Ratings agency A.M. Best showed confidence in PartnerRe Ltd. (PRE) as it avowed the credibility of the company and upgraded the outlook to ‘stable’ from ‘negative.’
Accordingly, the ratings agency asserted the debt ratings and issuer credit rating (ICR) of “a-” for PartnerRe, who also affirmed the financial strength rating (FSR) of “A+” and ICR of “aa-” for Partner Reinsurance Co. Ltd.Meanwhile, A.M. Best raised the FSR of “A” from “A-” and ICR of “a+” from “a-” of PartnerRe America Insurance Co.
The improved outlook reflects PartnerRe’s strong capital position and relatively stable results throughout 2012. In Apr last year, A.M. Best had assigned a negative outlook to PartnerRe and its subsidiaries, thereby downgrading it from the stable outlook. The ratings agency was wary of the severity of catastrophe (CAT) losses, which had heavily battered the company’s financials in 2011.
Nevertheless, lower CAT losses improved the technical results and return on equity in 2012 and so far in 2013. Moreover, a prudent reinsurance strategy, strong risk profile and diverse business mix across its operational regions are yielding results. These factors also supported the favorable development of reserves, thereby positioning the company higher than the peer group.
However, A.M. Best continues to remain wary of the successful integration of the Asian operations of Paris Re Ltd., which was acquired by PartnerRe in 2009. As a result, FSR of Paris Re was downgraded to “B++” from “A-,” while its ICR was demoted to “bbb+” from “a-.” The ratings agency has also pulled out this business from its assessment list.
We believe that the Presidio acquisition complements PartnerRe’s growth strategy through diversification. Overall, the company enjoys above-averageliquidity and a low-risk balance sheet, which isreflected in its consistent and efficient capital deployment.
While PartnerRe carries a Zacks Rank #2 (Buy), other strong performers in the insurance sector include Axis Capital Holders Ltd. (AXS), Platinum Underwriters Holdings Ltd. (PTP) and Montpelier Re (MRH). All these stocks carry a Zacks Rank #1 (Strong Buy).
Pfizer Inc. (PFE) recently faced a pipeline setback with the company discontinuing a late-stage study being conducted with its oncology candidate, inotuzumab ozogamicin.
The randomized, open-label, two-arm phase III study was being conducted in patients suffering from relapsed or refractory CD22+ aggressive non-Hodgkin lymphoma (NHL) who are not eligible for intensive high-dose chemotherapy. A once-monthly dose of inotuzumab plus Rituxan (rituximab) was evaluated for safety and efficacy versus an active comparator arm (Treanda + Rituxan or Gemzar + Rituxan).
Based on a scheduled interim analysis, an independent Data Monitoring Committee (DMC) said that the inotuzumab arm was not likely to achieve the primary endpoint of overall survival. Pfizer said that no new safety issues were observed.
Pfizer said that it has informed the study investigators as well regulatory authorities about the discontinuation of the study. The company, however, intends to continue studying inotuzumab for hematologic cancers.
Inotuzumab is currently in an open-label, randomized phase III study (INO-VATE ALL) that is being conducted in adult patients with acute lymphoblastic leukemia.
The discontinuation of the phase III study is disappointing as inotuzumab is a key pipeline candidate at Pfizer.
Pfizer currently carries a Zacks Rank #3 (Hold). The company’s pipeline needs to deliver given the Lipitor loss of exclusivity and the upcoming loss of exclusivity on additional products in the next few years. In addition to genericization, revenues will be hit by the expiration of a few co-promotion agreements as well.
Sprint Nextel Corp. (S) recently acquired Handmark Inc., a Kansas City-based developer and distributor of mobile applications, along with its subsidiary OneLouder Apps Inc. Both these companies are expected to aid Sprint’s Pinsight Media, which offers advertising services targeted at the enterprise segment. The acquired companies are also likely to enhance Sprint’s capabilities in branding and app development.
With the new takeovers, Sprint intends to focus more on emerging products in mobile application and services. We believe that the growing popularity of smartphones will increase the demand for mobile data services. Moreover, innovation and development in the mobile apps field will provide long-term benefits to the company on the expected exponential growth with the boom in the LTE network platform.
With respect to deploying LTE services, Sprint has made significant progress. As part of the Network Vision strategy, the company launched LTE services initially in five major markets, and currently covers over 88 markets.
In 2013, the company expects to have LTE coverage for approximately 200 million customers, 170 additional markets, depending upon backhaul availability. Sprint completed 32,000 sites and leased 31,000 sites at the end of Mar 2013. Further, the company also intends to provide 6-8 Mb network speed for downlink and uplink speed of 2-3 Mb to enhance data usage experience.
Going forward, the company also proposes to buy Clearwire Corporation (CLWR) to enhance spectrum capacity for LTE expansion. If this $2.2 billion deal materializes, gaining full rights over Clearwire would allow Sprint the access to radio frequency spectrum ranging 2.5 GHz, utilized in providing services using 4G 802.16e mobile WiMAX standards.
Sprint, which competes with telecom giants like AT&T Inc. (T) and Verizon Communications (VZ) currently has a Zacks Rank #3 (Hold).
One of the wholly-owned subsidiaries of Apollo Group, Inc. (APOL), University of Phoenix, recently announced its plan to collaborate with The American Hotel & Lodging Educational Institute (EI) in order to provide more academic opportunities for hospitality professionals.
The partnership will provide EI students the opportunity to use their EI training and professional certificates and pursue advanced education. The partnership will also create a Credit Recommendation Guide (CRG), which will enable EI students to qualify for college credit while pursuing undergraduate degree at the University of Phoenix.
Education companies like Apollo and Capella Education Company (CPLA) have been witnessing volatile enrollment growth for the past few quarters due to the current economic scenario. This research program will help to improve effectiveness of the company’s programs, thereby improving its enrollment.
On Mar 25, 2013, Apollo Group reported adjusted earnings (excluding special items) of 34 cents per share in the second quarter of fiscal 2013, surpassing the Zacks Consensus Estimate by 88.9%. However, lower revenues and higher marketing and advertising expenses resulted in a 40.4% decline from the prior-year earnings of 57 cents per share.
Apollo Group’s net revenue of $834.4 million in the second quarter of fiscal 2013 surpassed the Zacks Consensus Estimate of $821 million by 1.6%. Revenues, however, declined 13.3% from the prior-year quarter due to decline in enrollment at the University of Phoenix.
Apollo Group carries a Zacks Rank #3 (Hold).
Education stocks such as New Oriental Education & Technology Group (EDU) and Grand Canyon Education, Inc. (LOPE) are currently performing well and are worth considering. New Oriental carries a Zacks Rank #1 (Strong Buy), whereas Grand Canyon Education holds a Zacks Rank #2 (Buy).
Recently, Kimco Realty Corp. (KIM) sold 9 assets of its Mexican shopping center portfolio to a local real estate operator for 3.35 billion Mexican pesos ($274 million), which include 573 million Mexican pesos ($47 million) of mortgage debt. The move comes as a part of Kimco’s effort to dispose its non-core assets.
This retail real estate investment trust (REIT) had a 47.6% interest in the sold Mexican assets, which spanned 2.6 million square feet and were 91% leased. Notably, Kimco’s share of sale proceeds was approximately $93 million and the company generated a profit of about $26 million. Significantly, with the aforementioned transaction, Kimco’s Mexican shopping center portfolio now constitutes 47 assets, covering 9.4 million square feet.
Kimco is well on track on improving its core business operations and is focused on owning and operating neighborhood and community shopping centers through investments in North America. As part of this effort, the company is vending non-strategic assets and aggressively using this capital for developing its core business.
In relation to this, last week, Kimco disclosed the buyout of a Washington-based shopping center – Marketplace at Factoria – for a gross value of $130.75 million. Additionally, in first-quarter 2013, the company underwent a strong portfolio restructuring activity.The notable ones include: acquisition of 5 grocery banners’ operations from SUPERVALU Inc. (SVU); and the sale of 1 non-retail and 2 shopping centers. Moreover, at the end of the first quarter, Kimco had about 14 retail properties in the contract negotiation stage for approximately $111 million.
Kimco currently carries a Zacks Rank #3 (Hold). Better-performing retail REITs include Equity One Inc. (EQY) and The Macerich Company (MAC), both of which carry a Zacks Rank #2 (Buy).
The Boeing Company (BA) has decided to return approximately 80% of cash from its free cash flow to its shareholders via dividends and share buybacks. This decision comes on the heels of the company’s expectation of lower research and development costs.
Lower research and development costs are a result of the company’s intention to accelerate the production of two of its planes — the 787 and the 737. This is based on the theory of economies of scale. Based on the theory, Boeing is getting the advantage of increasing scale and size, thereby reducing per unit cost. Also, increase in size improves operational efficiency thereby leading to lower variable cost.
The company has been working continuously to resolve the 787 battery issue and has also been successfully increasing production rates of its various programs. In the first quarter of 2013, Commercial Airplanes booked 209 net orders. Segment backlog remained strong with more than 4,400 airplanes valued at a record $324 billion.
Following nearly 4 months of suspension, Boeing recently resumed deliveries of its high-tech 787 Dreamliner jet. The company delivered a new Dreamliner airplane to All Nippon Airways Co., a unit of ANA Holdings Inc., marking the second year-to-date deliveries.
Boeing had last handed over a 787 to an airline company before Jan 16, 2013, when regulators halted all Dreamliners after two battery overheating incidents in that month. This incident compelled Boeing to ground all 50 Boeing 787 airplanes.
The company remains on-track to meet its goal of delivering more than 60 787s this year. Boeing has also boosted its production as it carried out the first 787 made at the new rate of 7 per month, up from 5 per month previously. It expects to increase the rate to 10 per month by 2013-end and will make the first delivery with this new rate by 2014.
The company has also increased the production rate for 737 from 35 to 38 airplanes per month in Mar 2013. It plans to increase this number to 42 airplanes per month in 2014. The company expects to make the first delivery of the 737 MAX in 2017.
Meanwhile, the company indicated that its move to deploy more cash will not reduce its cash balance of approximately $11 billion as it expects its operating cash flow before pension contributions to be utilized for the purpose. It expects cash flow to be more than 8 billion in 2013.
Of late, the company has been following a cash deployment strategy. In Dec 2012, Boeing raised its quarterly dividend by 10% to 48.5 cents per share from the previous payout of 44 cents per share. Boeing also announced the resumption of its stock buyback program with repurchases expected to total between $1.5 billion and $2.0 billion in 2013.
Boeing is the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and one of the largest aerospace and defense contractors. While on one hand the efficiency of Boeing planes is increasing, on the other the production rate is increasing due to improvement in production methods.
However, a large percentage of Boeing’s business is generated within the U.S., and government sale that makes the company prone to budget deficits and political uncertainty. The company presently retains a Zacks Rank #3 (Hold).
However, stocks worth considering at present 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).
France Telecom (FTE) intends to provide a secure end-to-end platform for passing business applications to the cloud infrastructure by expanding Flexible Computing service offering.
The company expects to draw benefits like rapid scalability and flexibility along with a self-managed infrastructure from the expansion of the Flexible Computing platform that would help generate more enterprise customers and expand its enterprise business footprint. The company already has 500 users of Flexible Computing services and is witnessing increased demand from the corporate sector for networked cloud infrastructure services.
At present, Orange Business Services is being supported by 350 efficient security consultants and is available in more than 220 countries and territories. It has more than 100,000 customers all over the world. Strengthening its SAAS (Security as a Service) services is part of its Conquests 2015 strategic plan, which aims to improve operational efficiency by sharing different practices and business models to enhance group development.
Further, Orange Business Services provides companies with cloud-based IT security solutions. In this context, the company teamed up with SafeNet to provide its Secure Authentication solution over the cloud. SafeNet’s Authentication Service provides its enterprise customers with an additional layer of security, while accessing vital corporate information. This cloud-based solution will help enterprises to eliminate the cost and complexities of owning and managing their own equipment and employees.
Orange Business service is expected to deliver more than 10% growth per year through 2016. We believe that growing market demand for business service products will allow France Telecom to offset its declining wireless business and capitalize on the opportunities in the cloud-based security market.
France Telecom, which operates with Vodafone Group Plc. (VOD), Telefonica SA (TEF) and Telecom Italia S.p.A (IT) currently carries a Zacks Rank #4 (Sell).
Recently, DDR Corp. (DDR) announced the opening of a new prime power center – Belgate Shopping Center – in N.C. The shopping center reflects the real estate investment trust (REIT)’s first ground-up domestic expansion in more than 4 years.
Charlotte-based Belgate Shopping Center spans 900,000 square feet and is strategically positioned along Interstate 85, which is the main street linking Washington D.C. and Atlanta. Notably, the property will likely enjoy high traffic from the vibrant UNC Charlotte campus as well as the proposed extension of Charlotte Area Transit System. Moreover, the power center is fully anchored by industry leading giants including Wal-Mart Stores Inc. (WMT), IKEA, Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA), Shoe Carnival and others.
Significantly, with the opening of this new power center, DDR now has 4 million square feet of gross leasable area (GLA) in Charlotte. This includes the previously acquired properties – Cotswold Village and Carolina Pavilion. Added to these, Charlotte now represents the company's 4th largest market of operation, next to San Juan, Atlanta and Chicago.
We remain upbeat regarding the above-mentioned shopping center opening as it is a strategic step for DDR. The addition of the property to the company’s wholly owned portfolio is expected to notably enhance the company’s bottom line going forward.
Of late, DDR has been riding on growth trajectory to broaden its footprints in the chief target markets. In connection to this, the company recently inked a deal to buy 30 of 44 shopping centers from its existing joint venture with The Blackstone Group L.P. (BX) for $1.46 billion. The 30 centers in which DDR will gain complete ownership include Riverdale Village in Minneapolis, Shoppers World in Boston, Woodfield Village Green in Chicago and Fairfax Towne Center in Washington D.C. These significant investments will go a long way in consolidating DDR’s market position.
DDR currently carries a Zacks Rank #3 (Hold).
First Potomac Realty Trust (FPO) recently priced an equity offering of 6.5 million shares at $14.70 per share as part of its effort to infuse capital and repay debt. The offering was upsized from the original number of 6 million shares to 6.5 million shares.
In a bid to cover over-allotments, the company provided a 30-day option to underwriters for purchasing an additional 975,000 shares at the same price (less the underwriting discount). The transaction is expected to close by May 24, 2013.
This real estate investment trust (REIT) expects to generate net proceeds of roughly $91.1 million from the transaction, excluding the underwriting discount and estimated offering costs. The net proceeds will be utilized mainly for paying off the outstanding debt under secured term loans and part of the outstanding debt under its unsecured revolving credit facility. First Potomac also intends to use the amount for general corporate purposes.
A consortium of banking giants supported First Potomac in the equity offering. Wells Fargo Securities of Wells Fargo & Company (WFC) and KeyBanc Capital Markets of KeyCorp (KEY) acted as joint book-running managers. On the other hand, Morgan Stanley (MS), BMO Capital Markets, PNC Capital Markets LLC, RBC Capital Markets and Raymond Jamesacted as co-lead managers.
Though this public offering will result in share dilution for First Potomac, the payment of debt is encouraging as it will reduce interest expenses. Moreover, it will help in achieving financial flexibility and will position it favorably for investment opportunities and acquisitions, which will consequently go a long way in enhancing top-line growth.
Notably, as of Mar 31, 2013, First Potomac had cash and cash equivalents of $17.8 million, up from $9.4 million as of Dec 31, 2012. Also, the company had outstanding debt of $954.9 million, of which $355.4 million was fixed-rate debt and $350.0 million was variable-rate debt (that had been switched to a fixed interest rate) at the end of first quarter 2013. The remaining $249.5 million was variable-rate debt, which comprised one mortgage loan and borrowings under its secured term loans and unsecured revolving credit facility.
Currently, First Potomac carries a Zacks Rank #3 (Hold).
Impax Laboratories, Inc. (IPXL) recently announced that it has launched its authorized generic version of AstraZeneca's (AZN) Zomig (zolmitriptan) tablets and orally disintegrating tablets (2.5 mg and 5 mg).
Zomig is approved for the acute treatment of migraine with or without aura in adults. According to IMS Health, Zomig (2.5 mg and 5 mg) and orally disintegrating tablets generated US revenues of approximately $196 million for the 12 months ending Apr 2013.
Impax has a distribution, license, development and supply agreement with AstraZanaca.
Meanwhile, the company is currently working with the US Food and Drug Administration (FDA) on the appropriate next steps for its lead candidate, Rytary. We remind investors that a New Drug Application (NDA) for Rytary was filed in Dec 2011. However, in Jan 2013, the FDA issued a complete response letter for Rytary.
The company is looking to get Rytary approved for the symptomatic treatment of adults suffering from idiopathic Parkinson’s diseases. In Mar 2013, when the FDA completed its re-inspection of the company’s manufacturing facility at Hayward, it issued a new Form 483 with 12 observations. Impax is working diligently on the issues noted by the FDAand expects to resolve the matter quickly. However, the new Form 483 remains a major overhang on the stock.
We remind investors that GlaxoSmithKline (GSK) recently terminated its Rytary agreement with Impax. As per the terms of the agreement, Glaxo was responsible for the development and commercialization of the candidate outside the US and Taiwan. Glaxo decided to return those rights to Impax, effective end Jul 2013, due to delays in regulatory approval and launch dates in countries that Glaxo has rights to.
Following Glaxo’s decision, Impax will be responsible for the development of the candidate across the globe. The company will look for a partner in ex-US markets.
Impax carries a Zacks Rank #3 (Hold). Other generic players also carry a Zacks Rank #3. Currently, Santarus, Inc. (SNTS) in the pharma space looks more attractive with a Zacks Rank #1 (Strong Buy).