ALS continues to make good on its strategy to increase earnings diversity, acquiring two businesses in the global energy sector: Reservoir Group, a global provider of oil and gas services, and Australian based niche gas testing business Earth Data. These acquisitions make strategic sense. In addition to exposure to large and growing sectors, it provides opportunities for ALS to grow revenue and profitability by leveraging its brand and expertise in analytical testing, a small part of Reservoir’s current business. The AUD 579 million paid for Reservoir and AUD 18 million for Earth Data will be funded with a combination of…
Author: Thomas Larson
Perrigo announced that it will acquire Elan in an $8.6 billion stock and cash deal, or $6.7 billion excluding Elan’s nearly $2 billion in cash on the balance sheet. Because about 60% of the offer is funded in Perrigo stock, analyst’s new Perrigo valuation will partially dictate the fair value estimate for Elan shares. This deal has little effect on Perrigo’s operational assets or competitive advantages, so we don’t foresee a change in the narrow economic moat rating for the firm. Although Elan owns attractive royalty payment streams and has some (modest) pipeline assets, Perrigo’s primary incentive is to utilize…
Saks’ stock has risen again to nearly $16, well above our $9 fair value estimate, following a Friday New York Post report that Starwood Capital Group and Canadian retailer Hudson’s Bay have made offers for the company, with another bid possibly coming from a Middle Eastern sovereign wealth fund. The New York Post report also suggests that Starwood Capital and Hudson’s have both offered $17-$18 per share (with Hudson’s representing an increase from initial $15-$16 bid). Buyout rumors have surfaced several times in the last few years, including a disclosed stake by the owner of luxury footwear maker TODS in…
Rio Tinto reported strong second-quarter production volumes despite some poor weather and mechanical mishaps. Near-record quarterly group iron ore production of 66 million tonnes on a 100% basis came despite a major conveyor belt breakage which saw one of five Pilbara ship loaders out of action for three weeks. Flooding in June added to difficulties. Workarounds and higher Canadian iron ore production mean full-year guidance is maintained at 265 million tonnes, capturing Pilbara expansion projects. Iron ore accounted for 83% of Rio Tinto’s 2012 earnings and 265 million tonnes this year is a 5% increase on 2012 volumes. Output is…
Despite another quarter filled with noise, including the addition of recent acquisitions like Ralcorp’s private-label business, we still think ConAgra’s CAG fourth-quarter and full-year results point to the fact that competitive pressures remain heated. From our perspective, ConAgra is at an even greater disadvantage relative to its peers in that it operates with a portfolio of second- and third-tier brands, which fail to garner the same level of pricing power. Fourth-quarter underlying consumer segment sales (63% of consolidated sales) ticked up 2%, while the commercial foods segment (37% of sales) posted 5% growth. However, the news that Lamb Weston lost…
Symantec consistently generates solid cash flow–typically equal to about 25% of sales. This stability enables it to invest steadily in new product development while supporting a solid financial profile. The firm’s security products are sticky with customers and enjoy the benefits of the widely recognized Norton brand. This business produces good margins on a solid base of recurring revenue. Storage management products also produce a nice recurring revenue stream, but this segment is less attractive, as storage products are increasingly sold with proprietary management tools. Symantec has hit a rough patch recently, with growth stalling. The firm was built via…
Cognizant reported first-quarter results that came in line with analyst’s expecations. The company’s first-quarter revenue increased 3.7% sequentially and 18.1% year-over-year to $2.02 billion. The company’s results largely resembled the pattern that we had already seen from the likes of Accenture ACN and Tata Consultancy Services. Consulting services reported relatively weak numbers as companies remain cautious of discretionary spending while outsourcing services continue to see strong demand. Cognizant reported 2% sequential growth on consulting and technology services while outsourcing witnessed 5.3% sequential growth. Short-term outlook calls for a cautious IT spending environment, which points to a continuation of this trend…
On Wednesday, the European Commission announced proposed revisions to the Tobacco Products Directive, last updated in 2001. Several of the main elements of the proposal could be net negatives for the major tobacco players (including Philip Morris International PM , British American Tobacco BTI , and Imperial Tobacco ITYBY ) should the European Parliament and the Council of Ministers adopt the proposal in 2014 and implement the suggestions during 2015-16. Although the commission’s proposed changes would probably hurt tobacco demand in Europe, we believe the major global cigarette companies will vigorously lobby against many of the recommendations. The main elements…
Saipem has warned again; this is its second major profit warning in the past six months. The company now sees 2013 earnings before interest and taxes at a loss of EUR 300 million-350 million versus its prior projection of EUR 650 million-750 million in profit. First, there has been a significant deterioration in Saipem’s relationship with Sonatrach following a step-up and widening of the scope of the corruption investigations by the Algerian authorities. The relationship has now completely broken down, and Sonatrach is now pursuing liquidated damages for three key projects. As we feared, Saipem now expects to record a…
Valley National Bancorp reported net income of $31.3 million, or $0.16 per share, in the first quarter of 2013 compared with $34.5 million, or $0.18 per share, in the first quarter of 2012. Mortgage banking originations remained strong during the quarter, resulting in $15.1 million in revenue. The net interest margin remains under pressure as yields as well as the decline in linked quarter average loans. With mortgage revenue and net interest margin offsetting each other, we are maintaining our moat rating and fair value estimate. Residential mortgage loan originations totaled a record $577 million during the quarter, which represents…
Travelers released a strong first-quarter report in what is typically a quiet period for property-casualty insurers. Given the lack of natural catastrophes, the firm was able to achieve operating income –which excludes realized investment gains and losses– of $887 million or $2.31 per share. The latter figure was Travelers’ highest since it went public in 2002. The pricing gains the firm has achieved in prior quarters are continuing and, in fact, accelerating. Travelers achieved an average renewal rate increase of 8% in its Business Insurance segment, a very positive sign after many years of declines during the recent soft market.…
Intuitive Surgical reported mixed results in the first quarter, even though the revenue growth and earnings came in ahead of our expectations. While analysts believe the company’s moat is still among the widest in the space (and the quarter doesn’t do anything to challenge this thesis), analysts believe investors are overestimating the growth potential of the company as the value of robotic surgery is coming under greater scrutiny. Systems sales came in ahead of our expectations, at 24% growth. Though this was a moderate surprise (aided by the unsustainable average sales price boost), analysts caution that the near-term strength hides…