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.

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.

Continue reading at YCharts: Is There a Pill For That? Forest Lab's Iffy Pipeline

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.

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. 

Continue Reading at YCharts: Live Nation up 36% YTD: But We've Got Bad News

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.

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? 

Continue Reading at YCharts: Who’s Toast if Natural Gas Prices Plunge Again? 

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.

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.

Continue Reading at YCharts: Drillers: Productivity Boom Transcends Gas 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.

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.

Continue Reading at YCharts: A $41 Billion Mistake That Doesn’t Really Matter

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.

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.

Continue Reading at YCharts: The Myriad Risks Underlying Duke Energy's Dividend Yield 

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.

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). 

Continue Reading at YCharts: Why New Diabetes Drugs Won't Dethrone Merck's $5.7 Billion Januvia 

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.