Steelmaker AK Steel (AKS) expects to witness a loss in second quarter 2013 as non-cash tax expenses coupled with maintenance outage costs are expected to dent its bottom line in the quarter.
These factors are expected to lead to a loss of between 33 cents and 38 cents per share in the second quarter. Analysts polled by Zacks are expecting a loss of 10 cents a share on average for the quarter.
AK Steel expects to take tax charges of roughly $11 million (or 8 cents a share) in the quarter related to a valuation allowance for its deferred tax assets.
In addition, the quarter’s results will include the impact of a planned maintenance outage at the Middletown Works blast furnace. AK Steel expects to incur maintenance outage costs of around $21 million in the second quarter, an increase from $1 million in the first quarter.
Moreover, the company anticipates its average per-ton selling price to slip roughly 1% in the second quarter from the first quarter level of $1,062 per ton. The expected sequential decline is partly triggered by lower spot market prices for carbon steel products. However, AK Steel added that its spot market prices have been favorable of late given a recent price hike on carbon flat-rolled steel products.
Shares of the Ohio-based company, which are down roughly 25% so far this year, fell 5% in regular trading yesterday.
On a positive note, AK Steel expects shipments to increase to roughly 1,340,000 to 1,360,000 tons in the second quarter from 1,289,800 tons in the first. The company sees sequentially higher shipments to automotive and carbon spot markets in the current quarter.
While AK Steel is poised to gain from healthy automotive demand and lower raw material costs, we remain cautious factoring in its high cost structure, weak steel pricing environment and a challenging operating backdrop in overseas markets.
AK Steel currently has a Zacks Rank #3 (Hold).
Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. (SHLO) and Angang Steel Company Limited (ANGGY). While both Kobe Steel and Shiloh Industries hold a Zacks Rank #1 (Strong Buy), Angang Steel retains a Zacks Rank #2 (Buy).
Rambus Inc. (RMBS) shares soared 3.85% in after-hours trading after it announced a two-way patent licensing agreement with European chip-making company STMicroelectronics (STM). The deal puts an end to the decade-long legal battle between the two companies and also keeps the doors open for further collaborations. Financial details of the deal were kept confidential.
Per the terms of the agreement, STMicro will be allowed to use Rambus’ patented Differential Power Analysis (DPA) countermeasures and CryptoFirewall core security technology across a wider range of products. The technologies will secure STMicro’s future multimedia chips.
On the other hand, Rambus will be allowed to use STMicro’s Fully-Depleted Silicon On Insulator (FD-SOI) process-technology design environment. With this, Rambus can deliver low-power-consuming chips even at lower nodes (28 nanometer or below).
Rambus clarified that it has settled all earlier claims regarding its patented innovations. Rambus and STMicro have been involved in several patent infringement lawsuits since Dec 2010.
Earlier this year, Rambus settled patent disputes with two chip-making companies, LSI Corp. (LSI) and SK Hynix. It also signed new patent licensing agreements with the two companies. Similarly, Rambus settled lawsuits with NVIDIA Corp. (NVDA), Broadcom Corp., MediaTek and Freescale last year. This indicates the importance of Rambus’ innovative technologies, the company’s ability to extend business ties and its intent to get rid of the legal entanglements.
Following the patent licensing agreements, Rambus narrowed its second quarter revenue guidance. Rambus now expects revenues in the range of $56.0–$58.0 million (previously $53.0-$58.0 million). Rambus will also reverse an accrual of $8.0 million in litigation costs related to the Hynix dispute, which will be included in its operating expenses.
We believe that Rambus’ growth story would remain intact, given its ability to settle legal claims, growing exposure in the LED arena and continuous deal wins.
Currently, Rambus has a Zacks Rank #3 (Hold).
Shares of Magna International Inc. (MGA) hit new 52-week high of $70.36 on Jun 14, which is above its previous level of $69.63, and closed at $69.70 on the same date. The closing price represented a solid one-year return of 85.1% and year-to-date return of 37.3%.
Magna International, based in Aurora, Canada, is a leading manufacturer and supplier of automotive components It has a market cap of $16.3 billion. Average volume of shares traded over the last three months stood at approximately 734.5K.
Shares of the company started escalating following its improved first quarter results and promising guidance announced on May 10.
Magna International posted a 7.5% rise in earnings per share to $1.57 in the first quarter of 2013 from $1.46 in the year-ago quarter and outpaced the Zacks Consensus Estimate by 17 cents. Net income increased 7.6% to $369.0 million from $343.0 million in the year-ago quarter.
Revenues went up 9.1% to $8.4 billion, exceeding the Zacks Consensus Estimate of $7.9 billion. The increase was driven by improvement in North American and Rest of World (ROW) production sales as well as higher tooling, engineering and other sales.
For full-year 2013, Magna expects revenues in the External Production segment between $27.2 billion and $28.2 billion while Complete Vehicle Assembly sales are projected in the range of $2.8 billion to $3.1 billion. These were higher than revenues of $26.0 billion generated from External Production and $2.6 billion from Complete Vehicle Assembly in 2012.
Total revenue of the company is expected between $32.6 billion and $34.0 billion for 2013. It is higher than $30.8 billion generated in 2012.
Currently, shares of Magna International retain a Zacks Rank #1 (Strong Buy). Some other stocks that are also performing well in the industry where Magna operates include Lear Corp. (LEA), Tower International, Inc. (TOWR) and Visteon Corp. (VC). All these companies carry a Zacks Rank #1 (Strong Buy).
Shares of Micron Technology Inc. (MU) reached a new 52-week high of $13.50 on Jun 17, 2013. Micron shares gained momentum on the approaching Elpida buyout, solid guidance provided in its second-quarter 2013 results announced on Mar 21 and an expected improvement in memory pricing environment ahead.
The closing price of the memory-chip maker on Jun 17, 2013 was $13.24, representing a stellar 1-year return of about 122.9% and a year-to-date return of about 99.7%. Average volume of shares traded over the last three months stands at approximately 32.4 million.
Moreover, this Zacks Rank #2 (Buy) company has a market cap of $13.6 billion and a long-term expected earnings growth rate of 12.9%.
Industry trends indicate improving memory pricing environment. The price upside is mainly due to restricted supply by two large memory manufacturers, Micron and Samsung.
Analysts expect supply to remain constrained and hence memory pricing is likely to trend higher.
Apart from this, the soon-to-be completed Elpida acquisition will help Micron to gain memory market share, which is mostly dominated by SanDisk Corp. (SNDK). Micron will also be able to save roughly $400.0 million on the purchase price, given stronger dollar value against yen.
During the last quarter, Micron reported loss per share of 28 cents, which was better than the year-ago quarter results but wider than the Zacks Consensus Estimate of 20 cents loss per share. However, the chip-maker mentioned its optimism for the end markets such as mobile, server, networking enterprise and embedded based on strong demand for its memory chips. Micron is also confident of witnessing supply/demand balance for DRAM and NAND memory chips in 2013 and 2014. The chipmaker expects industry-wide DRAM wafer capacity to get reduced, which will bring down supply, ultimately boosting ASP. For NAND, Micron is confident about growing demand due to increasing use of solid state drives in smartphones.
Micron also stated that it is focusing more on the mobile DRAM space and it has already designed low power DDR2 chips for two of the top five smartphone makers.
The Zacks Consensus Estimate for 2013 and 2014 rose 2 cents and 5 cents to 39 cents loss per share and 94 cents earnings per share, respectively, in the past 30 days. Four estimates each were revised upward in the last 30 days for fiscal 2013 and 2014.
We believe that the improved pricing and growing product demand will lead to a solid third quarter, results of which scheduled to release on Jun 19.
Other Stocks to Consider
Other stocks in the technology industry that are currently performing well and have a solid visibility include Aspen Tech Inc. (AZPN) and Pegasystems Inc. (PEGA), both with a Zacks Rank #1 (Strong Buy).
On Jun 14, we maintained our Neutral recommendation on Ryder System Inc. (R), owing to favorable industry fundamentals along with improved average fleet age, prospects in rental business and better financials. However, the company faces certain headwinds that will likely slow down its growth momentum. The company, which operates with the likes of Aircastle LTD (AYR), holds a Zacks Rank #2 (Buy).
We believe that Ryder System will continue to benefit from organic growth across its business line. The company expects improved offerings in contractual product lines in the Fleet Management Solutions segment with a newer lease fleet and various maintenance initiatives to increase 2013 earnings. Additionally, organic growth in Full Service Lease along with improved volumes in new business and supply chain are expected to aid the company in generating high revenues in the coming months.
We also appreciate the company’s consistent strategic investment in commercial rental and leased vehicles, maintenance technology, sales and information technology initiatives. Ryder sees immense prospects in rental demand that will likely lead to increased fleet utilization and price.
Hence, the company continues to focus on streamlining its fleet size, with plans to dispose additional used vehicles to meet demand and supply requirements. Ryder’s cost restructuring moves along with its commitment to improve the financial position will enable it to achieve its set objectives.
However, despite these positive aspects, we prefer to stay on the sidelines considering the difficult operating environment with high market competitiveness. Competitors may have greater capital resources or lower capital costs, which will likely remain detrimental to Ryder’s growth. Further, federal regulations, international business risks and the constant need for technical upgrades will likely weigh on the stock.
The second and third quarters of 2013 have the Zacks Consensus Estimate for earnings pegged at $1.22 and $1.46 per share, respectively. This reflects a year-over-year growth of 22.2% in the next quarter and 13.8% in the third.
Companies operating within the transportation sector that are worth taking notice of are AMERCO (UHAL) and Trinity Industries Inc. (TRN). Both the stocks carry Zacks Rank #2 (Buy).
Tetra Tech Inc. (TTEK) recently received a three-year, $22.4 million worth remediation and restoration program for a 280-acre Rio Tinto Plc’s (RIO) copper mine site in Elko County, NV. Apart from a copper mine, Rio Tinto’s mine site also includes an associated mill, heap leach pads and tailings from a mine that was operational from 1932 to 1976.
Tetra Tech’s responsibilities will include removing mine tailings from the nearby Mill Creek for placement in an on-site repository. In addition, Tetra Tech will provide hydraulic engineering services to improve Mill Creek and the East Fork Owyhee River water quality and boost the restore habitat for redband trout.
The contract was awarded by Mountain City Remediation, LLC and is financed by Atlantic Richfield Co. Earlier, Tetra Tech had received several awards from U.S. Agency for International Development (USAID) for clean energy program development in critical priority countries. USAID has awarded contracts worth approximately $800 million to Tetra Tech.
In the recently reported quarter, Tetra Tech’s Remediation and Construction Management segment’s revenue totaled $178.5 million compared with $117.4 million in prior-year quarter. The segment contributed 25% of the total revenue in 2012.
Tetra Tech, a leading provider of environmental services, is performing well in its international market, benefiting from the rising demand for clean resources. Tetra Tech currently has a Zacks Rank #3 (Hold). CECO Environmental Corp (CECE), operating in the similar industry and having a Zacks Rank #1 (Strong Buy), along with Willdan Group Inc. (WLDN) and Orion Marine Group Inc. (ORN), both having a Zacks Rank #2 (Buy), are worth considering at the moment.
Noble Energy Inc. (NBL) announced positive appraisal results from its Gunflint prospect in the deepwater Gulf of Mexico (GoM). The second appraisal well, Mississippi Canyon 992 #1, in the Gunflint block encountered 109 feet of net oil pay within the main reservoir targets.
Noble Energy, one of the major operators in the complex, owns a 31.14% stake while Ecopetrol America Inc. holds 31.50% of working interest. Other companies currently holding minor stakes include Marathon Oil Corp. (MRO) with 18.23% and Samson Offshore, LLC with 19.13%. The company’s successful appraisal activities at the Carla discovery led to an increase in Noble Energy’s ownership interest in the Gunflint block from the prior 26%.
Efficient drilling, wireline logs and reservoir data have pegged the projected gross resource in the range of 65 to 90 million barrels of oil equivalent in the primary structure. This was in line with Noble Energy’s expectation.
The Mississippi Canyon well was drilled to a total depth of 32,800 feet at a water depth of 6,100 feet. It is situated one mile west of the original discovery well. The net cost of drilling the lower exploration area was $15 million, which will be realized in the second quarter 2013.
With completion of operations, the well will be suspended for future use. Although, the company did not encounter any commercial hydrocarbons in the prospect, the exploration potential is still encouraging. Noble Energy plans to exploit another block, a three-way structure, located to the north, following the development of the current resources.
Besides the Big Bend discovery, the company has two key initiatives in the GoM with first production slated for the latter part of 2015. The Gunflint appraisal will also help promote the company’s development of a subsea tieback project. The approval for the project is expected by end 2013.
Noble Energy's resource portfolio in the GoM continues to act as a catalyst to growth. Further more, the Swordfish block in the GoM came into production after planned maintenance. These operations will certainly help the company maintain its momentum, going forward.
However, the planned shutdown of the Galapagos operation for maintenance for a month might prove disadvantageous for the company. Currently, Noble Energy carries a Zacks Rank #3 (Hold).
Houston, Texas-based Noble Energy operates internationally and engages in the acquisition, exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids.
Rambus Inc. (RMBS) added a new feature to its recently invented light emitting diode (LED) bulbs. Its latest LED 65-watt PAR30 bulbs and the 75-watt BR30 bulbs will now have a regulator to adjust in-bulb color temperature. Rambus introduced the LED bulbs in May.
With this feature, end users can adjust the color temperature in LED bulbs and modulate it from 5000K (i.e. cool colors) to 3000K (i.e. warm colors). Color temperature is a standard method of describing colors for use in a range of situations (day to night) and with different equipments. Color temperatures are normally expressed in units called kelvins (K).
Rambus’ innovative technology requires no additional equipments (LEDs or multi-channel drivers) to operate the color temperature. Instead a simple dialer fastened onto the bulbs will maintain the desired level of color temperature, cost efficiently.
Earlier this year, Rambus, better known for its technological inventions, introduced a technology-turned product, its first ever LED bulbs (60-watt A19 bulbs). The bulbs, which leverage its MicroLens optical technology, help generate consistent lighting and control spherical distribution of light. The company asserts that the bulbs are economical (due to lower production cost), energy efficient and long lasting.
The bulbs have improved features such as micro-electronics, dimmer capability, better lumen output (a measure of the total amount of visible light emitted by a source) and advanced thermal management capability.
Rambus’ LED portfolio is ready to hit the market shortly, with the first shipment expected during the third quarter of fiscal 2013.
LED is a semiconductor light source used as indicator lamps in many technological devices and are increasingly being used for general lighting products. LEDs are energy efficient, long lasting, space saving but relatively more expensive than incandescent light sources.
With the rising popularity of energy-efficient lighting, the in-vogue LED products are finding a place in the latest architectural, retail, commercial and residential lighting fixtures. We find Rambus in a favorable position to capitalize on this opportunity.
However, back-to-back blows from its legal battles with customers such as Micron Technology Inc. (MU), LSI Corp. (LSI) and STMicroelectronics (STM) and oversupply in the semiconductor market are concerns.
Currently, Rambus has a Zacks Rank #3 (Hold).
Rio Tinto Finance (USA) plc, a subsidiary of Rio Tinto plc (RIO), announced the pricing of $3.0 billion fixed and floating rate bonds. Each of the bond categories comprises two tranches of notes. However, Rio Tinto has not revealed the purpose for which the proceeds shall be used.
The fixed rate bonds consists of 3-year fixed rate notes at 1.375% for $1.0 billion, maturing on Jun 17, 2016 as well as 5.5-year fixed rate notes at 2.250% for $1.25 billion, maturing on Dec 14, 2018.
The floating rate bonds consist of 2-year floating rate notes, paying a coupon of 3-month US$ LIBOR added with 55 basis points, which are due to mature on Jun 19, 2015. Apart from this, the floating rate bonds include 3-year floating rate bonds, paying a coupon of 3-month US$ LIBOR added with 84 basis points, maturing on Jun 17, 2016.
Although not directly issued by Rio Tinto, these bonds will be guaranteed by Rio Tinto plc and Rio Tinto Limited.
As on Dec 31, 2013, Rio Tinto had $7.1 billion in cash and cash equivalents and $24.6 billion of borrowings and other financial liabilities. Rio Tinto had $1.0 billion interest payments pending as on Dec 31, 2012, which will likely increase with the issue of these bonds.
Rio Tinto Finance (USA) plc made a similar kind of issue in Aug 2012. However, the issue was restricted to fixed rate bonds,with an average maturity of 12.9 years and an average coupon rate of 2.67%, valued at $3.0 billion. The total offer comprised 5-year debt securities at 1.625% for $1.25 billion, maturing on Aug 21, 2017, 10-year securities at 2.875% for $1.0 billion maturing on Aug 21, 2022 and 30-year securities at 4.125% for $750 million maturing on Aug 21, 2042.
Rio Tinto currently carries a Zacks Rank #4 (Sell). Not all stocks in the mining industry are performing as badly as Rio Tinto. Companies like Golden Minerals Co (AUMN), Hi-Crush Partners LP (HCLP) and Alliance Resource Partners LP (ARLP), each carrying a Zacks Rank #2 (Buy), appear impressive and are worth considering.
EMCOR Group Inc.’s (EME) subsidiary Poole & Kent Company recently received a contract to install a reverse osmosis water treatment plant in Clearwater, FL. The financial terms of the deal were not disclosed.
Poole and Kent Corporation, a wholly-owned subsidiary of EMCOR, is one of the leading mechanical contractors in the eastern U.S. In addition to its role as a commercial mechanical contractor, Poole and Kent also operates as a prime mechanical contractor and general contractor on various projects. The company’s primary clients include the U.S. Navy, National Institutes of Health and IBM (IBM).
As per the terms of the contract, Poole & Kent will primarily be responsible for the construction of a 6.5 million gallon per day reverse osmosis membrane water treatment facility. This facility will also include ozone treatment system and iron treatment system, which will transform brackish water into drinking water.
The contract also includes chemical storage and feed systems, groundwater storage tank, concentrate storage tank, pumping systems, emergency generator system and new building additions, as well as installation of all instrumentation, controls, HVAC, electrical, and plumbing systems.
In May 2013, Dynalectric Company, another subsidiary of EMCOR, had received a contract for the installation of electrical systems at the Georgia Gwinnett College.
With revenues of approximately $6.3 billion, EMCOR Group is a leader in mechanical and electrical construction, energy infrastructure, and facilities services. In the recently reported quarter, the company reported 1.9% year-over-year revenue growth and earnings beat the Zacks Consensus Estimate by 2.27%. In addition, sequential backlog improvements, organic revenue growth and strong profitability amid challenging market conditions are the growth drivers for this stock.
With all these positives, Emcor looks promising in the long run. Emcor currently has a Zacks Rank #3 (Hold). Other sector participants worth considering at the moment include Primoris Services Corp (PRIM) and Orion Marine Group (ORN). Both carry a Zacks Rank #2 (Buy).