The Goldman Sachs Group, Inc. (GS) intends to invest about 50 billion yen ($487 million) in renewable energy in Japan in the next 5 years. The investment banking major plans to effectively exploit the demand for electricity generated from solar and wind power.
The endowment will be made by the Japan Renewable Energy Co. unit, established by Goldman in Aug, 2012. It was mainly created to plan, design and operate power plants run on energy from the sun, wind, fuel cells and biomass fuels.
The above-mentioned investment is consistent with Goldman’s target of spending $40 billion in renewable energy over the next 10 years. The initiative was taken to mark the company’s awareness of environment sustainability and to support the development and promotion of renewable energy as well as clean technology.
Goldman intends to take bank loans and project financing worth 250 billion yen over a 5-year period to initiate projects that will cost an aggregate of 300 billion yen.
Japan has the potential to become the second largest market for solar energy after China by the end of 2013. Commercial and utility-based projects are expected to enhance solar installations by almost 6.1 gigawatts (GW) to 9.4 GW in 2013.
There is an extensive awareness of the benefits of green energy in Japan, as the rising number of solar energy projects in recent times evince. Consequently, financial markets have recognized renewable energy as an immensely valuable asset.
Japan has reduced its reliance on atomic power generation since the Fukushima nuclear-plant crisis due to the earthquake in Mar 2011. Since Jul 2012, the Japanese government has been striving to promote solar energy by offering incentives through renewable tariffs.
Other financial organizations keen to invest in renewable energy in Japan include SoftBank Corp. (SFTBY), ORIX Corporation (IX) and Mizuho Financial Group, Inc. (MFG).
Currently, Goldman carries a Zacks Rank #2 (Buy).
URS Corporation (URS) recently received an indefinite delivery/indefinite quantity, multiple award contract from the U.S. Army Engineering and Support Center, Huntsville, AL. The scope of the contract includes providing design-build services for the Medical Repair and Renewal Program in the continental U.S. and abroad. In addition, the contract also involves repairs, renovations and procurement along with installation and maintenance of required equipment and systems.
The contract is valued at about $585 million and has a span of five years, comprising one base year with four one-year option periods. As per the terms of the contract, URS will either need to bid or will be awarded tasks to design and build U.S. Army facilities.
The contract will be included in the company’s Federal services segment which comprised about 40% of the total revenues generated by URS in the year 2012. Prior to this contract, URS assisted the U.S. military in performing medical facilities design and build at the Keesler Air Force Base Medical Center following Hurricane Katrina. URS also helped the U.S. military to renovate the base.
Following this, URS received another contract for the design-build of a new Medical Education Training Complex at Fort Sam Houston, Texas. URS’ past track record in design-build of healthcare facilities has thus earned the confidence of the U.S. Army.
In the recently reported quarter (1Q13) Federal Services revenue was $678.2 million, down 5.4% from $717.1 million a year ago. The decline in Federal Services revenues reflects the continuing delay in procurement decisions and reduction in anticipated spending against previously awarded contracts.
URS has a Zacks Rank #4 (Sell). While we remain bearish on URS, engineering company stocks such as Quanta Services Inc. (PWR), Harris & Harris Group Inc. (TINY) and Willdan Group Inc. (WLDN) warrant a look. All three stocks carry a Zacks Rank #2 (Buy).
Global large-cap energy equipment maker, National Oilwell Varco (NOV) has recently increased its quarterly cash dividend payment by 100% to 26 cents per share, up from 13 cents per share paid in the previous quarter. The new dividend will be paid on Jun 28, 2013, to shareholders of record as on Jun 14, 2013.
Importantly, National Oilwell has been increasing its payout every year since it commenced paying dividends in 2009. If the current dividend is maintained for a year, the annualized dividend payout of the company would be $1.04 per share.
Based on the closing price of $70.17 as on May 20, 2013, the proposed dividend affirms a yield of 1.5%. A steady dividend payout facilitates the long-term strategy of the company to provide attractive risk-adjusted returns to its stockholders.
Management believes the dividend hike shows consistently good performance and is reflective of its solid operating results.
Houston, Texas based National Oilwell is a world leader in the design, manufacture, and sale of comprehensive systems, components, products, and equipment used in oil and gas drilling and production worldwide. The company reached its current form following the Mar 2005 merger between National Oilwell and Varco International. National Oilwell organizes its operations in three business segments: Rig Technology, Petroleum Services & Supplies, and Distribution & Transmission.
With new competitors entering the market and reduced capital expenditure by the drilling contractors, National Oilwell has seen its new equipment package pricing fall around 10% below the level achieved during the peak of 2007–2008. In particular, the company’s margins have been hit hard by the ongoing North American drilling slump. We expect the situation – characterized by tepid demand and weak pricing – to normalize only sometime in late 2013.
National Oilwell currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
However, in the energy sector three firms that are expected to significantly outperform the broader U.S. equity market over the next one to three months are CNOOC Ltd. (CEO), InterOil Corporation (IOC) and EPL Oil & Gas Inc. (EPL). All three firms retain a Zacks Rank #1 (Strong Buy).
Merck KGaA ( ">MKGAF ) recently presented detailed results on its oncology candidate L-BLP25, from the phase III study, START (Stimulating Targeted Antigenic Responses To NSCLC). Results from this study were initially presented in Dec 2012.
L-BLP25 failed to meet its primary endpoint of overall survival in the multi-center, randomized, double-blind, placebo-controlled study conducted in patients with locally advanced stage III non-small cell lung cancer (NSCLC).
The median overall survival was 25.6 months for L-BLP25 compared with 22.3 months for placebo.
However, treatment effects were seen in certain subgroups. In a predefined subgroup of patients who received concurrent chemoradiotherapy (CRT), the median overall survival was 30.8 months for L-BLP25 compared with 20.6 months for placebo.
Injection site reactions were seen in 17.3% in L-BLP25 versus 11.9% in placebo. Flu-like symptoms were seen in 10.9% in L-BLP25 versus 9.9% in placebo. Potential immune-related diseases were similar for both groups.
Merck KGaA had in-licensed worldwide exclusive rights for L-BLP25 from Oncothyreon Inc (ONTY).
Data from the START study will be presented at the annual meeting of the American Society of Clinical Oncology (ASCO). Currently, a second phase III trial, INSPIRE, is being conducted with L-BLP25. The trial is evaluating L-BLP25 in Asian patients suffering from unresectable, stage IIIA or IIIB NSCLC who have had a response or stable disease after at least two cycles of platinum-based CRT.
UCB (UCBJF) recently presented data from a study showing the effect of Neupro on cardiovascular measures in patients with restless legs syndrome (RLS).
The double-blind, placebo-controlled study showed reduction in total nocturnal systolic blood pressure (NSBP) elevations connected with periodic limb movements during sleep (PLMS) and total PLMS in patients with idiopathic moderate-to-severe RLS/Willis-Ekbom disease. 81 RLS patients were randomized to receive an optimal dose of Neupro or placebo.
Data from the study was presented at the annual meeting of the American Society of Hypertension.
According to information provided by UCB, around 23 million Americans suffer from RLS.
In Jul 2012, UCB launched Neupro in the US to treat signs and symptoms of advanced stage idiopathic Parkinson’s disease (PD) and moderate-to-severe primary RLS. In Aug 2012, Neupro was approved in the EU for early and advanced PD as well as RLS. In Japan, it received approval in Dec 2012 for similar indications.
In 2012, Neupro recorded sales of €133 million. Currently approved products for the treatment of PD and RLS include GlaxoSmithKline's (GSK) Requip.
In Mar 2013, UCB presented data from a study wherein patients suffering from PD were transferred from an oral PD medication to Neupro. Results indicated that switching over from oral PD medications could lead to an improvement in pre-existing gastrointestinal (GI) symptoms.
XenoPort Inc. (XNPT) recently commenced shipments of Horizant extended-release tablets in the US. The drug is approved in the US for the treatment of moderate-to-severe primary restless legs syndrome (RLS) as well as for the management of postherpetic neuralgia (PHN) in adults.
XenoPort mentioned in its press release that the company has been successful in resolving the manufacturing issues and expects to file orders for wholesalers soon. The company expects Horizant to be available to patients by the first week of June this year. We note that GlaxoSmithKline (GSK) was facing manufacturing delays regarding Horizant in the US which led to product shortage.
We remind investors that Glaxo and XenoPort had a collaboration agreement for Horizant that was terminated in Nov 2012. Glaxo had commercialization rights to the drug through the transition period, which ended on Apr 30, 2013. On May 1, 2013, XenoPort re-acquired all commercialization rights to Horizant. Glaxo, however, is expected to supply Horizant to XenoPort until Oct 30, 2013.
We are encouraged by the news and believe that this will be a huge relief for the company. Horizant’s manufacturing delays have been a concern for XenoPort over the last few months. Moreover, because of the stock-out, no sales of Horizant were recorded since March this year. As per Glaxo, Horizant’s first quarter sales were $1.2 million.
XenoPort, a biopharmaceutical company, carries a Zacks Rank #3 (Hold). Meanwhile, other biopharma stocks like Santarus, Inc. (SNTS) and Jazz Pharmaceuticals Public Limited Company (JAZZ) currently look better positioned carrying a Zacks Rank #1 (Strong Buy).
We reaffirmed our Neutral recommendation on leading master limited partnership Enterprise Products Partners, L.P. (EPD), on May 20, 2013. Riding on growth from record throughput volumes in its fee-based businesses, the partnership reported robust earnings in the first quarter. The partnership currently holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.
Enterprise Products Partners is engaged in providing a wide range of midstream energy services to the producers and consumers of natural gas, natural gas liquids (NGL), and crude oil. The partnership's assets include 50,000 miles of onshore and offshore pipelines, approximately 200 million barrels of storage capacity for NGLs, refined products and crude oil, and 14 billion cubic feet of natural gas storage capacity.
We continue to view Enterprise Products Partners as a core holding in an MLP portfolio, given its string of organic growth projects, potential acquisitions, strong balance sheet and solid liquidity position. The partnership is one of the largest fully-integrated midstream service providers with a positive long-term outlook given its significant geographic and business diversity.
Enterprise Products Partners increased its first quarter 2013 cash distribution rate by 6.8% to $0.67 per common unit, or $2.68 per unit on an annualized basis. This marked the partnership’s 35th consecutive quarterly increase. With its diverse set of NGL, natural gas, crude oil and refined products midstream infrastructure assets, the partnership possesses fundamental strengths that will continue to support distribution growth.
Enterprise Products Partners made capital investments of around $914.3 million in the first quarter and expects to bring online $7.5 billion worth of major assets from 2013 through 2015, including $2.2 billion in the balance of 2013. The key projects consist of Seaway crude pipe reversal, The Texas Express Pipeline, Mid-America Pipeline, ATEX Express Pipeline, Western NGL Pipeline Expansions and Front Range. The successful execution of these projects will be value accretive to future cash flows.
However, Enterprise remains vulnerable to macro conditions and unstable oil and gas prices, which in turn could hurt margins in NGL, natural gas and other businesses.
Other Stocks to Consider
There are other stocks in the sector that however appear more rewarding. These include Abraxas Petroleum Corp. (AXAS), Enerplus Corporation (ERF) and EPL Oil & Gas, Inc. (EPL), which are expected to perform impressively over the next few months and carry a Zacks Rank #1 (Strong Buy).
Northrop Grumman Corporation (NOC) numbered among the 20 awardees receiving contracts from the Department of Defense (DoD). The Northrop contract for $113.7 million calls for Full Rate Production of five E-2D Advanced Hawkeye Lot 2 airborne early warning aircrafts. In total, the DoD has provided contracts worth $717.7 million.
Under this advance acquisition fixed price contract Northrop will be financed for purchase of long-lead materials that are required to begin full production of these aircrafts. The task is expected to be completed by Mar 2014.
In Feb 2013, Northrop Grumman received approval from the Office of the Secretary of Defense (“OSD”) for full-rate production as the aircraft has proved to be suitable and effective for operations.
Designed and manufactured by Northrop Grumman, the E-2D Advanced Hawkeye is the newest variant of the E-2 aircraft platform. It comprises of high-tech radar with a two-generation leap. It also has an upgraded aircraft system that increases speed. The Advanced Hawkeye manages the Navy's warplanes by recognizing and keeping track of wanted and unwanted aircrafts while warning the seaborne fleet.
E-2D is a multi-mission platform. Through its ability to coordinate concurrent missions, E-2D can provide land force support, rescue operations, and manage a reliable communications network between widely dispersed nodes. Hawkeye’s new glass cockpit and tactical fourth operator display provide the five-person crew more flexibility in fulfilling the diversified nature of work. Moreover, its ability to work near the coastline as well as over land helps in protecting the nation’s interests.
Northrop has a strong presence in Air Force, Space & Cyber Security programs. The company’s product line is well positioned in high priority categories, such as defense electronics, unmanned aircraft and missile defense. The company is taking several initiatives to ensure further alignment with its customers' need in order to increase affordability and cost competitiveness. It is working on establishing Aerospace Design Centers of Excellence at its various centers. Going forward, growth in domestic efforts will be driven by the Navy's Triton program with international growth supported by Alliance Ground Surveillance (“AGS”) program and continuing efforts on Germany's EURO HAWK program.
Also, the company seems to be immune to some extent to 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 is a key investment area with funding increasing by more than 20% to $4.7 billion.
The company presently retains a short-term Zacks Rank #2 (Buy). Other stocks to consider are Erickson Air-Crane Inc. (EAC), Wesco Aircraft Holdings, Inc. (WAIR) and B/E Aerospace Inc. (BEAV). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy), Wesco Aircraft and B/E Aerospace carry a Zacks Rank #2 (Buy).
Offshore drilling giant, Transocean Ltd. (RIG) recently issued a Fleet Update Summary for the period commencing Apr 18, 2013 to date. The value of all the new deals and extensions in the same time frame is estimated to be roughly $662 million. The update covers the company's offshore drilling rig status and contract information.
Per the report, Deepwater Millennium, a Dynamic Positioning drillship, got a contract to work offshore Australia for two years. The dayrate is expected to be around $605,000. Previously, the rig was operating at a dayrate of $545,000. Transocean added that the contract is expected to add $442 million to the existing backlog.
Moreover, Transocean John Shaw, a semi-submersible rig, got a contract extension offer to work for a year in the North Sea's U.K. sector. The unit will operate at a dayrate of $415,000. The contract is estimated to add $151 million to the backlog of Transocean. Previously, the rig was operating at a dayrate of $360,000.
Included in the report, Jack Bates, a semi-submersible rig, got a contract for operating three wells, situated offshore Australia. The unit is expected to work at a dayrate of $525,000. The deal will add $47 million to the company’s backlog. Management added that the rig was earlier working at a dayrate of $380,000.
The report also revealed that Falcon 100 – Transocean’s midwater floater – is out of contract presently. Further, as per the Fleet Update Summary, the out-of-service time expected for 2013 increased by 117 days.
Switzerland-based Transocean is the world’s largest offshore drilling contractor and the leading provider of drilling management services worldwide. With less oil being discovered on land and with companies having to dig deeper to get to their reserves, Transocean is poised to benefit from a market with robust multi-year demand trends, given its technologically-advanced and versatile drilling fleet.
On the flip side, dayrates on rigs are likely to come under pressure as global capacity is freed up due to concerns over the Gulf of Mexico (GoM) drilling uncertainties. We believe Transocean will continue to face challenges in renewing and obtaining contracts on favorable terms.
Transocean currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
In the energy sector, three firms that are expected to significantly outperform the broader U.S. equity market over the next one to three months are CNOOC Ltd. (CEO), InterOil Corporation (IOC) and Ultrapar Holdings Inc. (UGP). All the firms sport a Zacks Rank #1 (Strong Buy).
Sanofi (SNY) and partner Regeneron Pharmaceuticals, Inc. (REGN) recently announced that positive data from a phase IIa study evaluating dupilumab (REGN668/SAR231893) for moderate-to-severe allergic asthma was published in the New England Journal of Medicine.
The study (n = 104) evaluated the efficacy and safety of dupilumab in patients suffering from moderate-to-severe persistent asthma whose disease was inadequately controlled by inhaled glucocorticosteroids (ICS) and long-acting beta agonist (LABA) therapy. Additionally the asthma patients had elevated blood or sputum eosinophils.
As per study results, 87% reduction in the incidence of asthma exacerbations were observed in the dupilumab arm as compared to placebo. Moreover, dupilumab demonstrated statistically significant improvements in lung function and other asthma control parameters.
We note that Sanofi and Regeneron Pharma are also evaluating the candidate for treating patients suffering from moderate-to-severe atopic dermatitis (AD) who did not receive sufficient benefit with existing topical treatments. In Mar 2013, the companies presented encouraging data from two phase Ib trials evaluating dupilumab for AD.
The randomized phase Ib trials (n = 67) assessed the safety of dupilumab at three different doses (75mg, 150mg, 300mg) for 8 weeks. The companies also evaluated dupilumab in other parameters including efficacy, pharmacokinetic and biomarker.
Sanofi carries a Zacks Rank #4 (Sell). We remain concerned about the generic erosion confronting most of Sanofi’s key drugs including Plavix, Avapro, Lovenox, Taxotere, Eloxatin and Xatral. The genericization of Avapro and Plavix is expected to negatively impact Sanofi’s business net income by around €800 million in the first half of 2013.
Currently, companies like Santarus, Inc. (SNTS) and Jazz Pharmaceuticals (JAZZ) look attractive. Both the stocks carry a Zacks Rank #1 (Strong Buy).
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