Anyone have an opinion on RIG or DO here? RIG has been a fantastic trader lately, but I wonder if the multiple compression will last much longer. RIG will take some earnings hits in the next couple of quarters, but they look well booked for 11/12. I don't know as much about DO, but I'm attracted to fear priced into both stocks.

Sorry to be dense, but my main concern was how to value a CFE? Are they normalizing to the energy value of a CF of NG? Thanks.

When XOM says over 70 TCFE unconventional resource holdings, what number should I use to turn that into a $ value today? Should I use the price of NG today? I'm not familiar with the "cubic feet equivalent" terminology.

Dew, I had very similar thoughts as you. The main purpose of my post was to share info that lots of institutional investors will see. Plus, this may be another possible example (ala PFE-WYE) of the street lacking vision. In any event, the market will decide for me. I don't play the big integrated oils anyway.

Chris

From GS this weekend,

Published June 27, 2010

What's changed

ExxonMobil completed the all-stock acquisition of XTO Energy on June 25. We have lowered our 2010-2013 EPS estimates to $5.80/$7.70/$9.00/$7.80 from $6.10/$8.05/$9.50/$8.35 to reflect the inclusion of XTO into our model, equating to about 5% per annum EPS dilution from the deal.

Implications

The Exxon/XTO transaction in our view casts doubt on the sustainability of Exxon’s historical return on capital advantage. Using a $5-$8/MMBtu Henry Hub natural gas price range, we estimate that the acquisition yields an IRR of 6%-14%. Using Exxon’s preferred returns metric, we estimate XTO will earn a minimal 3%-8% ROCE in 2012 using $5-$8/MMBtu gas prices, well below Exxon’s more robust average ROCE of 28% over the last decade. As such, we think the deal is unlikely to live up to what investors have come to expect from Exxon in terms of project returns and the rigorous returns-focused standards to which Exxon has long held itself.

In addition, Exxon has now raised questions as to whether the deal signals a less attractive legacy resource base than previously assumed. Given the company’s commendable long-term track record of disciplined capital spending and best-in-class ROCE, we struggle to understand why Exxon would allocate $34.6 billion of capital for a very modest return if its organic resource base offered more enticing potential. Though its shares are inexpensive on an absolute basis, we see the potential for further erosion in its relative valuation versus peers and remain Neutral-rated.

Valuation

We see 13% upside to our revised $65 ($70 before) 6-month target price, based on asset value and cash flow valuation analyses. Our lower target price is consistent with our reduced EPS and returns expectations.

I see what you're saying, DD, but as you said "after they have funded cap-ex and explored..." they don't see a more profitable way forward or opportunity to be gained by growing their business.

Cynically, they're just restocking the options treasury :)

Have a good weekend, D.

Chris

My first reaction to this news is "uh, oh". I really think it's a contra-indicator to the health of the economy when companies are aggressively buying shares back. To me it implies that they're either a) not investing heavily in research, b) creating/exploring new markets, or c) finding attractive competitors to buy.

I'm sure each of these arguments can be turned around on me by the intellects here (which I enjoy). Heck, I can to. Aggressive buybacks, to me, just reeks of pessimism.

OT: Hey DD, FYI MON upgraded at GS to CL-Buy (CL = conviction list)

SSRI's -> cataract risk.....

I heard somewhere else that this study did not account for whether the subjects smoked or not. Since smoking increases risk of cataracts, the authors may have nothing here.

PFE: For Dew...

Goldman 360 Alerts has determined that the following matches your Alerts setting.

Pfizer Inc. (PFE): Key takeaways from management meeting


Goldman Sachs Global Investment Research
May 5, 2010

COMMENT
Pfizer Inc. (PFE) $17.18

Key takeaways from management meeting

News
We hosted a luncheon meeting with CEO Jeff Kindler and CFO Frank D'Amelio in Boston. We remain encouraged by the more positive and shareholder friendly tone and sense that management is working hard to rebuild credibility. While talk is good, we obviously need to see action, but believe that the strong results posted in the quarter coupled with the decision to start buying back stock should speak louder than words and suggests a positive start to the process of closing the credibility gap.


Analysis
Management will soon be in the market buying back stock as part of the $5.0 bn authorized repurchase program. While we hope this is the beginning of an annual trend, we take this as a sign that management sees the stock as an attractive opportunity.
Reiterated firm commitment to achieving 2012 EPS targets of $2.25-$2.35 even if revenues disappoint through leveraging the P&L and balance sheet.
2012 revenue guidance includes "modest" contribution from acquisitions which was defined as less than 5% of sales, or around $2-3 bn.
Sensed a more open and less defensive posture to the consideration of break-ups/spin-off scenario. While we have long argued that PFE is worth significantly more on a sum of parts than its current value, management recognizes the gap as well, and seeks to provide greater transparency of the business units. Important, they expressed a degree of impatience in closing the gap, suggesting that they will not give themselves "years" to make a decision on this option. Consumer, animal health, nutritionals and capsugel need to be up-scaled or spun-off, in our opinion.


Implications
PFE remains a CL-Buy as we expect improving sentiment and earnings stability to lead to multiple expansion. New products and spin-off scenarios remain call options. Our price target is unchanged.

Decades ago when Sunlight (w/lemon) dish washing liquid came out, the same people CVS is speaking to now tried using the soap in their iced tea. Caused a bit of a dust-up for the maker of Sunlight. So, I guess that I'm saying that I lost my incredulity long ago. :)

DD, I'm somewhat more attuned to this type of proposed legislation than most (other legislation) because my wife works for a foundation that is actively involved in these issues. There's a fundamental schism right now in the environmental NGO community. Some large, well-known NGO's have thrown their support behind "cap-and-trade" to the dismay of those other NGO's who prefer the "cap-and-dividend" proposal of Cantwell/Collins.

From what I've read recently, Cantwell/Collins is picking up interest while cap-and-trade is already on the scrap heap. And I have to say good riddance.

Cheers.

If one were to assume (and these are mine) that

1) We will have some kind of climate legislation in the next two years

2) It will be a pitiful compromise like everything that comes out of the capitol these days, and only take away some of the bones it has thrown to the fossil fuel industry in the past

3) Those losing bones will be coal

4) Those getting bones will be natural gas (fantastic transition fuel, for both electricity generation and transportation to a lesser degree) and nuclear (though not the most progressive nuclear -> liquid fluoride thorium)

Then, moves like this by XOM make more sense.


CT

Bloomberg has it at about $1.3B. <EOM>

Any thoughts on CHK here? Potential U.S. climate policy actions could tilt the scale towards NG over coal in the near future. Even though there has been more coverage of the controversial "fracking" technique in recent weeks that may generate some knee-jerk action in Congress, I believe it's a remote possibility that the industry would not be able to limit damage to keep shale drilling economically viable. Heck, we can't even get Congress to do something about MTR coal mining. Compromise would seem inevitable as climate change activists would probably give a great deal to drive a wedge between the fossil fuel lobby in favor of NG over coal.

Furthermore, I did a quick check of worldwide reserves to market cap ratio for their sector, and CHK is at the top of the heap. More than double that of XTO.

I'm not particularly fond of CHK's management.

No matter what GS thinks, I believe that NG is low enough to begin to scale in over the next few months. The difficult part for the average investor is finding an appropriate vehicle. NG equities have dramatically outperformed NG itself over the last few months, and many people don't have a futures trading account. Then there's UNG which I won't touch with a 10ft pole. That premium is unsustainable and will disappear for one of two reasons.

The ideal NG investment right now would be an ETF akin to GLD, where NG is put in storage. I'm going to look at some companies specifically in the NG arena (little to no oil expl) and find the ones with the lowest mkt cap to proven worldwide reserves ratio. That's about the best I can do right now.

A technical look from GS. Pay particular attention to the last paragraph.

WTI, Brent, S&P all made bullish engulfing candles: lower lows, higher highs, higher closes. Aluminium made a new low and rejected it, at the same time holding within its trading channel, the upside of which is at $2060. Copper not quite so bullish yesterday (despite Xstrata's KIDD site 7-10 week shut in news, a disruption the market might be underestimating) but it shrugged off the 3% down move in the Shanghai Comp overnight and has since traded new 2009 highs of $6518 with a near term target there initially $6600 and then $7200 (one of our favourite trades is to be long Dec9Dec13 copper spreads, also on the move, settled $425, last $470). Looks like most contracts now look to retest their previous highs and would expect to see a surge of buying should they take them out. EURUSD had another strong move up after looking relatively the strongest performer all day in the Trilogic Trade (USD, Equities, Commods). Even the sick man of the currencies (GBP) managed to reject the new low print at 1.6154 and close higher on the day.

On crude specifically, Brent held the important neckline on a closing basis and now needs to take out the previous high of $76.25 in COV9 to move higher - still targeting $84.50 level if it can take out major resistance at $78.72, the 38% retracement level from the down move from 2008 highs. Highs so far today $73.30, previous 2009 high $76.

WTI had a look at the 38R level at $69.43 and the recent uptrend support at $69.75 but was unable to breach either. Major resistance lies at $76.28 (the 38% retracement of the down move from 2008 highs) but a break through there suggests a move to $84.50 initially. Highs so far today $73.35, previous 2009 high $75.

A word on Natural Gas the commodity I have had more calls from people dying to buy it basis oil/gas ratios and outright cheapness. It is cheap for a reason. Storage sits last at 3.258tcf. That compares to this time last year at 2.757 and last year's peak of 3.488tcf (which it hit mid Nov….). The picture doesn’t look like it should get better any time soon, it probably gets worse with too much gas particularly in the West Coast, and Canada full and trickling imports to the US. It's going to take a Hurricane to bring this thing back to life as far as I can tell and technicals look awful in a downward trend spiral. Dec 9 at $5 looks a screaming sale and $4 puts cost about 19c. If you must own it for all the value or oil/gas ratio/substitution arguments buy Summer 10 around $5.50. New injection season, new higher production costs and new Hurricane season optionality.

Like the classic Keynes quote (and I may get it wrong)

"The market can remain irrational longer than you can remain solvent."

I've got that one on my bulletin board at work.

Chris

From what I've read, I have to concur. Even if the future supply drops sharply, as many suspect has to given current exploration investment, there will better plays than PBR.

GS came out with a report yesterday citing a projected commodity shortage in 2010 and created a long basket with which to take advantage of this purported opportunity. PBR was one component of that basket. If you'd like a copy, just let me know.

Hope you don't mind me tossing in XLE along with Dew's suggestions. However, it's clearly weighted heavily to the big integrateds, and that's not ideal in all situations.

Then you have XOP (exploration) and XES (services). They are both equal weighted indexes unlike XLE which is market-cap weighted.

Chris

Thanks. I didn't mean any disrespect to Mr. Sommadossi. My only French immersion has occurred in Paris and southwestern France where they definitely do not sound like him.

I guess I was a little thrown by the projected schedule since on one hand, IDIX is looking to start the 14-day trial ASAP. Does ASAP mean 1Q2010? That would give plenty of time to analyze the results, but 1Q2010 doesn't strike me as soon. Oh well, I know that what I think is reasonable versus what is possible in today's FDA environment are two different things.

Sorry for not looking up the time-line, Dew. I can probably get my posting to zero if I hunt hard enough first.

Chris

Just listened to the call and some of the Q&A session. Did I mishear that the 14-day study results would probably be available my mid-2010?

It was the guy who sounds a little like Schwarzenegger responding to a question about when the 14-day study would get started, when would results be available, and would IDIX need to wait for NVS to decide about partnering before starting the 14-day study.

Thanks,
Chris

Can we provide an incentive (monetary or otherwise) to encourage folks to maintain healthy levels of physical fitness? I find it difficult to imagine what else is going to work.

Need expertise. I've been shown a business plan for a company that wants to develop and market a device that provides "safe" access to the pericardial cavity. Aside from the technical details, the plan calls for clinical trials to start 4Q09 and FDA approval by 4Q10. Can anyone tell me roughly what kind of clinical trial requirements there are for medical devices. Their timeline seems overly optimistic.

Some pretty right-wing propaganda there, gfp. I'd prefer not to see that type of thing on this board. I'm not against the conservative point of view, but do loathe half-truths, innuendo, and outright fear-mongering from any side.

I appreciate your on-topic posts very much. Thanks for those.

Regards,
Chris

I think it's a 60/40 long/short term gains allocation.

I would bet quite a bit of money that there are no hedge funds invested in COR. Furthermore, VC <> equity investing in the secondary markets.

Furthermore, some of us may want the foreign currency exposure of the ADR, in the near future.

Good trade. The volume is too low for this to be anything other than forced/panic selling. I may join you, but I bought a bunch the last time we were at $3.80.

Well, I bought some at 3.80 anyway. We'll see...

Would you talk me out of buying here, Dew?

Slightly OT: Does anyone here know of any companies doing research or currently conducting trials with fatty-acid-bile-acid conjugates? These chemicals have shown good promise in dissolving gallstones and potentially broad cholesterol lowering effects. Personally, the reason I ask is that my wife has gallstones and I'm wondering if it's even remotely likely that these FABACs could be on the market in < 10 years. Of course the surgeon would have to agree to attempt using the current crop of gallstone dissolving drugs. Thanks.

Blade, I asked that question twice last week and Erbse was nice enough to respond. However, I still don't know when the IND was filed and am disappointed in myself that I missed it. The indication for 1739 is ADHD.

Chris

Sorry to ask again, but did anyone notice that the webcast slides this morning said that 1739 was in human safety testing right now? Doesn't that imply P1? I don't remember the IND being submitted. Can someone clear this up for me? Thanks.

Can anyone tell me when the P1 using 1739 was started? The conclusions slide on the webcast said it was in human safety studies for ADHD. I just can seem to remember when that happened (or happened at all) :( I need some ampa upmodulation.

OT - Cripes! Is everyone a doctor around here but me? :)

$7.70....we must be missing something. Wait, I know what it is. The timing of my selling puts. Way too early. D'oh!

Chris

I agree. That's why I shorted puts.

Chris