Monday, December 23, 2013

SolarCity's Bright Growth Prospects

Founded in 2006 with the initial objective of selling solar energy systems outright, SolarCity (SCTY-$55.60) has since embraced the concept of being in the “energy finance” business. Avoiding utility-scale solar projects dominated by the likes of a First Solar (FSLR), the company now aggregates small PV residential rooftop projects into large solar leasing portfolios that offer predictable, recurring revenue streams either through power purchase agreements (where customers – residential homeowners – pay a fee per kWh based on the amount of electricity the solar energy system actually produces) or by contracted lease agreements (fixed monthly fees).

Third-quarter 2103 gross margins speak to the profit potential afforded this “finance company’s” business model: gross profit of operating leases to retail customers (homeowners and small business owners) was $16.3 million, or 66% of lease revenue; the gross profit margin of PV energy systems sold was $1.1 million, or 5% of sales!

SolarCity is the U.S. leader in rooftop residential solar installations, with a market share of….



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy. 

Wednesday, December 18, 2013

Frosty Future for Erectile Dysfunction Drugs

A recent report published by Transparency Market Research has cast a pall on the future profitability of the PDE5 inhibitor sex drug class, forecasting that annual sales of sexual dysfunction drugs will fall from $4.3 billion in 2012 to $3.4 billion in 2019. The study authors opine that the loss of Pfizer’s (PFE) Viagra patent exclusivity in Canada, Asia and Europe will weaken all drug manufacturers’ lock – including Eli Lilly’s (LLY) Cialis and Bayer’s (BAYRY) Levitra – on pricing power in coming years.

Though a U.S. federal judge reaffirmed Pfizer’s “method-of-use” patent, blocking Teva Pharmaceuticals (TEVA) and others from launching their own generic versions until October 2019, the competitive landscape elsewhere is more hostile. Through September 2013, Pfizer reported that U.S. sales of Viagra held steady at $819 million; international revenue declined 13% to $586 million, however, as the Israeli-based drug maker, U.S.-based generic manufacturers Actavis (ACT) and Mylan (MYL), and other generic houses started to roll-out cheaper copies of sildenafil back in July.


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy. 

Monday, November 25, 2013

J&J's Remicade Versus Inflectra

Johnson & Johnson (JNJ-$95.63) isn’t waiting until decade’s end to expand its offering of anti-inflammatory therapies: to refresh the immunology franchise, JNJ is directing R&D at promising next-generation biologics, including the anti-interleukin (IL)-23 monoclonal antibody Guselkumab for psoriasis and rheumatoid arthritis (RA); Sirukumab, an anti-interleukin (IL)-6 monoclonal antibody in the treatment of patients with RA; and, an oral Janus Kinase (JAK) inhibitor (ASP015K) for RA.

Management also told analysts at a recent healthcare conference that new products are expected to comprise almost 46% of pharmaceutical sales by 2017. Auspicious product launches across other disease markets (including the blood thinner Xarelto, prostate cancer drug Zytiga, hepatitis-C antiviral Incivo and interleukin inhibitor Stelara for psoriasis) suggest JNJ is having early success in executing on its goal to lessen dependence on Remicade through diversification.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.  

Tuesday, November 19, 2013

Celgene Grows Beyond Cancer Products

Although growth prospects for Celgene’s (CELG-$154.44) oncology franchise remain strong, the product portfolio remains highly concentrated. To justify a PE ratio almost twice that of key competitors, the company needs additional revenue streams to offset competitive risks.

Just in 2013, Celgene has invested more than $500 million in third-party ventures – young companies working on promising drugs, ranging from epigenetics (structure-based drug design) to cancer metabolism and immunotherapy. Celgene will owe millions more in milestone payments – should any of these ventures pan out. 

Luckily, the balance sheet is sound, with healthy credit metrics and liquidity available to finance both internal R&D expense and external ventures. The company holds a revolving credit facility totaling some $1.5 billion and its long-term debt maturities are staggered, with the bulk of maturities scheduled out to 2017 and beyond.  



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.  

Saturday, November 16, 2013

Roche Holding More than Oncology Franchise

Notwithstanding safety concerns and narrow therapeutic labeling, Roche Holding’s (RHHBY-$69.63) rheumatoid arthritis treatment Actmera has still managed to show respectable sequential growth: January – September 2013 sales grew 33% to 763 million Swiss francs ($826.9 million), likely due to study results presented last year showing Actemra was more effective than Humira as monotherapy in reducing common disease-activity endpoints of RA (e.g. reduction in tenderness and swollen joints) in those sufferers who couldn’t take methotrexate, the standard-of-care in most newly-diagnosed patients.

Recent events suggest that estimated peak annual sales of $1.1 billion in 2017 could prove conservative, too.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.  

Sunday, November 03, 2013

Managing Weight-Loss Expectations at Arena Pharmaceuticals

The current market potential for Arena Pharmaceuticals’ (ARNA-$4.39) weight-loss drug Belviq here in the U.S. is approximately $1.0 billion – or about $315 million net to Arena.

Such bullish estimates, however, assume two variables not within current reach: (1) Add-on therapy for phentermine; and (2) broad reimbursement coverage by commercial and Medicare plans.

In a recent press release, Arena boasted that “Belviq is now covered by several prominent health plans and PBMs, including, among others, Express Scripts (including its legacy Express Scripts and Medco operations), Tufts, Health Alliance Plan, Excellus BCBS, Highmark BCBS, BCBS of Michigan, and BCBS of North Carolina and Healthnet (California).”

Jack Lief, co-founder and CEO of Arena, told analysts on the second-quarter conference call, too, that “as much as 50% [of insurance plans]” would likely reimburse for Belviq prescriptions by April 2014. Recent channel checks suggest that this statement is inaccurate at best, misleading at worst.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.  

Wednesday, October 30, 2013

Gold Mining Values in a Bear Market

Despite cuts to cap-ex and exploration, Citigroup data reveals that gold majors like Barrick Gold (ABX), Goldcorp (GG), and Yamana Gold (AUY) are burning cash at all-in costs of $1,600/oz., 1,800/oz., and $2,000/oz., respectively – in part, due to overpayment for leases and acquisitions of marginal properties during the commodities bull market of the last decade.

Looking ahead, World Bank, Fitch Rating Agency and other commodity forecasters opine that gold prices will continue to trend lower, bottoming around $1,000/oz. by 2025. Ergo, the aforementioned miners and other peers with poor cost positions will likely need to shutter additional operations, reduce production and slash capita budgets to adjust to lower cash flow being generated in this new, lower pricing environment.

In addition, expect liquidity constraints to stress already weakened balance sheets (due to asset write-downs) and to increase borrowing costs as risks of loan covenant defaults increase – resulting in the suspension of remaining cash dividends, too. Nonetheless, for those investors willing to stomach residual risk, there are a few gold mining stocks with stable balance sheets and attendant all-in costs significantly lower than the industry average capable of paying healthy dividends in the current slow growth environment.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Wednesday, October 16, 2013

Prospects Not Terminal for Endocyte's Cancer Drug Vintafolide

Following an interim analysis, Endocyte (ECYT-$11.40) reported last Thursday that the independent Drug Safety Monitoring Board (DSMB) advised investigators to tell non-small cell lung cancer patients enrolled in the TARGET study that vintafolide use in monotherapy was unlikely to prove superior to docetaxel in progression-free survival (PFS) at the termination of the study.

However, news that the DSMB observed the combo arm of the TARGET study (vintafolide & taxotere) was trending toward the statistical goal of a 50% improvement in PFS relative to the taxotere arm (and didn’t demonstrate any new safety concerns) ultimately could prove to be good tidings for Endocyte shareholders.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Tuesday, October 08, 2013

Will Medivation PREVAIL in Prostate Cancer?

Medivation’s (MDVN-$57.57) senior management remains upbeat on growth prospects for the prostate cancer drug Xtandi. In fact, chief executive officer David Hung boasted to analysts on the second-quarter earnings call that Xtandi is “quickly becoming the leading therapy in the post-docetaxel market.”

However, Xtandi’s clinical advantages versus Johnson & Johnson’s (JNJ) competitor Zytiga – dosing without regard to timing of meals or concomitant steroid use and monthly monitoring, such as liver function testing – haven’t proven attractive enough to change physician prescribing habits. In fact, market data available through April continued to show Zytiga held a 57% share of the chemo-refractory mCRPC market, compared with Xtandi’s roughly 30% share.

Although physician enthusiasm for Xtandi remains high in the post-chemo setting mCRPC, a confluence of issues could prove problematic to Xtandi gaining any material ground against Zytiga. In particular, post-launch experience is showing that Zytiga’s approved labeling to be used in a broader clinical spectrum of prostate cancer and Xtandi’s aggressive cost (average wholesale price of $7,450 for a 30-day supply is roughly 28% more expensive than Zytiga) may hinder Xtandi’s reimbursement and uptake -- especially in economically-depressed countries in the EU, like France, Greece and Spain

 

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Monday, September 23, 2013

Roche-Genentech Profitability Linked to Oncology Portfolio

Convenience advantages of Roche’s (RHHBY-$65.84) new injectable version of Herceptin could outweigh the lower price advantage of a biosimilar trastuzmab, especially in a metastatic maintenance setting: The subcutaneous form of Herceptin is a ready-to-use liquid formulation that is administered as a 600 mg/5 ml fixed dose every three weeks, simplifying healthcare procedures by removing the need for reconstitution or dose calculation according to the body weight of the individual. Timesaving advantages cuts the treatment time down to just two to five minutes, from 30 to 90 minutes to administer the drug intravenously.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Thursday, September 05, 2013

Is Pfizer's Pipeline Filled With Lemmings?

Between 2010 and 2012, Pfizer (PFE-$28.37) stumbled off the patent precipice, as branded drugs that made up 42% of annual pharmaceutical sales, including the $11 billion lipid-lowering drug Lipitor (atorvastatin), the antacid Protonix (pantoprazole), and its glaucoma drug Xalantan (latanoprost ophthalmic solution) lost patent protection.

Walking on the ledge out to 2015, the patent cliff looks just as daunting, as more than 17.5% in sales derived from the company’s existing branded portfolio is at-risk of losing market exclusivity, including two of its top-selling prescription drugs: Enbrel (etanercept) copies are already on the market in Asia and India, and the Novartis AG (NVS) subsidiary Sandoz is readying its own intrusion on Pfizer’s $3.7 billion auto-immune franchise with a biosimilar version for rheumatoid arthritis and psoriasis; and, the original basic patent for the anti-inflammatory Celebrex (celecoxib) expires on May 30, 2014, which means cheaper copies to Pfizer’s $2.7 billion pain drug could be on U.S. pharmacy shelves no later than January 2015.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

AMC - The Walking Dead Network?

Referencing the ratings success of AMC (AMCX-$62.40) cable shows like The Walking Dead and the western Hell on Wheels, chief executive officer Josh Sapan told analysts on the quarterly earnings’ call that the company was expanding original content on its three other channels, too: IFC, home to eclectic comedy shows and independent films; Sundance Channel, devoted to the airing of documentaries, award-winning film classics and scripted dramas; and, We tv, a women’s network showcasing “unscripted” reality shows celebrating everyday women and stars like Joan Rivers or singer Toni Braxton.

“We feel pretty good about the challenge and particularly good about the expansion of our programming initiatives,” said Sapan.

However, the success of several AMC channel shows, such as Breaking Bad and The Walking Dead – number one in the coveted 18 – 49 year-old demo group across all broadcast television – hasn’t pushed the ratings dial for all of AMC’s properties. AMC Network was the 11th most-watched cable channel during prime-time as of week-ending August 11, according to data compiled by Nielsen ratings.

Mad Men and Breaking Bad - both in their final seasons - combined with a limited international presence (an anemic $30 million in revenue), suggest near-term prospects for continued growth could be at risk. Initial ratings for new programs belie Sapan’s cozened optimism, too: A new cop drama on AMC, Low Winter Sun, which followed the season-5 return of Breaking Bad, lost close to 60% of its lead-in audience in its debut outing earlier this month.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Thursday, August 22, 2013

Patent Precipice at Pfizer

Through successful litigation, Pfizer (PFE-$28.16) has extended the patent for its sex drug Viagra (sildenafil) in the U.S. until October 2019. However, up to twenty generic manufacturers, including powerhouse Teva (TVA), are poised to market their own versions of the little blue pill in Europe and other global markets after international patents expired in June.

Worldwide sales totaled $945 million in 1H:2013 (4% of product sales), with half of this revenue coming from abroad.

Concerns have been expressed, too, by analysts that the drug could lose incremental sales here at home to a generic version of Pfizer’s proprietary treatment for pulmonary arterial hypertension, Revatio, which contains sildenafil as the active ingredient and lost marketing exclusivity in November 2012.

Albeit Pfizer is looking to mitigate the impact of generic competition by bringing to market new products, including treatments for auto-immune disorders, cardiology, and oncology, as demonstrated by Viagra, its portfolio of drugs at-risk of losing market exclusivity is high. Up to 35% of the $23.6 billion in sales derived from branded pharmaceuticals in 1H:13 is either currently battling an onslaught of cheaper alternatives or will soon face generic competition, including several best-selling drugs.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Thursday, August 15, 2013

Onyx and Amgen Marriage -- Not So Fast

The key asset driving the upside valuation for Onyx (ONXX-$126.26) is Kyprolis (carfilzomib), a proteasome inhibitor recently approved for the treatment of patients with relapsed and refractory multiple myeloma (whose disease has progressed (got worse) on their last therapy or within 60 days of their last therapy). Analysts opine that this disrupter of cancer cell growth could generate peak annual sales of up to $2.1 billion by 2020.

Nonetheless, there are risk considerations that could thwart the assigned value attached to Kyprolis, including a failure to gain label expansion (earlier usage). Whether Kyprolis can take share from Celgene (CELG), whose $4.3 billion immunomodulatory drug Revlimid (lenalidomide) is used in all stages of multiple myeloma (MM), will depend on clinically significant improvements in comparative overall survival outcome studies....

Given competitive risks, future regulatory uncertainties, and a price-to-sales multiple almost twice the industry average of 11.2 times sales, Onyx management’s price could prove too rich a multiple even for the hungriest of dug manufacturers.



Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Tuesday, August 06, 2013

Obstacles to Growth at Sanofi

Current fundamentals at Sanofi (SNY-$51.81) look dismal. Total revenue declined 2.8% to $9.36 billion (EURO 8.06 billion). Although quarterly sales missed consensus estimate of EURO 8.3 billion, double-digit gains from its rare-diseases division Genzyme (purchased for $20.1 billion in 2011), diabetes segment (driven by insulin Lantus), and emerging markets (like China in the Far East and Brazil in South America) saved the company from an even bigger hit to sales.

Additionally, blockbuster status (defined as annual peak sales of at least $1.0 billion) of recently approved medicines - like the colorectal cancer drug Zaltrap and multiple sclerosis therapy Aubagio - is far from certainty.

Read more at YCharts: Ugly Truth About Sanofi Stock

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Wednesday, July 10, 2013

Merck Looking to Sunburns for Growth

Given research setbacks and the known quantity that its melanoma therapy lambrolizumab is unlikely to receive approval prior to 2015, merger and acquisition activity will be critical to Merck’s (MRK-$47.96) pipeline expansion strategy and subsequent sales growth objectives in the next decade. Though the company has ample liquidity – with $16 billion in available cash and short term investments, free cash flow of $8.2 billion (trailing twelve months), and manageable debt–to-equity ratio of 0.31 times – some $6 billion in debt will need to be refinanced through 2015. Additionally, as Merck is looking to keep investors happy with its $1.72 per share dividend and an expanded stock buyback program, the company is unlikely to get involved in a premium bidding war for the likes of an Onyx. 


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Friday, June 21, 2013

Januvia and Victoza Pancreatic Cancer Lawsuits Have Begun

The lawyers are circling  all drug makers of incretin mimetics, including the newer DPP-4 inhibitors – Tradjenta (linagliptin) from Eli Lilly (LLY-$49.89) and Nesina (alogliptin) from Takeda – as a growing body of evidence suggests causality between use and increased risk of pancreatic injury. In addition to lost sales, the drug makers will need to put aside reserves due to the possibility of multi-million dollar injury settlements.

See more at YCharts: Diabetic Franchises at Risk

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Patent Losses to Stall Sales Growth at Eli Lilly

Having spent $5.28 billion on R&D in 2012, up from $4.88 billion in 2010 – and with approximately 60 potential new drugs in human testing -- management at Eli Lilly (LLY-$49.89) is confident that post-2014 it can mitigate the adverse impact of patent expirations and return the company to resumption of profitable growth through a combination of cost-controls (layoffs and co-product terminations) and successful commercial launch of innovative molecular entities, currently either in late-stage research or awaiting FDA regulatory review.

Unfortunately, an analysis of the most-heralded of these products suggests that the timing of peak sales for these drugs could substantially lag the loss of up to $8 billion, or some 36% in revenue, due to generic intrusion.


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Monday, June 10, 2013

Potential Buyers of Drug Maker Forest Labs

Forest Labs (FRX-$40.45) has demonstrated limited success in filling the earnings void created by the patent expiry for Lexapro, its erstwhile blockbuster antidepressant. Additionally, given billionaire activist Carl Icahn’s dogged criticism of past management missteps, the drug maker's days as a stand-alone company are likely numbered.

Potential bidders that could emerge are cash-rich, big pharma -- such as Lilly, Pfizer, Merck and Johnson & Johnson -- active in the same therapeutic disease spaces, and looking to complement their existing franchises with the drug maker’s portfolio of cardiovascular, respiratory, central nervous system and respiratory treatments.

Continue reading at YCharts: The Dope On a Forest Labs Takeover

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Thursday, May 30, 2013

Forest Lab's Fortunes Tied to New Drugs

Forest Lab's (FRX-$39.91) management told analysts on its recent earning’s call that sales of next-generation products could grow 48% over fiscal 2013, adding incremental revenue of $1.32 billion in 2014. This optimism is founded on recent sales momentum exhibited by these newer drugs - such as Tudorza (aclidinium bromide inhaled powder) and Daliresp (roflumilast) for patients with chronic obstructive pulmonary disease - which posted year-on-year gains in the fourth quarter of 51.3% to $254.3 million..
Unfortunately, management has demonstrated an insouciant reticence when it comes to individual drug performance – as opposed to the aggregate: The antibiotic Teflaro, for example, launched back in March 2011, continues to underperform, recording anemic sales of just $13.1 million last quarter.
Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Friday, May 24, 2013

Online Ticketing Upstarts Challenge Live Nation's Concert Kingdom

Investors might want to rethink their enthusiasm for Live Nation (LYV-$13.78). To be sure, this new embrace of all-things digital has helped the company deliver on growth in ticket sales and operating results – ticketing profits have more than doubled since 2010, coming in at $122.8 million last year. But the live concert part of the equation continues to underperform:  The company makes little money at the door. Additionally, though ancillary net revenue per attendee at North American events rose 45 cents to $18.56 year-over-year, concert segment net losses increased another $15 million to $(120.1) million in 2012.

Although Live Nation is unmatched in its global reach – and has new technology that makes it cheaper to sell tickets – operating margins at its concert promotion’s segment could face further pressure as smaller rivals look to scale up and compete directly against the company in higher-margin electronic dance music (EDM), festival and arena-sized events. For example, online ticketing vendor Eventbrite offers software that helps event organizers cheaply manage all aspects of a concert or film-festival, from marketing and online sales to ticket purchases and payments. 


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Saturday, May 04, 2013

How Vulnerable Are Comstock Resources and Ultra Petroleum to Lower Energy Prices?

Given what might be peak pricing, it’s hard to fathom why certain natural gas companies have chosen not to lock in more contracted natural gas hedges. With the EIA forecasting an average price of $3.41 and $3.63 per million British thermal units (MMBtu) in 2013 and 2014, respectively, is the financial health of exploration companies with weak hedge books, such as Comstock Resources (CRK-$15.55) and Ultra Petroleum Corp. (UPL-$21.04) vulnerable to a reversal in energy prices? 


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Wednesday, April 24, 2013

Favorable Drilling Costs: Natural Gas Plays EQT Corp and Range Resources


Energy exploration companies are shifting drilling toward resources with greater potential for oil and natural-gas liquids. Nonetheless, investors willing to stick with more junior, natural gas plays could be handsomely rewarded in coming years, as drilling efficiency improvements are dramatically lowering breakeven prices – leading to improvements in operating margins.

The cost of capital required to break-even on drilling varies from one project to another, depending on shale geology, subsurface pressures, and infrastructure status (access to pipeline and gathering services). For example, prices currently average about $215 per drilled foot in the San Juan Basin of New Mexico, compared with $287 per drilled foot in the nearby Permian Basin section of West Texas. Against this backdrop, some U.S. natural gas companies, such as EQT Corp. (EQT-$68.58) and Range Resources (RRC-$75.19), are favorably positioned to outperform their peers and show improvements in Return on Invested Capital due to prudent investments in promising onshore assets and drill-bit technologies.


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Credit Concerns With DISH - Sprint Nextel Deal


A DISH Network (DISH-$39.26)Sprint Nextel (S-$7.09) deal offers multiple venues for revenue growth. DISH could offer subscribers triple-play services (high-speed internet, phone, and video) by merging its own satellite network with Sprint’s wireless network. In terms of cross-selling – excluding overlap – there is the equivalent of 17 million Sprint households that could be targeted for DISH Pay-TV services and approximately 14 million current DISH households that could potentially add about 35 million new mobile users to Sprint’s subscriber base.
Management opines that potential revenue and cost synergies could reach $37 billion, of which $11 billion would come from the spend side (alignment of sales & distribution channels and reduction of similar operations, such as call centers or billing and collections services).
Fitch Credit believes, however, that the deal is fraught with substantial execution and integration risks.
Continue Reading at YCharts: Dish Rally onSprint Deal: We Dish the Dirt
Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Exxon Mobil Looks to Favorable Future With Natural Gas


With the $41 billion acquisition of XTO Energy back in 2010, Exxon Mobil (XOM-$89.43) overnight became the largest producer of natural gas in North America, catapulting beyond erstwhile leader Chesapeake Energy (CHK-$19.29) and other big players, like ConocoPhillips (COP-$58.26), Southwestern Energy (SWN-$34.97) and Anadarko (APC-$83.32). In 2012, proved reserves and production totaled 14.47 trillion cubic feet equivalent (Tcfe) and 3.82 billion cubic feet daily, respectively, up from 7.47 Tcfe and 1.27 billion cubic feet daily in 2009.

In hindsight – at least on paper – the all-stock transaction still looks terrible. Though most deals are liquid rich these days, metrics for natural gas assets purchased in the past year show that the $2.89 per thousand cubic feet equivalent (Mcfe) of proven reserves paid by Exxon for XTO assets is more than double that of current deals.


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Monday, March 25, 2013

Apple's Growing Dependence on iPhones


In 2012, Samsung (SSNLF) and Apple (APPL-$463.58) remained the dominant OEMs in the smartphone market, with the two companies accounting for 29% and 20%, respectively, of global shipments, up from 20% and 19% in 2011, according to IHS iSupply.
Looking ahead, some analysts have expressed concerns that Samsung, the world’s largest maker of mobile phones, televisions and computer memory chips, could become too dependent on mobile sales. In 2012, handsets and tablets accounted for 66.9% of the $26.7 billion in operating profitability, up from 51.9% (of $14.39 billion) in 2011.
“The high-end smartphone market has largely become saturated, while the fast Chinese growth in the lower segment will make it difficult for anyone to see strong profit growth there,” noted Kim Hyung Sik, a Seoul-based analyst with Taurus Investment Securities.
Like Samsung, Apple is becoming increasingly dependent on its mobile segment to drive top-line sales. In the first fiscal quarter of 2013 (ended December 29, 2012), net sales of iPhones and iPads totaled $30.7 billion and $10.7 billion, respectively, and accounted for 56% and 20% of aggregate sales (up from 52% and 19% in the prior year).

Continue Reading at YCharts: That Empty Feeling: For Samsung and Apple, Ruling the Mobile World Isn’t Enough

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Will Duke Energy's Dividend Get Nuked?

Year-to-date, the share price of Duke Energy (DUK-$70.28) has outperformed the S&P 500 Index by 180 basis points, posting a total return of 8.31%. However, at current prices the stock looks fairly valued, based on PE ratio, trading at a premium to other large-cap, regulated utilities, such as The Southern Company (SO)American Electric Power (AEP), and Consolidated Edison (ED).

What, therefore, could trigger an earnings miss and pressure Duke Energy’s stock price and targeted dividend payout ratio?

The unrecovered investment on the Crystal River Unit 3 asset is approximately $1.64 billion, which is equal to 70% of prevailing and agreed-upon ROE (calculated on the prevailing cost of equity), according to terms of a settlement with the Florida Public Service Commission (FPSC). In written correspondence, company spokesman David Scanzoni confirmed that the company cannot begin to recoup its embedded costs through future customer rate hikes until the billing cycle starting in January 2017 (with collection accreting over a 20 year span). Additionally, $20 million listed as an offset (liability) in removal costs could prove too conservative, as the approved SAFSTOR decommissioning strategy will take between 40 – 60 years to complete!

While the foregoing reflects current estimates with respect to the retirement of the Florida facility, there is significant risk and uncertainty, too, with respect to the cost and recoverability of replacement power.


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Wednesday, February 27, 2013

Peak Sales of Merck's Januvia Will Hit $10 Billion

“Bait the hook well; this fish will bite,” quipped Shakespeare’s Claudio in the playwright’s Much Ado About Nothing. To the contrary, investor shouldn’t bite – fears that the recent U.S. regulatory approval of Takeda’s Nesina (alogliptin) will mute the growth of Merck's (MRK-$43.10) Januvia franchise are unfounded. The Japanese drug maker’s DPP-4 inhibitor is attempting to launch on a crowded beachhead – facing established rivals, none of which have scored any notable inroads against Januvia. For example, Tradjenta (linagliptin), launched by Eli Lilly (LLY-$54.89) in June 2011, posted anemic sales in first-half 2012 of just $59.2 million (despite a niche marketing message focusing on alleged benefits for those type-2 diabetics with renal impairment). 

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.



Wednesday, February 13, 2013

SunTech Power: Too Much Capacity, Too Much Debt

In terms of megawatt shipment volumes, Suntech Power Holdings (STP-$1.50) is the number three supplier of PV modules, according to analytics firm NPD Solarbuzz. Unlike Arizona-based, thin-film PV module maker First Solar (FSLR-$32.45) and Chinese competitors, such as vertically-integrated crystalline silicon (c-Si) manufacturers Jinko Solar (JKS-$8.93) and JA Solar (JASO-$5.66) –NPD Solarbuzz ranking of 2, 7 and 8, respectively – Suntech assumed too much debt in building capacity.

Continue Reading at YCharts: Debt Bombs Among Solar Stock: Who Has Liquidity to Last?

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.