. Each year, Danaher performed due diligence on 150 companies or more while cultivating other targets that weren’t for sale, at least not yet. It deliberately avoided cyclical businesses and those in the financial sector, Culp said in an HBS study.
Soon after a purchase, the acquired company would often be plunged into a DBS kaizen “event” that could last a few days. “Even the smallest operation was scrutinized, be it the act of picking up a tool, the organization of parts, or the distance a worker moved to get the product to the next stage of production,” according to a study by the University of Virginia’s Darden business school.
A month after Danaher bought Radiometer, a maker of blood analysis technology, in 2004, the top 40 managers of the acquired company split into six study groups to seek efficiencies. Radiometer’s CEO told Harvard that he and his team were “skeptical that anybody?…?could make us any better.” One Radiometer study group quickly learned that a part that took less than a half-hour to produce took as long as 18 days to ship. The group slashed that to less than two days by cutting two departments out of the production flow.
Radiometer executives then presented the new owners with their updated strategy, boasting of their 40% market share in key product segments. Danaher asked why 60% of the market preferred rival offerings. Radiometer’s CEO told the Harvard researchers, “We probably knew our own existing customers very well, but we did not know our competitors’ customers.”
What other companies might see as success could be viewed with suspicion at Danaher. In 2007, Culp, a rabid Boston Red Sox fan, told this magazine, “There are a lot of companies where if you win 10-9, nobody wants to talk about the nine runs [they] just gave up.” At Danaher, he said, “We’ll talk about ‘How did we give up nine runs? Why didn’t we score 12?’?”
Culp retired from Danaher in March 2015. “I was very happy with my post-CEO life,” he recently told the Harbus, an HBS publication. In addition to teaching and advising Bain & Co., he did a lot of fishing and skiing. Money wasn’t a problem; he’d made about $300 million at Danaher, according to a Bloomberg News analysis. “Some friends said, ‘Why put your legacy at risk?’ And I thought that is exactly why I should do it,” Culp said. “I strongly believe GE as a company matters to the world.”
In Culp’s first day on the job, GE’s stock shot up 7%. It soon reversed direction as the extent of the company’s problems became clearer. By yearend, GE had cut its quarterly dividend to a penny—30¢ lower than its all-time high in early 2009—and the stock had fallen almost 40%. In February, Culp’s first letter to shareholders was a crisp five pages (vs. the 26 pages of Immelt’s last such missive) that committed GE to a simple two-step strategy: reduce debt and fix the power business.
Culp moved as he might have at Danaher. He finalized an agreement to pay $1.5 billion to settle a Department of Justice investigation into GE’s defunct subprime mortgage business. He scaled back Immelt’s grandiose plan for the new headquarters in Boston. The smaller board now meets in a smaller room around a smaller table. He ditched a plan to spin off the thriving health-care unit in favor of selling its biopharmaceutical business for $21.4 billion to Danaher. He restructured a Flannery deal to sell GE’s locomotive business in a way that will raise additional cash of as much as $3.4 billion.
GE also is getting a taste of Culp’s zeal for that Danaher regimen. Inside the company, he has preached the importance of hewing to measurable results. On a conference call with analysts in January, he said, “When we talk about execution, we talk about daily management.” He used the phrase “daily management” six times and the word “lean” 11 times in a recent presentation at an industry conference.
David Joyce, who heads GE’s healthy aviation division, says this way of running things requires understanding not only what a business has accomplished but how. “I can sit down with Larry and show him 30 metrics and tell him relative to plan, the variance was positive in every one.” But that’s not enough. “Did you do it because there was a one-time event that allowed you to get across the finish line? Did you have a lot of variation and just happened to be on an upswing at the end of the quarter? How do you control it to make sure this performance repeats itself?”
A mountain of work remains. GE Power, in particular, shows how hard it will be for Culp to untangle the knots his predecessors tied. Angry shareholders have dragged it into court. Unfavorable contracts that past managers negotiated have helped Power become GE’s biggest cash drain. The unit’s marquee gas turbine suffered an embarrassing malfunction last year that necessitated widespread repairs. These would all be problems even if the gas-power market wasn’t suffering as it is. GE Power lost more than $800 million last year. At $27 billion in revenue, it’s one of GE’s biggest businesses, yet investors value it at zero—or worse. Culp has acknowledged that a turnaround will take years.
If he can restore GE to its old self, he could go down as one of the greatest CEOs ever, surpassing even Welch at his cult-status peak. Culp also could collect a windfall of more than $200 million if GE’s stock goes way up and stays there. He says he’s eager to get back to what he did so well at his old job: buying good companies and making them great. For now, though, he’s stuck trying to make GE merely good again.
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>>> Teva Stock Sees Another Big Buy From Chairman Sol Barer
Barrons
By Ed Lin
June 6, 2019
https://www.barrons.com/articles/teva-chairman-sol-barer-bought-up-even-more-stock-51559818843?siteid=yhoof2&yptr=yahoo
Teva Chairman Sol Barer has bought $2 million in company shares in 2 days.
Teva Pharmaceutical Industries stock just saw its second large open-market buy this week and from the same insider, Chairman Sol Barer.
On Monday, with Teva stock (ticker: TEVA) coming off a 19-year intraday low, Barer bought $1 million of shares of the generic-drugs maker. Shares have been socked by worries over exposure to lawsuits related to the opioid crisis and by allegations that Teva took part in a price-fixing scheme...
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>>> Teva and J&J Stocks Were Hit by Opioid Worries. What Could Come Next.
Barrons
By Josh Nathan-Kazis
June 7, 2019
https://www.barrons.com/articles/how-the-opioid-litigation-against-drug-companies-could-play-out-51559914560?siteid=yhoof2&yptr=yahoo
Shareholders of Teva Pharmaceutical Industries (ticker: TEVA) and Johnson & Johnson (JNJ) recently received a jolt on news from an opioid case in Oklahoma.
Teva agreed to pay $85 million to a settle a lawsuit brought by the state that accused the company of helping fuel the opioid crisis. In the same case, Johnson & Johnson is now on trial. Shares of the two companies tumbled.
With the Oklahoma case, investors are beginning to weigh the likelihood of large-scale payouts from health care companies over the opioid epidemic. Teva has denied any wrongdoing; J&J says that its marketing and promotion of opioid medications were “appropriate and responsible” and that the allegations against it are baseless.
The one to watch is U.S. District Judge Dan Polster in Ohio. He is pushing for a settlement, possibly in the next few months, that could sweep in more than a thousand separate opioid lawsuits. Experts say that Polster hopes to reach a settlement before the fall, and some think he just might succeed.
The judge “made very clear from the beginning this is a national public health emergency, trials are not the answer, the legislatures have punted to him, and they’ve got to settle,” says Abbe Gluck, a professor of law at Yale Law School and the faculty director of the Solomon Center for Health Law and Policy.
State, local, and tribal governments, along with some individual plaintiffs, have brought roughly 2,000 cases against companies that have produced, sold, and distributed opioids in recent years. “These defendants cannot litigate 2,000 cases,” Gluck notes. “It can’t happen in anybody’s lifetime.”
Instead, federal courts have embarked on a complex process known as a multidistrict litigation, which combined more than a thousand cases in an effort to reach an overarching settlement. The settlement could even sweep in the hundreds of cases still in the state courts that have not been consolidated in the multidistrict litigation.
With the parties so far unable to reach an agreement, Polster also set in motion a handful of trials, the first of which is set to begin in October. These are known as “bellwether” trials; designed to gauge the strengths of the parties’ arguments as they continue to work toward settlements.
Exactly how a global opioid settlement will shake out is a harder, if not impossible, question. “You’re dealing here with multiple layers of causation and liability,” says Andrew Pollis, a professor of law at Case Western University.
Still, some analysts have made their own guesses about liabilities. UBS analyst Navin Jacob wrote on May 28 that Teva could be on the hook for anywhere from $154 million to $4.25 billion, and downgraded the company to Neutral from Buy.
Oppenheimer analyst Esther Rajavelu has estimated that Teva would end up paying $500 million to $700 million nationally. But she argues that the recent selloff “creates an opportunity for a long-term holder to get into the stock.”
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>>> Better Turnaround Play: Bausch Health Companies or Teva Pharmaceutical Industries
by George Budwell
The Motley Fool
May 22, 2019
https://finance.yahoo.com/news/better-turnaround-play-bausch-health-124900536.html
Healthcare companies that fall on hard times can, on occasion, turn out to be outstanding bargains for long-term-oriented investors. By the same token, these types of equities can also turn out to be ticking time bombs.
Bausch Health Companies (NYSE: BHC) and Teva Pharmaceutical Industries (NYSE: TEVA) are two high-profile healthcare names that fit squarely into this all-or-nothing paradigm. In brief, both companies are in the midst of a slow-motion turnaround with an uncertain outcome. Which stock has the better chance of making a full recovery? Here's how these two beaten-down healthcare stocks stack up.
Strengths
One striking parallel between Bausch and Teva is the fact that the biggest strength of each company is arguably their current leadership. Bausch's CEO, Joseph Papa, took the helm in 2016 when the company was called Valeant Pharmaceuticals. At the time, Valeant was mired in debt and tainted by lawsuits, as well as allegations of price gouging. Teva, by contrast, hired Kare Schultz as CEO in late 2017 to head its turnaround following the disastrous acquisition of Allergan's generic drug business that literally threatened to bankrupt the generic drug giant.
Joseph Papa has been instrumental in turning Bausch around. During Papa's tenure, Bausch has repaid around a quarter of its outstanding debt and successfully extended its outstanding maturities to get some much-needed breathing room, and it now has a solid plan to return to consistent levels of top-line growth in the next decade.
Papa's reboot centers around the so-called significant seven, consisting of Aqualox, Bryhali, Duobrii, Lumify, Relistor, Siliq, and Vyzulta. These seven growth products are expected to eventually generate $1 billion in annual sales combined. Another positive is that Papa's tenure has coincided with the favorable resolution of a number of serious legal issues that were weighing on the company. In all, Bausch has returned to modest levels of revenue growth and significantly reduced its debt load, and is now on much firmer ground, thanks to Papa's strong leadership.
Teva's Schultz, on the other hand, literally walked the drugmaker back from the brink of bankruptcy by instituting a stark $3 billion cost-savings plan. By reducing costs across the board, Teva has been able to knock a healthy $2.6 billion off of its net total debt in just the last five quarters. Equally as critical, the company is also on track to return to growth soon, fueled by newer growth products, like the migraine medicine Ajovy and the Huntington's disease medication Austedo. Schultz's brief tenure, in kind, can only be viewed as an overall success.
Weaknesses
The main weakness of each company also happens to be the same: debt. In the most recent quarter, Bausch's debt-to-equity ratio stood at a jaw-dropping 889.3, whereas Teva's came in at a worrisome 196.1. Neither company is in a great position to accelerate their turnaround through a large, bolt-on acquisition, and it's probably going to take upwards of a decade for both drugmakers to change this unfavorable situation.
On the bright side, Bausch's free cash flows are slated to pick up steam in the next decade due to new product launches, like the plaque psoriasis medication Duobrii. The company, in turn, should have considerably more ammunition to address this debt overhang.
Bausch, though, has lately been prioritizing business development activities -- such as the recent acquisition of Synergy Pharmaceuticals' constipation medication Trulance -- over debt repayments. Now, this capital allocation strategy may turn out to be a genius move if Trulance's flagging commercial launch can get back on track. But the company is taking a big risk by diverting money away from its debt repayment plan -- especially on questionable assets like Trulance. Trulance, after all, was a big reason Synergy ultimately had to declare bankruptcy.
Teva is also forecast to return to top-line growth by no later than 2021, which bodes well for the company's prospects of getting out from underneath this mountain of debt. Unfortunately, Teva arguably needs at least one more major growth product to generate the type of free cash flows capable of getting the job done in a reasonable time frame. Making matters worse, the drugmaker was recently named in a sprawling lawsuit over alleged price fixing for older medications, which could result in a multibillion-dollar fine. A fine in the billion-dollar range would certainly hamper the company's ability to repay debt or pursue value-adding business development activities.
Verdict
Bausch is already starting to move into the next phase of its turnaround plan with the acquisition of Synergy's former flagship drug, as well as the launch of several new high-value products. As such, Bausch is arguably a far more compelling buy at this point in time than Teva. Teva, after all, needs some luck in the clinic to round out its product portfolio, and this lawsuit is likely to weigh heavily on its shares for a while.
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>>> 6 Warren Buffett Holdings Near 52-Week Lows
GuruFocus.com
May 24, 2019
- By James Li
https://finance.yahoo.com/news/6-warren-buffett-holdings-near-220722501.html
Even though the U.S. stock market remains significantly overvalued ahead of the Memorial Day holiday, six of Berkshire Hathaway Inc.'s (NYSE:BRK.A)(NYSE:BRK.B) holdings are still trading near 52-week lows: The Kraft Heinz Co. (KHC), DaVita Inc. (DVA), Teva Pharmaceutical Industries Ltd. (TEVA), Sirius XM Holdings Inc. (SIRI), American Airlines Group Inc. (AAL) and Bank of New York Mellon Corp. (BK).
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The Russell small caps (RUT) just blasted through key resistance today with gusto (1600), so a good sign for the overall markets.
The RUT has lagged for some time, and still needs to get to the 1750 area to make a new high, but if it had started to seriously sell off then that could be ominous for the broader indices.
The Russell had hit a wall since Feb while the S+P, DJIA and Nasdaq all went on to new highs, which was threatening to create a divergence. The small cap index is viewed as a good gauge of investor's general appetite for risk.
>>> Can NIO Stock Get Back Into Gear?
InvestorPlace
by Tom Taulli
April 29, 2019
https://finance.yahoo.com/news/nio-stock-back-gear-114717695.html
One of the main attractions of NIO (NYSE:NIO) is that it is generally considered the Tesla of China. Yet this may rapidly be turning into a major negative trait for NIO.
Of course, Tesla stock has been in a tailspin, as its sales have plunged, and TSLA will likely have to raise more capital. There are also ongoing concerns about the leadership of Elon Musk.
As for NIO stock, it has been on a similar bearish trajectory, although its decline has been more intense than that of Tesla stock. Since February, NIO stock has tumbled from $10 to $4.80. Consider that NIO is now below its Sept. 2018 IPO price, which was $6.26. NIO stock has struggled despite the fact that Chinese stocks, including Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD). have done particularly well lately
One of the reasons for the poor performance of NIO stock was its awful fourth-quarter earnings report, which came out in early March. NIO reported a loss of $509.5 million or 49 cents per share. Analysts’ consensus estimate was 32 cents per share.
The company’s outlook was also disappointing, as its deliveries are expected to be light in the first half of this year. Partially explaining NIO’s struggles, the Chinese economy has been sluggish and the Lunar New Year holiday adversely impacted its business. Additionally, the Chinese government has slashed subsidies for electric vehicles (some of the cuts were as much as 75%).
This policy, though, does make sense. The Chinese government wants a more streamlined regulatory structure as well as a level playing field, which should encourage more innovation. The changes may also be connected to reforms related to the eagerly awaited U.S.-China trade deal.
The Outlook of NIO Stock Isn’t All Bad
For the most part, strong, non-cyclical, positive drivers continue to be present in China. Keep in mind that the number of middle-class people in China is expected to hit 780 million within six years.
Adoption of EVs has also been brisk in China, and that trend should continue over the long-term. China is the largest market for electric vehicles, and sales of EVs jumped 62% in 2018. The government wants EVs to be about 20% of China’s total car sales by 2025.
Yet perhaps the biggest catalyst for Nio stock is its ES6 crossover SUV, which is expected to hit the market in a month or so. Th ES6 is a five-seater that can go from zero to 100 kilometers an hour in 4.7 seconds, and its range is 510 kilometers. So far, it looks like pre-orders of the vehicle are robust.
The Bottom Line on NIO Stock
In the near-term, NIO stock could easily rally. The fact is that investors’ sentiment towards NIO is downright terrible. But the launch of the ES6 should spark interest in NIO and spur growth in the second half of the year.
But given the extreme volatility of NIO, it is probably best to not hold onto NIO stock for long. After all, the company will likely need to carry out another capital raise.
In other words, I’d look at NIO stock as a name to trade, but I wouldn’t buy it as a long-term investment.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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Contrarian play idea - go long the VIX, especially if it gets closer to 10, or under 10, which has been the low in the past. VIX was briefly under 10 in late 2006, and fell to ~ 8 in late 2017, and currently it's in the 12-13 area, down from 37 in December.
These hedge funds who are shorting the VIX will have to cover once volatility returns, as it always does -
>>> Hedge Funds Are Shorting the VIX at a Rate Never Seen Before
By Sarah Ponczek
April 26, 2019
https://www.bloomberg.com/news/articles/2019-04-26/hedge-funds-are-shorting-the-vix-at-a-rate-never-seen-before?srnd=premium
CFTC data showed record net position betting on market calm
Sign of complacency? Strategists advise investors not to worry
As equities surge to all-time highs, volatility has all but vanished. Hedge funds are betting the calm will last, shorting the Cboe Volatility Index, or VIX, at rates not seen in at least 15 years.
Large speculators, mostly hedge funds, were net short about 178,000 VIX futures contracts on April 23, the largest such position on record, weekly CFTC data that dates back to 2004 show. Commonly known as the stock market fear gauge, aggressive bets against the VIX are, depending on your worldview, evidence of either confidence or complacency.
Investors Net Short the VIX
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Strategists lately have been pushing back on the idea that a lot of useful information is visible in VIX positioning data. CFTC data doesn’t take into account positioning seen in exchange-traded-products -- which is notably long volatility -- or the type of traders who hold a mix of both long and shorts as a hedge or relative value strategy.
The VIX rose this week, but still remains below 13 -- more than 30 percent below the gauge’s average over the last 20 years. While the VIX inched higher, so too did stocks, the S&P 500 rising to a new record.
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>>> NIO Inc. designs, manufactures, and sells electric vehicles in the People's Republic of China, the United States, Germany, and the United Kingdom. The company is also involved in the manufacture of e-powertrain, battery packs, and components; and racing management, technology development, and sales and after sales management activities. In addition, it offers power solutions for battery charging needs; and other value-added services. The company was formerly known as NextEV Inc. and changed its name to NIO Inc. in July 2017. NIO Inc. was founded in 2014 and is headquartered in Shanghai, the People's Republic of China. <<<
>>> Why Stericycle Stock Is Rebounding Today
Motley Fool
Matthew DiLallo
March 1, 2019
https://finance.yahoo.com/news/why-stericycle-stock-rebounding-today-165800486.html
What happened
Shares of Stericycle (NASDAQ: SRCL) rebounded on Friday, rallying more than 13% by 10:45 a.m. EST. Propelling the bounce were the medical waste disposal and secure information destruction company's fourth-quarter report and its outlook for 2019.
So what
Stericycle generated $882.7 million in revenue during the fourth quarter, which was down 4% year over year. That pushed its full-year total to $3.49 billion, which was 2.6% below 2017, though it did come in slightly ahead of the midpoint of the company's $3.44 billion to $3.52 billion revised guidance range. Adjusted earnings, meanwhile, came in at $1.03 per share, up 3% year over year. That pushed the company's full-year total to $4.45 per share, which was not only 2.5% higher than 2017's total but came in above the top end of its $4.31- to $4.41-per-share guidance range.
In addition to reporting slightly better-than-expected fourth-quarter results, Stericycle also provided an overview of what's ahead. First, the company said that CEO Charlie Alutto would retire in early May, with current COO Cindy Miller replacing him to lead business transformation going forward. The company also stated that its current CFO would become the executive vice president of its international unit as soon as the company finds a replacement CFO.
As a result of Stericycle's continued business transformation, 2019 will not only be a heavy investment year, but it could see the company part with noncore assets, including its struggling communications and related services business. Because of those factors, the company provided a wide range for its 2019 guidance. It currently sees revenue coming in between $3.41 billion and $3.53 billion, which implies a less-than-1% decline at the midpoint. Adjusted earnings, meanwhile, should range from $3.32 to $3.72 per share, which suggests a 21% reduction from 2018's level at the midpoint.
Now what
Stericycle continues to work on ways to turn around its struggling operations. Not only is it implementing a companywide enterprise resource planning software solution to improve its operations, but it's selling off noncore businesses. This strategy aims to get the company's growth engine back on track, which won't happen this year.
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>>> Pricing Reset Needles Stericycle's Growth, but Shares Undervalued
Matthew Young, CFA
Dec 19 2018
https://www.morningstar.com/articles/905540/pricing-reset-needles-stericycles-growth-but-share.html
Narrow-moat medical waste industry leader Stericycle (SRCL) has grappled with negative investor sentiment, some of it warranted, for several years. This was driven in large part by the emergence of painful contract concessions in its premium-priced small-quantity, or SQ, waste-generating account base, coupled with guidance shortfalls and lackluster performance in the noncore industrial hazardous waste unit. Importantly, SQ pricing rollbacks are the fruit of a decade of consolidation of small physician practices into large hospital groups with stronger buying power, as well as pushback from existing small independent healthcare customers looking to slash costs against an inflationary backdrop. However, we believe Stericycle's market price is baking in overly pessimistic midcycle revenue and profitability assumptions. Execution risk adds uncertainty to the equation, but pricing headwinds of the current magnitude are probably not permanent, and we expect the flagship regulated med-waste division to gradually rekindle low- to mid-single-digit organic revenue growth. The shares trade more than 40% below our $83 fair value estimate, which we think is a compelling buying opportunity for patient, long-term-minded value investors capable of stomaching heightened volatility in the year ahead.
Stericycle's shares reached a peak near $150 in October 2015 before heading into a multiyear decline, with several big steps down along the way. Selling pressure was initially driven by earnings misses in late 2015 and early 2016 that were in part linked to two large, expensive acquisitions that added complexity to the organization and stretched its resources. Not long after Stericycle bought it in 2014, PSC Environmental (industrial hazardous waste; now the manufacturing and industrial services, or M&I, segment) ran into a pullback in U.S. industrial activity and headwinds among energy end-market customers, and the deal arguably took the company into a less core, more competitive marketplace. Also, although the document destruction services of Shred-it (acquired in 2016) are now enjoying healthy organic growth, the integration faced a rocky start. More important was the emergence of a painful contract repricing phase among the company's premium priced small-quantity waste generator accounts. By mid-2016, management began acknowledging the issue as formerly robust organic growth in the flagship regulated medical waste and compliance services division began to deteriorate. Further guidance shortfalls and concerns about the duration of SQ pricing concessions have continued to weigh on sentiment.
Why Did SQ Contract Concessions Emerge in 2016?
In 2016, Stericycle's core regulated medical waste and compliance division saw the emergence of significant pricing pushback in its most profitable customer base--domestic small-quantity waste generators--and we expect the impact to persist into 2019. Other issues have contributed to the company's notable revenue and margin headwinds over the past two-plus years, including cyclical weakness in the manufacturing and industrial services segment, the need to exit unprofitable patient transfer contracts in the United Kingdom, and most recently, a pullback in major recall projects in the communication solutions division. But SQ contract concessions have been at the forefront and remain one of the most prominent investor concerns, in our view. SQ pricing headwinds aren't new to the story, but they're often misunderstood, and limited disclosure on the customer segmentation front makes it more difficult to discern the impact. This pricing reset has pulled Stericycle's domestic SQ business off its previously robust organic growth trajectory of nearly 8% on average between 2007 and 2015.
Recently acquired hospital-owned SQ customers (blended accounts) are a key pressure point. The U.S. healthcare end-market landscape has shifted over the past decade, with large hospital groups actively acquiring small healthcare practices, especially physicians' offices like general practitioners and cardiologists. In many cases, individual hospitals have rolled up hundreds of these providers into an integrated network of satellite locations. In the past, Stericycle has referred to these recently acquired SQ customers as "blended accounts"--in most cases, they are still SQ waste generators processing the same waste levels as before, with Stericycle stopping at the same location, but with one major caveat: They're no longer independent. They operate under the umbrella of a large hospital group or purchasing organization that enjoys much greater bargaining power than a doctor's office representing itself as a small-business owner. With a large amount of consolidation having already occurred, hospital groups have been moving beyond their initial integration phases in recent years, shifting focus to smaller cost synergies/savings opportunities--including medical waste removal--that were previously a lower priority. As these contracts renew, Stericycle is seeing heavy discounting of about 35% on average. The company doesn't consistently break out specific customer segmentation, but on the basis of past disclosures we've pulled together, we estimate blended SQ accounts make up somewhere around 20% of total SQ revenue.
True SQ customers are also pushing back. In addition to pricing pressure among hospital-owned SQ accounts, Stericycle is grappling with pushback among independent SQ customers, or true SQ accounts, to which it has been conceding discounts near 15% on average as contracts renew. We estimate true SQ accounts (unaffiliated doctors, dentists, veterinary offices, and so on) make up roughly 55% of total domestic SQ revenue; in our view, the onset of rate concessions stems from a few factors. First, independent physician offices have been faced with rapidly rising operating costs and declining reimbursements in recent years (driven in large part by intensifying regulation, including the Affordable Care Act), and small bills like medical waste removal (often under $1,000 annually) that previously fell under the radar are now under scrutiny as providers leave no stone unturned for cost savings. Second, the SQ class-action lawsuit, which settled in 2017 with a $295 million payout funded in July 2018, brought significant attention to Stericycle's pricing practices, prompting true SQ customers to inquire about their bills and push for price cuts--the company has long been the premium-priced provider for SQ customers. The original complaint filed in 2013 alleged the company "imposed unauthorized or excessive price increases and other charges." Management denies wrongdoing, and there was no admission of fault in the settlement. On the positive side, the issue is now in the rearview mirror and any negative publicity should begin to subside in the year ahead.
Putting it all together, we estimate 75% of Stericycle's SQ business (true SQ and blended accounts) is facing a pricing rollback that's proving painful for the flagship regulated medical waste segment. Management reclassified reporting segments in 2016, which makes it tough to make an apples-to-apples comparison of med-waste division organic growth with that of previous years. This is because the segment's quarterly results for 2014 and 2015 reflect domestic-only med-waste operations and industrial hazardous waste business (M&I), while subsequent periods include domestic and international med-waste operations while excluding M&I. Nonetheless, we can see that SQ pricing concessions are the primary driver of the marked organic slowdown by the first quarter of 2016. In short, declines over the past few years compare with a previous run rate in the high single digits. We note that the pullback in 2015 had less to do with SQ pricing concessions and more to do with lower fuel surcharge revenue and slowing industrial hazardous waste activity for the M&I unit due in part to cyclical factors.
The SQ pricing reset is a major headache for Stericycle, but not all med-waste customers are affected. We estimate true SQ and blended SQ accounts together make up a ballpark 26% of total medical waste and compliance division revenue, which in turn constituted 57% of consolidated revenue in 2017. We don't believe Stericycle has been conceding price with customers making up most of the other 74% of med-waste segment revenue, which includes domestic large-quantity, or LQ, waste-generating customers (hospitals), retail/healthcare hazardous waste, and international med-waste. LQ customers already enjoy strong bargaining power that's long yielded more favorable terms than SQ accounts could negotiate. On top of that, waste removal expenses for large hospitals (including high-cost must-incinerate waste) are a much larger and more visible outlay to begin with, often exceeding $35,000 annually. Thus, Stericycle's invoice doesn't fly under the radar screen for LQ accounts as it often does for a small doctor or dentist office that pays less than $1,000 per year. The international med-waste operations have seen intermittent bouts of pricing pressure, particularly with government-owned contracts in Latin America, but do not appear to be facing a broad multiyear repricing problem, and the retail hazardous waste business is growing nicely on the back of strong demand for pharmaceutical disposal services (medication disposal kiosks). Lastly, in the domestic SQ customer segment, national SQ accounts (national chains of individual kidney dialysis clinics, for example) aren't commanding concessions because, like LQ accounts, centralized buying scale already affords bulk discounts.
Broad-Based SQ Repricing Won't Last Forever
We expect the bulk of Stericycle's SQ pricing concessions to abate by the end of 2019. Contracts have an average duration of three to five years, and given Stericycle's immense customer base, this implies that around 25% renew annually and it should take roughly four years to cycle through all contract renegotiations. Thus, having begun in 2016, the impact of pricing concessions of the current magnitude should begin to diminish in 2019. Management has provided guidance in terms of its expected impact, but to get our own sense of how pricing concessions should be playing out (as a check), we ran a revenue analysis that assumes one fourth of true SQ and blended SQ customers renew at a discount each year between 2016 and 2019, using the company's run rate of SQ revenue in 2015 of $750 million, which management disclosed in 2016. We applied renewal price discounting of 15% for true SQ and 35% for blended SQ customers while keeping national SQ pricing stable. National chains of local dialysis clinics, for example, already enjoy bulk discounts. On the basis of management's commentary during the first half of this year, we believe the 15% and 35% discounting levels are still valid.
Our initial revenue analysis, which assumes contracts renew evenly each year, suggests pricing concessions should be reducing Stericycle's organic SQ revenue base by at least 4.0% annually on average between 2016 and 2019, all else equal (ignoring pricing escalators, customer additions, and increased ancillary penetration). That translates into an approximate $115 million cumulative pricing-related loss on the original run rate of existing SQ business in 2015. In fact, our estimate came in below the company's internal forecast provided in 2016, which hasn't materially changed, and since guidance proved more conservative, we've chosen to factor those numbers into our base-case med-waste segment model assumptions. When all is said and done, the company expects $130 million in total SQ pricing concessions through 2019, which implies a 4.5% average annual decline. Management has drilled that down a bit further, estimating SQ pricing-related losses of about $15 million in 2016, $44 million in 2017, $45 million in 2018, and $25 million in 2019. Applying that annual cadence yields SQ revenue declines by year of 2.0%, 6.0%, 6.5%, and 4%, respectively. When baking in the favorable impact of price escalators (which we expect will at minimum approximate inflation, or 1.5%-2.0%), we estimate SQ revenue should be posting organic declines in the ballpark of 1.0%, 5.0%, 5.5%, and 2.5%, respectively, between 2016 and 2019. That's an average of 3.5% annually, ignoring contributions from customer additions or increased penetration of ancillary services, which we don't bake in until 2020 anyway. We already incorporate it, but an annual pricing-related loss of $130 million has roughly a $4 per share negative impact on our fair value estimate, ignoring other losses associated with management distraction or changes in sales strategy.
How does this cadence of expected SQ revenue declines compare with actual results? So far, so good. Our discussions with management lead us to believe pricing concessions have not worsened beyond the company's original expectations, and the numbers appear to back this up. Stericycle doesn't disclose domestic SQ revenue, save for a few one-time disclosures in the past. Thus, to gauge the trajectory of pricing concessions, we are left with having to assess total organic med-waste segment performance, which reflects more than just SQ business, including LQ (hospitals), retail/healthcare hazardous waste, and international med-waste. Along those lines, we calculated what Stericycle's med-waste division organic revenue trends should have looked like between 2016 and the first half of 2018 by weighting what we know to be roughly true about the growth contribution from non-SQ business (derived from management commentary) and layering in our aforementioned approximations for SQ revenue declines thus far (which are not disclosed). We then compared that outcome with actual med-waste segment performance, and it wasn't far off. Overall, the cadence of pricing concessions appears to be roughly tracking our expectations, and that's good news.
Market Price Reflects Overly Pessimistic Midcycle Growth Assumptions
Stericycle’s current price offers upside potential with an attractive uncertainty-adjusted margin of safety. Because of numerous earnings shortfalls over the past few years, Stericycle has morphed into a show-me story in terms of an upside catalyst. Even so, negative investor sentiment looks excessive when we back into the current market price with our discounted cash flow model by adjusting key assumptions. Our analysis suggests the market price is implying only flattish midcycle organic revenue growth with negligible operating margin improvement. Execution risk remains, Stericycle's top line won't return to its former high-single-digit organic growth trajectory, and margins will shake out below the historical run rate (partly because of blended SQ pricing rollbacks), but we think organic top-line growth near 3.5% and EBITDA margins near 26% are achievable against a stable pricing backdrop, with incremental help from upselling ancillary services and efficiency optimization. Ignoring divestitures, we currently forecast 40-50 basis points of average annual growth from acquisitions on top of that.
Switching gears to Stericycle's profitability, it looks to us as if the current market price is baking in scant margin improvement over the long run. We agree that if Stericycle faced a wholesale mix shift of high-margin true SQ accounts to hospital-owned blended SQ accounts, it would see long-term declines in SQ contract pricing and overall med-waste segment sales, which would frustrate margin improvement. In fact, we expect total adjusted EBITDA margin to fall 130 basis points in 2018 (to 21.4%) on the back of lost leverage from current pricing rollbacks. However, we are betting incremental SQ customer mix shifts will be relatively modest in the years ahead. We expect the impact of pricing concessions to dissipate in 2019 and look for med-waste division revenue to return to modest organic growth in 2020, thus driving incremental leverage over fixed network costs.
We are also giving the company some credit for longer-term internal productivity gains stemming from its recently implemented "transformation" initiatives. The company appears to be seeing initial benefits from various optimization efforts (standardizing route logistics, upgrading field IT), and portfolio rationalization (it recently divested hazardous waste services in the U.K.) has the potential to be of help by simplifying the portfolio. But the company expects the bulk of savings to come from its multiyear enterprise resource planning system rollout. We think Stericycle has been successful integrating tuck-in med-waste acquisitions over the years in terms of revenue synergies, but its disparate back-office IT systems, which lack standardization, are long overdue for a makeover. Thus, provided the company doesn't overspend, an ERP upgrade makes sense and should boost visibility (more surgically optimize pricing decisions, for example).
Applying management's cost savings targets to clean 2017 results implies an adjusted EBITDA margin in the ballpark of 28%-29% (stripping out nonrecurring items and transformation costs). Our fair value bakes in a midcycle operating margin near 26% (our 2022 forecast), which compares with 22.7% in 2017 and our ballpark 21% forecast for 2018. Before the onset of SQ pricing declines, between 2011 and 2015, Stericycle's adjusted EBITDA approached 29% on average.
A notable risk to our midcycle profitability assumptions is management execution, especially in terms of overspending or distraction with respect to the broad ERP project. Our discussions with management give us some degree of comfort that the team is cognizant of the common pitfalls associated with ERP implementations and is striving to avoid them (for example, the company has added compliance and auditing head count, including dedicated project teams, to improve internal controls and oversee best practices in the ERP process). Nonetheless, the project's success is by no means a foregone conclusion, which is one reason for our high fair value uncertainty rating.
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>>> General Electric Shares Surge After Rare JPMorgan Upgrade
General Electric GE shares surged the most in more than five years in pre-market trading Thursday after JPMorgan analyst Stepehen Tusa changed his rating on the beaten-down stock for the first time in two and a half years.
The Street
Martin Baccardax
Dec 13, 2018
https://www.thestreet.com/investing/stocks/general-electric-shares-surge-after-rare-jpmorgan-upgrade-14809623?puc=yahoo&cm_ven=YAHOO&yptr=yahoo
General Electric (GE - Get Report) shares surged the most in more than five years in pre-market trading Thursday after JPMorgan analyst Stepehen Tusa changed his rating on the beaten-down stock for the first time in two and a half years.
Tusa lifted his rating to "neutral" from "underweight", a view he had held since May of 2016, and although he maintained an $8 price target on the stock, he said the ""known unknowns" surrounding the company are now easier to quantify.
"Key to the story, in our view, is the outcome of 'known unknowns' in near term, which are better understood and around which debate is more balanced, as opposed to being overlooked by most bulls in the past," Tusa said. "We now believe a more negative outcome one these liabilities (equity dilution is one) is at least partially discounted, and it's possible the company can execute its way through an elongated workout that limits near-term downside."
GE shares were marked 10.28% higher in the opening minutes of trading in New York and changing hands at $7.42 each. The move would be the biggest single-day gain in more than five years and would trim the stock's year-to-date decline to around 56% if it holds until the end of the session.
TheStreet's technical expert, Bruce Kamich, noted earlier this week that his charts were showing a "bullish divergence", but was doubtful the stock could produce a "meaningful advance" on its own.
Separately, GE said Thursday that it was launching a $1.2 billion "internet of things" software company and selling a majority stake in its ServiceMax, a field service management software division, to private equity group Silver Lake.
"As an early leader in IIoT, GE has built a strong business with its industrial customers thanks to deep domain knowledge and software expertise," said CEO Larry Culp. "As an independently operated company, our digital business will be best positioned to advance our strategy to focus on our core verticals to deliver greater value for our customers, and generate new value for shareholders."
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>>> Anheuser-Busch InBev slashes dividend as beer demand slumps
By Paul R. La Monica
CNN Business
October 25, 2018
https://www.cnn.com/2018/10/25/investing/ab-inbev-budweiser-beer-sales-dividend-cut/index.html
Americans and Brazilians have soured on drinking mass produced beers like Budweiser and Bud Light.
Shares of Anheuser-Busch InBev plunged 10% Thursday after the Budweiser and Stella Artois brewer said it was cutting its dividend in half and reported weak demand in those countries.
Anheuser-Busch InBev (BUD) said that it needed to slash the dividend to reduce its massive debt load. The company took on a lot of debt to acquire rival SABMiller for $100 billion two years ago.
The dividend cut should allow Anheuser-Busch InBev to save about $4 billion in cash a year, which it could use to pare back its debt, said Pablo Zuanic, an analyst with Susquehanna International Group, in a report Thursday.
A bloated balance sheet isn't the only problem for Anheuser-Busch InBev.
The company has struggled to adapt to changing beer tastes. Anheuser-Busch InBev said that market share for its core Budweiser and Bud Light brands slipped once again in the United States during the quarter. Volume fell in Brazil too.
Overall sales still rose 4.5% during the quarter, largely because the company has been able to raise prices for Bud and Bud Light outside of the United States. It has also introduced newer beers, such as Michelob Ultra Pure Gold and Bud Light Orange in America.
This Bud's not for you? Try a craft brew instead?
But beer drinkers have shunned Budweiser and Bud Light in favor of pricier craft beers and microbrews.
Overall US sales volume fell more than 1% in 2017 while craft beer sales were up 5%, according to The Brewers Association, a trade group for the beer industry. Craft beer now accounts for nearly a quarter of the total US beer market.
Anheuser-Busch InBev has tried to latch onto this trend, scooping up smaller brewers such as Goose Island, Blue Point, 10 Barrel and numerous others in the past few years.
It also owns a more than 30% stake in Craft Brew Alliance (BREW), a publicly traded company that owns the Kona, Widmer Brothers and Redhook beer brands.
Still, it's been a challenging time for Anheuser-Busch InBev and other big beer companies. Shares of Anheuser-Busch InBev and top rival Molson Coors (TAP) have both plummeted more than 30% this year. Heineken's (HEINY) stock is down 15% in 2018, despite reporting solid third quarter sales Thursday.
Corporate America is investing in pot because people want to eat and drink it.
Constellation is hoping that a bet on legal recreational cannabis in Canada can help boost growth. The company has invested more than $4 billion in Canadian marijuana company Canopy Growth (CGC). Anheuser-Busch InBev has so far not shown a willingness to get into the cannabis business.
But Adolphus A. Busch V, great-great-grandson of the founder of Anheuser-Busch, launched his own cannabis brand last month.
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Dentsply - >>> Dental-supply company Dentsply’s stock closes at five-year low
By Ciara Linnane
Aug 9, 2018
https://www.marketwatch.com/story/dental-supply-company-dentsplys-stock-is-barreling-toward-a-5-year-low-2018-08-07?siteid=bigcharts&dist=bigcharts
Dentsply slashed guidance and announced a restructuring after its two main dealers cut their inventory by more than expected
Shares of Dentsply Sirona Inc. tumbled 18.7% Tuesday to close at a 5½-year low, after the dental-products maker slashed its full-year outlook and announced a restructuring program after its two main clients cut their inventories by more than expected.
The news overshadowed better-than-expected second-quarter profit and sales.
“We are very disappointed in the results we provided today,” Chief Executive Don Casey told analysts on the company’s XRAY, +0.70% earnings call, according to a FactSet transcript. “We take full accountability for them, and will outline the steps we are taking today to better position this company for sustainable growth going forward.”
York, Pa.–based Dentsply makes and distributes a range of dental products, from consumables — supplies and small equipment that are used in dental offices, such as root-canal instruments and materials, dental anesthetics, prophylaxis paste, dental sealants, impression materials, restorative materials, tooth whiteners and topical fluoride.
The company also makes high-tech equipment, such as imaging equipment and computer-aided design and machining, known by the acronym CAD/CAM, along with dental implants, scanning equipment, orthodontic appliances and dental chairs.
Dentsply said its net loss widened to $1.12 billion, or $4.98 a share, in the period, from $1.05 billion, or $4.58 a share, in the same period a year ago. Excluding nonrecurring items, such as a $1.27 billion goodwill and intangible impairment charge, adjusted earnings per share came to 60 cents, above the FactSet consensus of 59 cents.
Sales rose to $1.04 billion from $992.7 billion, above the FactSet consensus of $1.02 billion.
But the company cut its 2018 adjusted EPS guidance range to $2.00 to $2.15 from $2.55 to $2.65, which now assumes that constant-currency revenue declines about 2% compared with previous expectations of 2% growth.
Read also: These are the biggest mistakes people make with Medicare
Related: He ran up a million dollars in student-loan debt en route to becoming an orthodontist
The planned restructuring will better align the company with its marketplace, said Casey. Dentsply is currently built around 10 dental business units, each of which is responsible for R&D, manufacturing and marketing.
“This structure has served us well in the past but does not reflect today’s customer or competitive marketplace,” said Casey, who has been in the CEO role for six months. “It led to complexity and does not help us to present one face to the customer, leverage cross-selling opportunities, and has significant cost implications.”
In the U.S. alone, the company has more than 15 selling organizations that are all targeting the same customer, he said. The setup also complicates the supply chain, which comprises more than 40 manufacturing facilities and 80 distribution sites, he said. “That just does not allow us to create scale in procurement and demand planning and logistics,” he said.
Chief Financial Officer Nick Williams Alexos said the company’s main dealers, Henry Schein Inc. HSIC, +0.16% and Patterson Dental, part of Patterson Cos. PDCO, +1.61% were expected to reduce inventories by $40 million this year, but are now expected to cut by $100 million to $110 million. Combined with expected revenue declines in technology and equipment, the destocking will weigh through the year, he said.
The company is expecting margins to remain under pressure, as it adjusts to lower sales levels, while continuing to absorb the high costs of sales, general and administrative as well as research and development.
“In addition, the margins reflect certain FX transactional rates, pricing, and promotions, and one-time operating expenses that we will incur to effect the organizational changes,” said Williams.
Stifel analysts said it’s obvious that Dentsply needs to streamline operations and create a more effective selling organization.
“While it is perplexing that the Dentsply Sirona deal closed 2.5 years ago and there is still so much work that needs to be done, we believe the revolving door with management (3 CEOs, 3 COOs) has played a role in hindering the integration,” they wrote in a note.
But they are hopeful the plans for the supply chain will help the company take advantage of cross-selling opportunities.
“Executing on the potential revenue/cost synergies will play a critical role in the stock’s ability to sustainably bounce off the current lows over the next 12 months,” they wrote. Stifel is sticking with a buy rating on the stock, although “frustration remains.”
Henry Schein, meanwhile, on Monday reported better-than-expected earnings and raised its earnings outlook, while also announcing restructuring actions that include job cuts and plant closures.
Leerink raised its price target to $100 from $80 on the news and highlighted its performance in the dental market.
“We were impressed by another strong quarter for the dental segment amid commentary from management of a “very stable” market in which management believes HSIC has been taking share,” analyst David Larson wrote in a note, reiterating his outperform rating. Patterson Cos. is scheduled to report its fiscal first-quarter earnings on Aug. 23.
Henry Schein shares were down 3.6% on Tuesday, while Patterson shares were down 9.6%.
Other stocks of companies engaged in the dental market were also lower. Align Technology Inc. ALGN, -2.23% was down 1%, Procter & Gamble Co. PG, -0.48% was down 0.5%, Kimberly-Clark Corp. KMB, -1.38% was off 17% and Colgate-Palmolive Co. CL, -0.69% was off 0.5%.
Dentsply has lost 40% of its value in 2018, while the S&P 500 SPX, -0.48% has gained 6.9% and the Dow Jones Industrial Average DJIA, -0.35% has gained 3.8%.
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General Electric - >>> Culp will have to move quickly to combat 'unsettling' change at GE, says former GE executive
General Electric's new CEO, Lawrence Culp, will have to move quickly to turn things around amid "unsettling" change at the company, says former GE executive Bob Nardelli. Coming from outside of the company, Culp will be "a breath of fresh air," Nardelli says.
Chloe Aiello
Oct 3, 2018
https://www.cnbc.com/2018/10/03/nardelli-culp-must-move-quickly-to-combat-unsettling-change-at-ge.html?__source=yahoo%7Cfinance%7Cheadline%7Cstory%7C&par=yahoo&yptr=yahoo
General Electric's new CEO, Lawrence Culp, will have to move quickly to turn things around amid "unsettling" change at the company, said Bob Nardelli, GE's former transportation CEO and power systems CEO.
"Any organization needs stability, continuity of direction. So this change in 14 months doesn't help steady the ship," Nardelli said Wednesday on CNBC's "Fast Money." "Hopefully Larry will get in there, he'll be very direct, he'll be very candid, very deliberate in his decisions, consistent in decisions ... and that will help."
GE's board of directors removed former CEO John Flannery after he was on the job for just over a year, due to reported frustration with the pace of his turnaround plan for the embattled industrial conglomerate.
Culp, 55, was named to GE's board in April. He was president and CEO of Danaher from 2000 to 2014, during which time he quintupled the size of the science and technology company.
Flannery was appointed CEO in August 2017, taking the helm from Jeff Immelt as the conglomerate's stock fell steadily. But GE's value had continued to erode, setting new lows as investors remained unconvinced about Flannery's turnaround plan. Despite Flannery's efforts, GE's stagnant power business has hit new roadblocks, such as a failure of a turbine blade at the Colorado Bend power plant in Wharton County, Texas.
Yale management guru Jeffrey Sonnenfeld admitted Flannery's turnaround was a "huge disappointment," but he told CNBC on Monday he thinks the company should have given him "a year and a half at least," because "it's a shame to have this kind of disruption" at the company.
"What difference would six more months have made? I actually think it might have made some difference, especially if he had divested" GE's health-care business, Sonnenfeld said Monday on CNBC's "Squawk on the Street."
Nardelli said Flannery, who "had been there 30 years," just moved too slowly for the board's liking, although he said the constant change in leadership has been rough on the company.
"In 125 years, we had five CEOs. We've had two in 14 months. So it is very unsettling, and to that point, we've seen about 16 officers, vice chairmen, leave the company in the last 14 months ... so you're having a pretty significant brain drain, while you're facing all these issues," said Nardelli, who has also served in executive roles at Chrysler and Home Depot.
Coming from outside of the company, Culp will be "a breath of fresh air" and will "move at blink speed," Nardelli said, which is going to be very important.
"He's going to have to move expeditiously, quickly and try to right the ship, when you have that much change," Nardelli said.
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The SNES chart is looking good and appears to have it's sights set on 2.00. Once thru, 2.50-3.00 should be the next target. It should also put in a bullish 'golden cross' by next week (50 MA crossing back over the 200 MA). While this is a lagging indicator, it reflects the recent bullish move.
On the penny stock front, ARYC looks interesting. Over the past 2 weeks it broke out from the .02 resistance area and so far has reached .05 after some wide daily swings, and today settled at .045. The next resistance should be the band from the .06 - .10 (trading range from late 2015), so that's the near/mid term target to watch.
TEVA is also looking good. After its big 2016-17 unraveling, it has bounced back and looks to be eyeing 30 in the near/mid term. I thought it might be getting ahead of itself somewhat, but the recent announcement that Berkshire Hathaway took a big position and then added to that position has helped the recovery a lot.
Consumer stocks - One area that looks interesting on the Contrarian Value side are the high dividend stocks that have been pummeled due to rising interest rates. The high dividend sectors tend to get hit when rates rise, but that process may be overdone in some cases.
These have been solid companies, long term buy/hold types, which have been hit. Some examples -
Consumer - Food + Beverage
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Anheuser-Busch InBev (BUD) - 136 to 93, Div 5.1%
B&G Foods (BGS) - 53 to 28, Div 6.7%
General Mills (GIS) - 73 to 43, current Div 4.6%
Kellogg (K) - 87 to 54, Div 3.4%
Kraft Heinz (KHC) - 96 to 58, Div 4.3%
Consumer - Personal Care, Cleaning Products
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Clorox (CLX) - 150 to 120, Div 3.2%
Kimberly Clark (KMB) - 139 to 101, Div 4.0%
Proctor & Gamble (PG) - 94 to 73, Div 3.9%
Consumer - Tobacco
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Altria (MO) - 77 to 56, Div 5.0%
British American Tobacco (BTI) - 72 to 51, Div 5.4%
Philip Morris (PM) - 123 to 78, Div 5.5%
Consumer - Misc
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Crown Crafts (CRWS) - 10 to 6, Div 5.5%
Leggett & Platt (LEG) - 54 to 41, Div 3.7%
TEVA, the big generic drug company. After crashing from 70 to 11, it's been in recovery mode, boosted by the news that Berkshire Hathaway has taken a sizable position recently. It's sitting right at key resistance ~22 and looks about ready to continue higher. Once thru 22, the next resistance area should be up around 27 (there's a big gap to fill, from 22 to 27). The company isn't out of the woods yet, so I'd expect volatility in the quarters ahead, but looks like a good stock for a recovery over time. Having Berkshire in the stock is a big plus. It also had a bullish 'golden cross' several weeks ago, when the 50 MA moved backed up above the 200 MA.
>>> GE to Merge Rail Division With Wabtec in $11 Billion Deal
Deal is the first major portfolio move in new GE CEO John Flannery’s attempt to revamp the struggling conglomerate
By Thomas Gryta
May 21, 2018
Wall Street Journal
https://www.wsj.com/articles/ge-to-merge-rail-division-with-wabtec-in-11-billion-deal-1526904626
General Electric agreed to merge its railroad business with Wabtec in a deal valued at about $11 billion, letting GE raise some cash to fund its turnaround and shed one of its oldest operations.
The transaction is the first major portfolio move in new GE Chief Executive John Flannery’s attempt to revamp the struggling conglomerate. Wabtec, formerly known as Westinghouse Air Brake Technologies Corp., makes equipment for transit systems and freight railroads and has a market value of about $9 billion, based on Friday’s closing price.
GE will receive $2.9 billion in cash at closing. GE shareholders will own 40.2% of the combined company, with GE owning about 9.9% after the deal, the companies said Monday.
Wabtec shareholders will retain 49.9% of the combined company. Wabtec’s current chairman and CEO will retain their positions after the deal, which is expected to close in early 2019.
GE has been looking at options for the transportation division since at least last fall. The segment mainly produces freight locomotives, which sell for millions of dollars apiece, along with mining equipment and marine motors.
Although GE is one of the world’s biggest makers of freight locomotives, the business is cyclical and has been suffering lately from slack demand. In 2017, the unit’s revenue slipped 11% and profit fell 23%. The division accounted for $4.2 billion of GE’s total 2017 revenue of $122.1 billion.
The transportation unit is one of the smaller of GE’s seven major business lines. The division had about 8,000 employees at the start of the year, down 2,000 from a year earlier, and compares with 313,000 at GE in total.
GE’s diesel locomotives are primarily assembled in Fort Worth, Texas, and western Pennsylvania.
In the first quarter, margins and orders rose at GE’s transportation business but executives said the market for new locomotives remained slow.
GE and Wabtec said they expect the combination to eventually generate about $250 million in annual savings as well as tax benefits currently worth about $1.1 billion. GE will nominate three directors to the combined company’s board.
Wabtec, which said it will keep its headquarters in Wilmerding, Pa., had revenue of $3.9 billion last year, or about the same as GE’s transportation division. Wabtec employs about 18,000 people, or twice as many as GE’s transportation division.
Rather than a straight sale, the deal was structured in a way that would leave GE shareholders with a stake in a public company and avoid a big tax bill. It gives GE shareholders a chance to participate in the turnaround of the struggling business or cash out if they wish.
Mr. Flannery took over as CEO of GE last summer, intent on making major changes that resulted in a dividend cut, slashed financial projections and the overhauling of the board. GE is expected to reveal more about its portfolio plans soon, as Mr. Flannery is considering all options, including potentially breaking apart its three major units—aviation, health care and power.
In October, Mr. Flannery promised to sell $20 billion worth of assets. Before the Wabtec deal, GE had announced a handful of deals totaling less than $4 billion. The company’s century-old GE Lighting division has been on the auction block for more than a year.
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>>> South Jersey Industries, Inc. (SJI) is an energy services holding company. The Company provides a range of energy-related products and services, primarily through its subsidiaries. Its subsidiaries include South Jersey Gas Company (SJG), South Jersey Energy Company (SJE), South Jersey Resources Group, LLC (SJRG), South Jersey Exploration, LLC (SJEX), Marina Energy, LLC (Marina), South Jersey Energy Service Plus, LLC (SJESP) and SJI Midstream, LLC (Midstream). Its segments include Gas utility operations (SJG), which consist primarily of natural gas distribution; Wholesale energy operations, which include the activities of SJRG and SJEX; SJE, which is involved in both retail gas and retail electric activities; On-Site energy production, which consists of Marina's thermal energy facility; Appliance service operations, which include SJESP, and Corporate and Services segment, which includes the activities of Midstream. <<<
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