Analysts are more bullish on Kraft Foods (KFT) since its acquisition of Cadbury.
Morgan Stanley resumed coverage of Kraft Foods Inc. (KFT) with an overweight rating on Mar. 15 Analyst Vincent Andrews said the firm had a $32 price target on the shares. (Business Week)
Analysts at Citigroup reiterated their “buy” rating on Mar 9 and raised the target price for KFT $33 to $36. The acquisition of Cadbury would prove favorable for Kraft Foods. KFT’s stock is attractively valued at the current levels, the analysts wrote. (Benzinga)
Credit Suisse analyst Robert Moskow resumed coverage of the company with an “Outperform” rating on Feb 15 and a $35 price target, arguing the price is reasonable given the potential for operating margins to improve over the coming 12 months.(Barrons)
However, Zacks noted Mar 5 that Kraft earnings estimates were declining and rated the company Neutral.
Investor Nelson Peltz has reduced his holdings(Telegraph), but Berkshire Hathaway still has it as a core holding despite Warren Buffett’s earlier misgivings about the Cadbury deal (Business Insider).
As McDonald’s Corporation (MCD)continues to deliver impressive results in a difficult economy we are pleased to offer a complimentary download of relevant excerpts from Plunkett Research’s Food Industry Almanac. The Almanac also features a spotlight on Wal-Mart (WMT) and covers topics such as organic and “functional” foods, ethanol and the growing use of RFID technology.
The Almanac includes a spotlight on McDonald’s, highlighting the company’s impressive resurgence after posting losses for 13 consecutive months in 2002-2003.
Selected Excerpts:
Growth continues, with $2.1 billion invested in 2009 to further remodel existing locations and build approximately 1,000 new restaurants around the world. 240 of those were in Europe, 165 in the U.S. and 600 in Asia. This is while most restaurant chains are fighting to keep the doors of their existing locations open. McDonald’s has opened large numbers of locations in China’s major cities with good success, but it has not caught up with China’s fast food leader, KFC.
Perhaps the most lucrative focus adopted by McDonald’s is the extension of operating hours, in many cases staying open around-the-clock. Breakfast has become the biggest moneymaker, comprising 30% of a typical day’s sales.
The market for fast food breakfast in the U.S. reached $25 billion in 2008 annual sales, of which McDonald’s claims one-fourth. The company hopes to expand on its breakfast bonanza by extending hours in which breakfast items are available from seven hours in most all-night locations to 24/7.
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Zacks ( Mar 9 ) “We think McDonald’s provides relative safety for the investor, with moderate growth prospects, being exposed to faster-growing international markets. However, the economic headwind, which has affected consumers’ disposable income, is impeding growth”
David Palmer, UBS ( Mar 8 ) “We view McDonald’s results as one of the most impressive we have seen in a while.” Buy, target $72.
Joseph T. Buckley, BofA Merrill Lynch ( Mar 8 ) “We continue to rate MCD shares Buy as a Sales Leader.” Target $71.
Paul Westra, Cowen & Co (Mar 8 ) We continue to believe shares of MCD will outperform the market by over +15% over the next 12 months.”
Jeffrey A. Bernstein, Barclays Capital ( Mar 8 ) “Our price target for McDonald’s remains $71, or ~16x our calendar 2010 EPS estimate of $4.40.” Overweight.
John Glass, Morgan Stanley ( Mar 8 ) “While MCD faces more difficult compares in the months ahead, we remain confident the company will continue to gain share in the US as the McCafé program expands with frappes hitting mid-to-late Spring & smoothies due out this summer. ” Base Case $67.
Gregory R Badishkanian, Citigroup ( Mar 8 ) “We rate McDonald’s Hold/Low Risk (2L), with a target price of $67.”
Matthew DiFrisco, Oppenheimer ( Mar 8 ) “…we maintain our Perform rating and would become more constructive on the shares below $60.”
John Ivankoe, JP Morgan ( Mar 8 ) “We maintain our Dec 2010 price target of $68 with our target reflecting a 15.5x multiple on our C10 estimates.” Overweight.
Fitch Ratings ( Feb 25 US Restaurant/Foodservice Outlook ) “McDonald’s Corporation Ratings (A/Stable) reflect the company’s geographically diverse revenue base, substantial cash flow generation, and stable royalty stream. Industry leading margins and SSS performance further strengthen the company’s credit profile. Fitch believes operating performance will continue to guide the company’s financial strategy. McDonald’s credit statistics are projected to remain relatively stable in 2010.”
Blockbuster (BBI) today said it may have to file for bankruptcy protection as it tries to restructure itself.
Business Insider has details of the company’s 10-K filing. A few excerpts:
It is possible that a successful and efficient implementation of an exchange or any of the other strategies we are pursuing will require us to make a pre-packaged, pre-arranged or other type of filing for protection under Chapter 11 of the U.S. Bankruptcy Code.
If we are unable to successfully implement our operational and business strategies, if we are unable to reach agreements with our debt holders to restructure a sufficient portion of our debt, or if the major studios tighten or eliminate credit terms, we may voluntarily seek relief under the U.S. Bankruptcy Code.
We are currently experiencing significant liquidity constraints and have sizable amortization and other debt service requirements. Should we not be able to generate sufficient cash from operations and should the studios tighten or eliminate credit terms, we may determine that it is in the Company’s best interests to voluntarily seek relief through a pre-packaged, pre-arranged or other type of filing under Chapter 11 of the U.S. Bankruptcy Code, including prior to the time we would otherwise be required to do so in an acceleration event.
In related news, AP reports that Kiosk operator NCR Corp.(NCR) said Monday it would place Blockbuster Express-branded DVD rental kiosks at nearly all 365 Sheetz convenience stores in North Carolina, Ohio, Pennsylvania, Maryland, Virginia and West Virginia by the end of March.
Blockbuster has put its European arm up for sale, according to the Sunday Times of London.The paper said the indebted U.S. company wanted to sell its European division, which it values at about 50 million pounds, to raise cash.
Standard & Poor’s today indicated that the Greek government has done enough for now to get its fiscal house in order and preserve the country’s credit rating, but at the same time the ratings agency downgraded the banking system and placed a negative outlook on several banks.
Key comments from S&P:
We view the Greek government’s total package of deficit reduction measures as appropriate to achieve its 2010 fiscal target, given the deterioration in Greece’s growth prospects.
We are affirming our ‘BBB+/A-2′ sovereign credit ratings on Greece and removing them from CreditWatch negative.
The negative outlook reflects our view of the government’s ability to sustain reform momentum in the medium term.
S&P also:
Revised its Banking Industry Country Risk Assessment (BICRA) classification and economic risk score on Greece to ‘5′ from ‘4′.
Increased its estimate of gross problematic assets (GPAs) for the Greek banking system to 15%-30% of total credit, from 10%-20%.
Affirmed its ‘BBB+/A-2′ long- and short-term term counterparty credit ratings onNational Bank of Greece S.A. (NBG).
Removed the ratings on all four Greek banks from CreditWatch, where they had been placed with negative implications on Dec. 17, 2009. All outlooks are negative.
BICRA rankings summarize the strengths and weaknesses of a country’s banking system compared with those of other countries according to a scale ranging from Group 1 (the strongest) to Group 10 (the weakest). Other countries included in BICRA Group 5 with Greece are South Africa, Poland, Brazil, Malta, Kuwait, Oman, and Bahrain.
We believe that the Greek banking system’s economic risks have heightened, due to low economic growth prospects and structural weaknesses, higher vulnerability to capital outflows, and greater credit risk.
However, the banking system has coped with mounting economic challenges and remained broadly profitable, benefiting from its consolidated and modern structure and strong commercial franchises–which we view as main comparative strengths.
The FT’s Lex highlights research by hedge fund GLG Partners, which tracked share price movements before and after broker announcements and finds a connection between recommendations and a stock’s subsequent performance.
The paper found that when an average stock burdened with a consensus “sell” recommendation is given a “buy” rating, the underperforming price turns round and, after 100 days, the stock can be expected to outperform the market by about 2 per cent. And when a large broker issues the recommendation, the effect is almost half as much again.
For example, K+S, the German chemical maker and previously a consensus “sell”, was upgraded to “buy” in January by Bank of America Merrill Lynch and its share price jumped 12 per cent. Of course, many other factors influence share prices, but on average this effect is repeated.
Proving causality, though, is difficult, Lex writes. Typically, a broker issues a recommendation immediately after the company announces news such as earnings figures or a landmark acquisition. It is almost impossible to determine how much of the subsequent share price movement is due to the broker’s advice and how much would have occurred anyway based on the news.
GLG’s paper, Do European Brokers Add Any Value Through Recommendations?“suggests that European brokers’ recommendations outperform during 2005-2009. Trade ideas from research salespeople, the people in daily contact with fund managers, provide better performance than recommendations directly from research departments. Our results also demonstrate that brokers are far better at selecting long ideas than short ideas, and have been for many years.”
Our early data suggests that 2009 has been an extreme year for analyst performance. Buy recommendations have worked very well, sell recommendations very poorly.
The paper’s authors think the movements are large enough to be useful. “Imagine a simple long only fund management strategy which reacts to all broker recommendations. The strategy buys at the closing price on the day the recommendation is received and exits 65 days later. Using the GLG trade ideas database average returns would exceed market returns by 0.80% – 1.69%, which we could achieve four times a year (260 trading days / 65 day holding period = 4x). Assuming commissions of 5bps each way, and trading at closing prices on the day of idea receipt, then returns would lie in the range 2.8% – 6.4% in excess of benchmark (clearly trading when ideas are received rather than waiting until the close will be advantageous to the strategy). This is enough to place the strategy in the top quartile of UK mutual funds with a Europe including UK benchmark in all four years.”
Zacks on Monday upgraded Cisco Systems (CSCO) to Outperform with a price target of $28. We are pleased to offer a complimentary download of Zacks ‘research report on the company.
Selected Excerpts:
The company s second quarter results beat the Zacks Consensus on both the top and bottom lines. Orders continued to strengthen in the last quarter, indicating continued business momentum.
New products, growth initiatives, improving operating performance, solid financials and a sound restructuring policy are positives. Of course, competition remains something to look out for, since the company has been losing some market share. Additionally, the complicated decision-making process and integration risks remain.
However, we believe the positives outweigh the negatives at this point. Consequently, we are upgrading CSCO shares to Outperform.
We are particularly encouraged by the pattern of order growth, which continued to improve in the last quarter. It is now apparent that the company saw the bottom in the third quarter of fiscal 2009. After stabilizing in the preceding two quarters, order growth improved notably in the last quarter, with eight of the top 15 countries seeing year-over-year increases. This compares very favorably with the first quarter, when orders declined across all segments from a year-over-year perspective. The current strength in orders indicates that capex budgets have been increased. Consequently, it gives us confidence that there will be regular seasonal growth in ensuing quarters.
Cisco has beaten the competition (with its new CRS 3 router) since the announcement was made in a market where competing products were 12 times slower, according to management. Therefore, we may expect some market share gains. Additionally, there are a couple of forces that are likely to push the rapid adoption of the new technology.
First, the increasing popularity of smart phones, which is pushing up demand for high-speed data, thus increasing congestion in networks. Considering the growing demand for mobile internet devices, this trend is likely to continue.
Second, telecom carriers face cut-throat competition and the scope for differentiation of offerings is very limited. Significant increases in speed could be a way of picking up additional customers and reducing churn. This is the main reason that telecom carriers have started investing heavily in infrastructure, despite the fact that recessionary pressures are unlikely to alleviate before the second half of the year.
This report has been made available free of charge to Research Recap users for 30 days by special arrangement with Zacks Investment Research, an Alacra content partner. After 30 days, the report will revert to its regular Alacra Store price of $24.95)
“We believe demand for the product from large service provider customers will materialize due to unprecedented levels of video and mobile traffic on service provider networks,” Rohit Chopra of Wedbush Securities. That growth may not come until fiscal 2011 or fiscal 2012, Chopra said. But the CRS-3, “given the breadth of capacity, speed, and network intelligence could (gradually) help Cisco regain some of the lost share,” he said. (Daily Finance-Mar 10). Chopra has an Overweight rating on Cisco with a $29.00 price target.
“Everybody expected them to refresh their core routers but the way they hyped it I thought there was going to be more to it,” said Piper Jaffray analyst Troy Jensen. (Reuters-Mar 10)
RBC Capital analyst Mark Sue: “There are many congestion points in the internet, and Cisco is starting right at the heart of the matter with a big bad router.” (DJ-Mar 10)
Nikos Theodosopoulos, an analyst at UBS, wrote in a research note that this type of routing product accounted for only about 4 percent of Cisco’s total revenue. (NYTimes-Mar 10) He maintained his Neutral rating with a $25.00 target.
“I don’t think this product is going to change our lives in the next six months but maybe in the next two years,” said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group. (CNBC-Mar 9)
Rod Hall of JP Morgan concludes that mobile data and server virtualization will be positive drivers of IP routing and Ethernet switching market growth. He raised his rating to Overweight with a year-end target of $28.00 (Mar 7)
Standard & Poor’s Ari Bensinger had a Buy recommendation on Cisco on Feb 4 with a $30 target.
Boston Scientific (BSX) fell the most in 17 months on Monday after the company’s announcement it had stopped shipment and is retrieving inventory of all of implantable cardioverter defibrillators and cardiac resynchronization therapy defibrillators in the US.
The latest bad news is Goldman Sachs’ decision to place BSX on its Conviction Sell list. Goldman previously had the company at Neutral.
Goldman said the devices accounted for about a fifth of the company’s profit, and that the impact will not just be lost sales as brand loyalty from physicians will be impacted, MarketWatch reported.
Also downgrading BSX since the announcement, according to StreetInsider.: RBC Capital (Sector Outperform), Craig Hallum (Accumulate), Summer Street (Neutral) and JP Morgan (Neutral).
Deutsche Bank analyst Tao Levy had already downgraded shares of Boston Scientific to hold from buy according to a February 11th note, saying that he expects the company to rebuild during 2010 (Comtex Smartrend).
Monday’s announcement was the latest in a string of problems for Boston Scientific’s defibrillator business, which was acquired through the 2006 buyout of Guidant for a hefty $27 billion price tag, Investor.com reports.
That same year the company received a rare companywide warning letter from the FDA, which temporarily halted approval of all new products. Over the next two years the company issued multiple safety recalls on its devices.
Morgan Stanley analyst David Lewis said Monday’s announcement “will weaken quality perception of a company that was on the brink of recovery.”
“We believe this latest ‘implantable cardiac defibrillator’ action could have tremendous negative impact to Boston Scientific’s business both from an acute and longer-term perspective, with St. Jude Medical (STJ) and Medtronic (MDT) both benefiting,” wrote Bernstein Research analyst Derrick Sung.
Lawrence Neibor, an analyst at Robert W. Baird & Co., predicts the lost revenue from the recall will decrease Boston Scientific’s 2010 earnings per share by 14 cents. The average EPS estimate of 23 analysts for full-year earnings is 45 cents, according to Thomson Reuters, portfolio.com reports.
The voluntary action is related to the identification of two instances where manufacturing changes were not properly submitted to the FDA for approval. Moody’s is hopeful that “in contrast to safety-related recall actions, this may be a less complex matter to resolve.
If this matter remains unresolved for an extended period of time, it could have a material effect on cash flows at a time when Boston Scientific’s liquidity is already strained by anticipated litigation payouts and upcoming debt maturities. – Diana Lee, Moody’s
The Reformed Broker Joshua M. Brown points out that unless they have bailed out in the last 45 days, several hedge funds stand to suffer losses: David Einhorn (Greenlight Capital), John Paulson (Paulson & Co) John Burbank (Passport Capital), David Gallo (Valinor Management) all held significant and/or newly established positions in the company as of the latest SEC filings.
24/7 Wall Street’s Doug McIntyre notes that Boston Scientific’s problems go beyond the defibrillator issue. “Just last month, Boston Scientific settled a patent dispute with Johnson & Johnson (JNJ) which cost BSX $1.7 billion. Boston Scientific had about $1.4 billion at the end of last year, but that is on top of the $6 billion in debt which is choking the company to death. Late last year, BSX settle another set of claims over stent patents, this with J&J again. The cost to resolve that was $700 million. So, Boston Scientific is very low on cash. ”
“New medical studies indicate that drugs are as effective at preventing heart attacks or death as stents are. There is also emerging evidence that drug-coated stents can produce clots when they are in patients for several years. Abbott (ABT) and Medtronic (MDT) have picked up market share in the stent business over the last two years.”
Boston Scientific did get one piece of good news Monday: Reuters reports positive results from trials of its new Perseus stent. The Perseus trial has drawn investor attention because it provides a first look at what is expected to become the backbone the company’s coronary stent franchise.
Positive results, said RBC Capital Markets medical device analyst Glenn Novarro, could help stabilize Boston Scientific’s Taxus stent franchise and pave the way for a mid-2011 launch for the Taxus Element in the United States.
In a separate study Medtronic’s drug-coated heart stent Endeavor had more deaths and complications than Johnson & Johnson’s rival device to prop open clogged arteries, Bloomberg reported.
Still, not everyone is down on BSX: the Wall Street Journal reports that contrarians have been active in the options market.
RadioShack(RSH) is in the news today after Goldman Sachs analyst Matthew Fassler removed the company from Goldman’s Conviction List, but still maintains a Buy recommendation.
RSH’s stock price has moved higher recently on speculation that the company is ripe for a buyout. However, Fassler sees only a 15% likelihood of this occurring (Benzinga).
Deutsche Bank analyst Mike Baker recently calculated how an LBO might work and kept a Hold rating on RSH (Tech Trader Daily).
Oppenheimer believes the company is not an attractive turnaround or financial engineering play for a potential buyer and says the stock is fairly valued at current levels (Business Insider). Analyst Brian Nagel has a Perform rating on the company.
According to Credit Suisse analyst Gary Balter, RadioShack has “taken a number of steps over the past year to reposition its core wireless business and we believe those efforts should start to bear fruit in 2010. (Forbes)”
Zackson Mar 1 downgraded RSH to Neutral, “due to our concern regarding future sales potential of the company’s non-wireless product categories.”
We believe RadioShack may face serious challenges from more diversified stores like Best Buy Co. Inc. (BBY) and Wal-Mart Stores Inc. (WMT ) unless it revamps its non-wireless segment.
On Feb 18 Raymond James upgraded RSH to Outperform (StreetInsider).
Other recent analyst comments:
Michael Lasser, Barclays Capital: Maintain Overweight, ‘10 will be solid (Feb 23).
David Strasser, Janney Capital Markets: Buy. “RSH is perfectly positioned with all its new product, new advertising,
and strong balance sheet to leverage this (Smartphone upgrade) cycle.” (Feb 23)
Michael Pachter, Wedbush: Underperform: “As the prospects for significant long-term growth remain uncertain, and with the constant threat of competition from large competitors, we believe RadioShack deserves a below-market multiple.” (Feb 23)
Gregory Melich, Morgan Stanley: Overweight: “Trading at 10.6x our 2010e, we like that 20% EPS growth is attainable next year driven by wireless. ” (Feb 26)
Perhaps the most lucrative focus adopted by McDonald’s is the extension of operating hours, in many cases staying open around-the-clock. Breakfast has become the biggest moneymaker, comprising 30% of a typical day’s sales.
We believe that the Greek banking system’s economic risks have heightened, due to low economic growth prospects and structural weaknesses, higher vulnerability to capital outflows, and greater credit risk.
However, we believe the positives outweigh the negatives at this point. Consequently, we are upgrading CSCO shares to Outperform.
