Recently, KBR Ltd. (KBR) announced that it has received a contract by the Dos Republicas Coal Partnership to provide detailed engineering and technical assistance services for the Eagle Pass Mine near Eagle Pass, Texas. The financial details of the contract were not disclosed. The scope of the contract includes option analysis, detailed engineering for the material handling system and technical assistance during the construction phase of the project.
KBR's Minerals business unit is a leading provider of large-scale mining developments that include engineering, procurement and construction management (EPCM) services for coal, iron ore, bulk material handling and coal processing systems.
Some of the major global contracts for KBR in the area of mining include the EPCM work on the Hope Down North and South mines in Australia, the development of housing for workers at the Rio Tinto mine sites in the remote region of Pilbara, and project risk management for the Koniambo nickel mine.
After the acquisition of Roberts & Schaefer Company, in 2010, KBR has strengthened its position in the mining and minerals sector with strong capabilities ranging from project management to port infrastructure.
During the last few quarters, a number of new contracts have been showering upon KBR. Two of them were turnaround contracts. These include a contract from a leading chemical company to perform turnaround services for its pyrolysis gasoline (pygas) unit on the US Gulf Coast and another from Suncor Energy Inc. (SU) to provide turnaround services for its refinery in Edmonton, Canada.
Given the favorable scenario, we expect the KBR stock to experience a revision and show a rising trend in the coming quarters. KBR also recently hit a 52-week high on May 22, with a price of $36.27, beating its previous high of $35.67 attained on May 15, 2013.
KBR currently has Zacks Rank #3 (Hold). Other stocks from the same sector that look promising include Michael Baker Corporation (BKR) with a Zacks Rank #1 (Strong Buy) and Harris & Harris Group, Inc. (TINY) with a Zacks Rank # 2 (Buy).
Recently, Oncolytics Biotech Inc. (ONCY) reported positive preliminary results from the US phase II trial (REO 020) evaluating the use of oncology candidate, Reolysin in combination with Bristol-Myers Squibb's (BMY) Taxol (paclitaxel) and carboplatin, which are widely used chemotherapy treatment. The phase II trial aims to assess the safety and efficacy profile of Reolysin in patients suffering from metastatic melanoma.
The study enrolled second-line or third-line metastatic malignant melanoma patients. Patients for whom the standard first line treatment was considered unsuitable were also enrolled. In the first stage of the phase II trial, 3 of the 14 metastatic melanoma patients demonstrated partial response (PR). Additionally, 7 patients exhibited stable disease with a disease control rate of 71.5%.
We are pleased with the preliminary results from the phase II trial, which supports the candidate’s progression into the second stage. The primary endpoint of the phase II trial is to evaluate the treatment regimen’s anti-tumour effect. The secondary endpoints include the evaluation of progression-free survival and overall survival, disease control rate, safety and tolerability.
Investors have reacted positively to the encouraging preliminary data on Reolysin.
We note Oncolytics Biotech is developing Reolysin as monotherapy or in combination with chemotherapy and radiotherapy for several oncology indications, including head and neck cancers (phase III), pancreatic cancer (phase II) and non-small cell lung cancer (phase II).
Oncolytics Biotech carries a Zacks Rank #2 (Buy). Right now, Anika Therapeutics,Inc. (ANIK) and Jazz Pharmaceuticals Public Limited Company (JAZZ) look more attractive. Both stocks carry a Zacks Rank #1 (Strong Buy).
Video game retail sales plunged in Apr 2013. According to market research firm NPD, sales decreased 25.0% to $495.2 million from $630.0 million reported in Apr 2012. However, sales in dollar terms were almost half from $992.5 million reported in March and declined massively from $810.0 million reported in Feb, 2013.
Software sales declined 17.0% year over year to $254.3 million in April. This was much worse than $602.4 million reported in March and $369.9 million reported in February. Although sales decline was massive in the month, NPD noted that new games launched in Apr 2013 jumped 118% in unit sales and 130.0% in dollar sales.
Injustice: Gods Among Us from Warner Bros. Interactive was the top-selling game in the month, pushing March topper BioShock Infinite from Take-Two Interactive (TTWO) to the #3 position. Dead Island: Riptide from Deep Silver took the #2 spot. Activision Blizzard (ATVI) had two games in the top-ten list namely Call of Duty: Black Ops 2 and Skylanders Giants.
Currently, both Take-Two and Activision carry a Zacks Rank #3 (Hold).
Hardware sales fell a massive 42.0% year over year to $109.5 million from $221.6 million reported in March. March hardware sales were lower than $244.2 million reported in February.
Microsoft’s (MSFT) Xbox 360 was again the top-selling console. However, it sold just 130,000 units in April compared with 261,000 units sold in March. This was also much less than 302,000 units sold in February. On a year-over-year basis, Xbox unit sales declined 45.0%.
As per NPD data, Nintendo’s 3DS handheld sales grew 52.0% year over year last month. However, PlayStation developer Sony ( ">SNE ) did not provide any sales data.
The huge decline in hardware unit sales primarily reflects a matured console market. Moreover, customers postponed their purchases as both Sony and Microsoft are slated to release their new console hardware by the end of this year.
According to NPD, total US video game sales were $802.0 million in Apr, 2013.
We expect video game sales to remain sluggish over the next few months. Although we believe that the ongoing transition from the physical to the digital platform will ultimately benefit the video game industry (due to the cost effectiveness), low priced digital games have failed to offset the rapid decline in high-priced retail sales in recent times.
Moreover, declining software sales remain a concern. We believe that the rapid adoption of free-to-play games will continue to cannibalize retail software sales in 2013. Further, the highly fragmented video game market will continue to witness increased competitive pressures, which will hurt overall profitability.
However, we believe that the highly anticipated launch of new hardware consoles from Microsoft and Sony will boost the sagging video game retail sales market by the end of 2013.
We have maintained our Neutral recommendation on Northrop Grumman Corporation (NOC) on May 22, 2013 on the back of its improved performance and lower share count that led to a top and bottom line beat in the first quarter. However, offsetting these positive factors to some extent is the uncertainty related to the defense budget. The company currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
Northrop Grumman posted strong first quarter 2013 results with both the top and bottom line beating the Zacks Consensus Estimate. The results were driven by an improved performance and share buybacks.
During first quarter 2013, cost of products and services decreased to $4.78 billion from $4.84 billion in the prior-year quarter. General and administrative expenses also declined to $558 million from $561.0 million in the year-ago quarter. In order to improve its cost competitiveness, the company is closing and consolidating numerous facilities.
Also during the quarter, the company repurchased 6.5 million shares of its common stock for approximately $456 million. However, this is not the end. Recently, the Board of Directors of Northrop Grumman has approved of an additional repurchase of the company's common stock worth $4 billion. With this new approval, the company currently has total outstanding share repurchase authorization of $5 billion.
Northrop Grumman has also increased its quarterly dividend by 11% bringing the annualized payout to $2.44 per share from $2.20 per share earlier. The quarterly dividend, after the hike, will come to 61 cents per share, up from the prior payment of 55 cents per share. With the current annual dividend, the company generates a dividend yield of 3.02%. In fact, Northrop Grumman’s strong cash position provides substantial financial flexibility to focus on its cash deployment approach.
Moreover, Northrop Grumman is taking several initiatives to ensure further alignment with its customers' need in order to increase affordability. Also, the company is flooded with a number of sizeable contracts. Northrop Grumman’s total order backlog as of Mar 31, 2013 stood at $39.4 billion. During the first quarter, the company received new contracts worth $4.7 billion.
Going forward, the company offers a strong program portfolio positioned to take advantage of focus areas in the defense space. Although Northrop Grumman like its peers faces uncertainty related to the defense budget, it seems to be immune to some extent to the defense budget cuts. In fact, the President's fiscal year 2014 budget supports some of Northrop’s key programs. For 2014, the proposed budget increased funding for Northrop’s E-2D Advanced Hawkeye by 25%, while 21 EA-18G Growlers funding got a proposal for double financing in comparison to 2013. Meanwhile funding for F-35 was re-affirmed, and programs like SBIRS, Advanced EHF and the James Webb Space Telescope, Global Hawk Block 30 and Block 40 operations were sufficiently funded. Cybersecurity became a key investment area with funding increasing by more than 20% to $4.7 billion.
Despite these positives, apprehension of defense cutbacks on high-cost platform programs, over-exposure to the Department of Defense budget, cost over-runs and reductions in the Afghanistan and Iraq operations compel us to remain on the sidelines.
Stocks to Consider
Stocks worth considering in the space are Erickson Air-Crane Inc. (EAC), Wesco Aircraft Holdings, Inc. (WAIR) and Alliant Techsystems Inc. (ATK). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy), Wesco Aircraft and Alliant Techsystems hold a Zacks Rank #2 (Buy).
Electronic Arts’ (EA) PopCap Games has recently released the first social game of its popular Plants vs. Zombies franchise named Plants vs. Zombies Adventures. The game can be played exclusively on Facebook (FB).
The social version of the game has new contents comprising 10 new zombies, 11 new plants and new human characters with 12 road trip maps heavily infested with zombies. It also has new techniques to counter the Zombie invasion by using new power ups such as Zombie Zapper, Gardening Glove and Mega-Perk, Dynamite.
The original game Plants vs. Zombies can be played in all possible platforms and Consoles. Now, the additional platform and the increase in consumer preferences to play casual and social games will likely prove to be catalysts for the game, going forward. Moreover, the sequel, Plants vs. Zombies 2, is slated for a summer release.
Though the game can be played for free by simply logging on to Facebook, EA expects to earn through the sale of in-game items. This has been the trait found in most of the social networking games.
PopCap Games has expanded EA’s reach in the Mobile and Social Gaming segments. Apart from Plants vs. Zombies, PopCap Games boasts other popular titles such as Bejeweled, Bookworm and Zuma that can be played on different platforms.
Additionally, we believe that EA’s high-quality titles and a robust product pipeline along with increasing online exposure and traction in the social and mobile gaming market will boost its top line over the long term.
Currently, EA has a Zacks Rank #2 (Buy).
Integrated oil and gas company TOTAL S.A. (TOT) and Qatar Petroleum International (QPI) signed an agreement to develop oil projects in Congo. Per the agreement Qatar Petroleum International will acquire a 15% share of Total E&P Congo.
In the first quarter 2013 TOTAL S.A. along with its partners launched the Moho Nord project in the Republic of Congo. 53.5% of this project is owned by TOTAL, 31.5% by Chevron’s (CVX) Congo unit and the rest by the state owned oil company of Congo.
The Moho Nord project is expected to begin commercial operation from 2015 and has the potential to produce 140,000 barrels of oil equivalent per day (boe/d) in 2017. The full development will require an investment of $10 billion and capital infusion by QPI will help TOTAL to carry on with its development activities in the oil field.
In fact, the African oil projects have a huge reserve potential and global oil and gas giants are working together to explore these resources. TOTAL’s African operation is the largest contributor to its portfolio, contributing nearly 30% of the total production in first quarter 2013. TOTAL has plans to further expand its operation in Africa through drilling in Gabon and Kenya.
TOTAL’s technological expertise in handling large complex projects and its financial strength enable it to carry out aggressive drilling across the globe. Oil and gas projects are capital intensive and the company at times enters into strategic alliances like the one in Congo to explore and develop the resources.
TOTAL S.A. retains a Zacks Rank #3 (Hold). Other oil and companies which are performing well and worth having a look are Braskem S.A. (BAK) and Sasol Ltd. (SSL). Both these companies carry a Zacks Rank # 2 (Buy).
France-based TOTAL is one of the largest publicly traded, globally integrated oil and gas companies based on production volumes, proved reserves and market capitalization. The company has exploration and production operations across five continents.
OncoGenex Pharmaceuticals, Inc. (OGXI) recently announced that it is looking to move its oncology candidate, OGX-427, into a phase II study (Cedar: n~140). The study will evaluate OGX-427 as a first-line therapy in patients suffering from advanced squamous cell lung cancer.
The investigator-sponsored, randomized, open label phase II study will investigate whether progression-free survival (PFS) outcomes can be improved by adding OGX-427 to Eli Lilly & Company’s (LLY) Gemzar and Bristol-Myers Squibb Company’s (BMY) Paraplatin.
In the Cedar study, patients will be randomized to receive either OGX-427 plus Gemzar and Paraplatin therapy, or Gemzar and Paraplatin therapy alone.
Cedar is the second randomized phase II study being conducted with OGX-427 in advanced lung cancer.
Cedar is however the seventh phase II study being conducted with OGX-427 after Borealis-1, Borealis-2, Pacific, Spruce, OGX-427-PR01 and Rainier.
The Borealis-1 study is designed to evaluate the survival benefit, safety and tolerability of combining OGX-427 with gemcitabine and cisplatin in the first-line treatment of patients with advanced bladder cancer. OncoGenex expects to complete patient enrolment in the second half of 2013.
The Borealis-2 study is being conducted in patients suffering from advanced or metastatic bladder cancer whose disease has progressed following initial platinum-based chemotherapy treatment.
The Pacific study is evaluating the benefit of OGX-427 plus Zytiga in patients with castrate- resistant prostate cancer (CRPC). It is currently enrolling patients.
The Spruce study is being conducted for the treatment of previously untreated advanced non-squamous non-small cell lung cancer patients. OncoGenex expects to start patient enrolment later in 2013.
OGX-427-PR01 is evaluating the benefit of OGX-427 plus prednisone. in CRPC patients. Rainier is designed to evaluate the survival benefit of adding OGX-427 to Abraxane plus Gemzar in previously untreated metastatic pancreatic cancer patients. Patient enrollment is expected to begin in mid-2013.
OncoGenex carries a Zacks Rank #2 (Buy). Currently, Santarus, Inc. (SNTS) looks more attractive with a Zacks Rank #1 (Strong Buy).
Elan Corporation’s (ELN) Board of Directors recently rejected Royalty Pharma’s offer for the third time. Following a thorough review and consideration process, with the assistance of its executive management team along with outside financial and legal advisors, the company concluded that Royalty Pharma’s last offer also substantially undervalued Elan. After arriving at the decision, Elan’s management advised its shareholders not to act on Royalty Pharma’s offer.
Earlier this week Royalty Pharma raised its offer to acquire all shares of Elan to $12.50 per share from $11.25 per share. Royalty Pharma’s raised offer did not include the $1.00 per share net cash right, present in the previous offer. Royalty Pharma also announced that it will reduce the Acceptance Threshold from 90% to 50% of Maximum Elan Shares Affected plus one Elan share in accordance with the terms of the revised offer document.
We remind investors that Royalty Pharma’s previous two offers of $11.00 per share and $11.25 per share were also rejected by Elan’s Board.
We believe investor focus will remain on Elan’s recently announced strategic initiatives going forward. Elan has planned a couple of acquisitions in addition to divestment of its pipeline candidate ELND005 (agitation/aggression in Alzheimer’s disease and Downs Syndrome), and the company also intends to initiate a cash repurchase program among other transactions. However, these transactions will go through upon approval from Elan’s shareholders after the company’s Extraordinary General Meeting in June this year.
Of late Elan was also in the news when it inked a deal with Theravance Inc. (THRX) to purchase a participation interest in potential future royalty payments for a one-time cash payment of $1.0 billion. Elan is expected to receive a 21% participation interest in potential future royalty payments that Theravance would likely to receive from GlaxoSmithKline (GSK) from four respiratory programs.
Elan presently carries a Zacks Rank #2 (Buy). Jazz Pharmaceuticals Public Limited Company (JAZZ) currently looks better positioned with a Zacks Rank #1 (Strong Buy).
In an effort to distribute more profit among shareholders, the board of directors of Unum Group (UNM) authorized an increase of 11.5% in its dividend. The company will now pay a quarterly dividend of 14.5 cents per share, up from 13 cents per share paid on May 17, 2013.
The increased dividend will be paid in third quarter of 2013. The new annualized rate comes to 58 cents per share and represents a yield of 2.1% based on Thursday’s closing price of $27.56.
The dividend yield compare favorably with the industry average of 1.50% as well as with other accident and health insurer Amerisafe, Inc. (AMSF) with a yield of 0.98% and Employers Holdings, Inc. (EIG) with a yield of 0.97%.
With this approval, Unum Group hiked dividend for five straight years. Moreover, the new dividend represents 93.3% increase from the 7.5 cents per share paid in 2007.
Based on the 270.4 million shares outstanding as of Mar 31, 2013, the company requires $39.2 million for the payment of the quarterly dividend. Unum Group’s continued sturdy operational results coupled with strong capital positive provide it sufficient cushion to hike dividend as well as pay the same uninterruptedly.
Besides dividend hikes, Unum Group have embarked on share repurchases to enhance its shareholders value. Its first quarter 2013 share buybacks totaled $95 million or 3.7 million shares. The company was left with $454.9 million under its authorization.
Recently, ACE Limited (ACE), which offers accident and health insurance, at its extraordinary general meeting held on May 16, 2013, approved the board’s proposal to hike the quarterly dividend to 51 cents. The increased dividend represents an increase of 4% from 49 cents paid earlier.
Unum Group currently carries a Zacks Rank #3 (Hold).
The wholly owned subsidiary of United Continental Holdings Inc. (UAL) – United Airlines – launched the new United Club in Concourse A at Seattle-Tacoma International Airport.
The 6,096-square-foot United Club – the second lounge to be designed as per the airline’s new concept – displays a new interior and offers passengers more comfort with new and improved furnishings along with views of the Cascade Mountains, a refreshed bar and lobby overlooking the United terminal. There are also the facilities of additional workstations and power outlets.
With the first United Club being opened last year in Terminal 2 at Chicago O'Hare International Airport, the airline is planning to unveil the next Club in Terminal 2 at San Diego International Airport later this summer.
All the United Club members will receive complimentary snacks, beverages and Wi-Fi connectivity. Further, throughout 2013, select United Clubs will bestow members a complimentary guided tasting of Glenfiddich.
On the same day, United Airlines announced the restructuring of its operations at the Seattle-Tacoma airport. The company shifted the gates to Concourse A and relocated its ticket counters to the south end of the main terminal. This will provide flyers easy accessibility to gates, making their journey smooth.
United Continental remains focused on improving its level of services in the air and on the ground and aims to invest over $50 million in 2013 renewing several of the airline's 49 United Club locations.
In the coming days, the Chicago based carrier will open the new Terminal B at the south concourse in Houston's George Bush Intercontinental Airport. In the pipeline, there are plans to retrofit its gate areas in Terminal 2 and commence a new customer service center at Chicago O'Hare International Airport.
United Continental – which has business tie-ups with Embraer S.A. (ERJ) and The Boeing Company (BA) – currently holds a Zacks Rank #3, implying a Hold rating. Earlier this week, United Airlines entered into a deal with partner SkyWest Airlines – an affiliate of SkyWest Inc. (SKYW). Per the deal, SkyWest will run the 40 E175 aircraft under the United Express brand.