Benzinga Weekly Preview: Earnings Season Continues As Biotech & Pharmaceutical Companies Report
Earnings season continues next week with several pharmaceutical and biotech companies set to report. The rising tension between Russia and the West will also play a role in market fluctuations as investors prepare for tougher sanctions to be enacted.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including Bristol-Myers Squibb Company (NYSE: BMY), Pfizer Inc. (NYSE: PFE), Merck & Company, Inc. (NYSE: MRK), and Suncor Energy Inc. (NYSE: SU).
Bristol-Myers Squibb Company
Bristol-Myers Squibb Company is expected to report first quarter EPS of $0.43 on revenue of $3.88 billion, compared to last year’s EPS of $0.41 on revenue of $3.83 billion.
Credit Suisse gave Bristol-Myers an Outperform rating with a $61.00 price target on April 21, saying that the company’s near term potential is being underappreciated.
“We believe the excitement over MRK's data has left many overlooking BMY's place in the market, especially in the near-term. As with ABBV/ENTA, increased near-term patient volumes and modest market shares lead to increases in our BMY estimates for the next few years before they decline due to the impact of MRK and next generation agents from GILD and ABBV/ENTA. We lower our BMY target price to $61 (from $62).”
S&P Capital IQ were more cautious about Bristol-Myers and gave the company a Hold rating with a $57.00 price target on April 19. The analysts at S&P noted that the focus will be on the company’s oncology unit and is also expecting to see some benefit from lower operating costs.
“We raise our target price by $2 to $57, based on revised forward P/E and DCF assumptions.We keep our $1.80 adj. '14 EPS estimate, aligned with the top of BMY's new $1.65-$1.80 guidance. Q4 adj. EPS increased 9% to $0.51, exceeding our forecast by $0.06.We attribute the beat to a stronger top line, and reduced operating costs. Strong gains were seen in Baraclude (up 14%), Sprycel (up 30%), and Yervoy (up 23%), offsetting weakness in Abilify (down 22%).We think investor focus will remain on the oncology pipeline, with clinical data on nivolumab expected later this year.”
Merrill Lynch gave Bristol-Myers a Neutral rating on April 24, noting that the company could face risks from US healthcare reforms and price cuts in Europe.
“Our $56 price objective (PO) is based on a sum-of-the-parts discounted cash flow (DCF) analysis. Our DCF-based PO of $56 implies BMY can trade at roughly 31x our 2014E EPS of $1.81, lower than BMY's current 2013 multiple but at a premium to the US major pharma group average on 2013E, which we believe is warranted due to the potentially higher quality of BMY's R&D pipeline relative to its peers. We believe that pipeline setbacks could pressure the stock, but a solid dividend yield should limit downside risk. Our DCF analysis (WACC 7.4%, terminal growth rate 1.5%) is based on what we view as conservative assumptions, including: (1) slowly eroding revenue base, (2) relatively modest contribution from new launches, and (3) reasonable cost cutting beyond the company's announced restructuring programs. Risks to our price objective are: sector rotation to non-defensive sectors, greater-than-expected pressure from US healthcare reform and/or European price cuts, adverse regulatory and political actions, changes to tax laws, rates, and/or treaties that increase the tax rate, pipeline failures, and other general R and D risks”
Pfizer is expected to report first quarter EPS of $0.56 on revenue of $12.13 billion, compared to last year’s EPS of $0.51 on revenue of $13.50 billion.
The analysts at Morgan Stanley gave Pfizer an Overweight rating on April 7, saying that the company’s Palbo data is encouraging, but that the timing for filing with the FDA is still uncertain.
“We think the doubling of PFS is very compelling and would make a strong case for regulatory approval. However, the FDA may not be willing to approve a novel drug for a potentially large indication such as 1st-line, ER+, adv. breast cancer based on data from 165 patients in an open label study. For reference, Femara’s label indicates a dataset of 916 patients in 1st-line, ER+, adv. breast cancer and Afinitor’s label indicates 724 patients in adv. breast cancer who failed prior endocrine therapy. We continue to estimate palbo 2020E sales of $5.5B. We assume palbo launches in 2016 (our base case), but if Pfizer can file later this year, palbo may launch as soon as early 2015. “
On April 22, Merrill Lynch took a more positive tone on Pfizer and gave the company a Buy rating with a $36.00 price target. The analysts at Merrill Lynch noted that despite recent rumors that the company was planning to acquire AstraZenica, likelihood of a deal is low.
“Over the past couple of days there have been several media reports (Sunday Times, Reuters and Bloomberg) that suggest PFE made a bid for AZN in a deal speculated to be valued at ~$100bn. The media reports suggest that PFE approached AZN weeks-months (recent reports suggest months) ago and that the bid was rejected, with no talks ongoing at present. Overall, we view the likelihood of this deal as low, given it does not seem to fit into PFE’s current strategy of creating smaller, more focused business units, and steering away from the historical “megamerger” model. However, it is not a surprise to us that PFE may be looking for additional assets to bolster a somewhat anemic pipeline relative to the rest of the US Major Pharma group, a move we believe the market would likely reward. AZN could provide PFE with several assets that fit into PFE’s five stated therapeutic areas of focus (pain, inflammation and immunology, oncology, CV and neuroscience) and provide PFE with additional pipeline assets, including a clinicalstage immunooncology asset (MEDI-4736). However AZN’s base business is not a particularly attractive (highest off-patent exposure in EU pharma) facet to the speculated deal and is another reason why we view this transaction as unlikely.”
S&P Capital IQ was also positive about Pfizer and gave the company a Buy rating with a $35.00 price target on April 23. The analysts at S&P are expecting to see improved sales from the company’s oncology business as well as positive growth from recently launched treatments.
“We expect 2014 sales to decline about 3% from 2013's $51.6 billion. In our opinion, the shortfall should largely reflect lower sales of Lipitor, Viagra, Detrol, Norvasc and other older drugs now off-patent or facing generic erosion either in the U.S. or abroad. On the positive front, we project volume gains for Lyrica, Prevnar/Prevnar 13 vaccines, helped by new indications. Sales of Pfizer's expanding oncology franchise should reflect gains in newer therapies such as Inlyta and Xalkori.We also forecast good growth from the recent launches of Xeljanz treatment for rheumatoid arthritis and Eliquis blood-thinning agent.”
Merck & Company, Inc.
Merck & Company is expected to report first quarter EPS of $0.79 on revenue of $10.46 billion, compared to last year’s EPS of $0.85 on revenue of $10.67 billion.
The analysts at Merrill Lynch gave Merck a Buy rating on April 24, citing increased sales estimates for their optimism.
“Based on trends observed in the IMS data, we increased our 1Q14 US sales estimates for Januvia, ProQuad/M-M-R II/Varivax, Nuvaring and Follistim, and decreased our US sales estimates for Nasonex, Zetia, Janumet and Isentress. Of particular note, following the impressive Phase II data presented at the EASL conference (see our note) we increased our HCV sales estimates. We now model launch in 2016, reaching peak sales of $1.5bn in 2018 (previously $500mn). In addition we trimmed our R&D expenses in 2014.”
Suncor Energy Inc.
Suncor Energy is expected to report first quarter EPS of $0.92 on revenue of $10.76 billion, compared to last year’s EPS of $0.90 on revenue of $10.02 billion.
Merrill Lynch gave Suncor Energy a Buy rating with a $43.00 price objective on February 4. The firm cited strong production volumes as reason for their optimism.
“Strong production volumes (both oil sands and international), ongoing buybacks, improving oil sands opex (guidance at $31.50-$34.50/bbl reiterated) and valuation relative to free cash flow should offset the smaller dividend bump and in line Q4. With only minor changes to estimates, we maintain our Buy rating and $46 PO.”
On April 19, S&P Capital IQ was also positive about Suncor and gave the company a Buy rating with a $42.00 price target. The analysts at S&P noted that although rising US oil production could threaten Suncor, demand for heavy grade crude will likely continue.
“Rising oil production in U.S. fields has raised concerns over demand for Canadian synthetic crude oil obtained from oil sands, and over limits on available takeaway capacity. However, we believe that refineries will continue to demand heavier grades of crude oil due to refinery upgrades over the past decade, and that rail service will help mitigate takeaway issues while more pipeline capacity is built.”
Economic data will play a huge part in driving markets next week as several important data sets are expected. In Europe, inflation and unemployment figures from the eurozone will be the focus as investors look for clues about the ECB’s next big move. The UK will release first quarter GDP data as well. In the US, nonfarm payrolls data coupled with unemployment data will be heavily anticipated as investors keep a close eye on the Fed’s plans for its key interest rate.
- Earnings Releases Expected: CNA Financial Corporation (NYSE: CNA), Loews Corporation (NYSE: L), Corning Incorporated (NYSE: GLW), National-Oilwell, Inc (NYSE: NOV), Herbalife LTD. (NYSE: HLF), Jacobs Engineering Group Inc.(NYSE: JEC)
- Economic Releases Expected: Swedish retail sales, Italian consumer confidence, Irish retail sales, US pending home sales
- Earnings Expected: Merck & Company, Inc. (NYSE: MRK), 1-800 FLOWERS.COM (NASDAQ: FLWS), Eaton Corporation (NYSE: ETN), Sprint Nextel Corporation (NYSE: S), Coach, Inc. (NYSE: COH), Bristol Myers Squibb Company (NYSE: BMY), Valero Energy Corporation (NYSE: VLO), LyondellBasell Industries NV (NYSE: LYB), MGM Resorts International (NYSE: MGM), Deutsche Bank AG (NYSE: DB)
- Economic Releases Expected: German consumer climate, French consumer confidence, Spanish unemployment rate, Italian retail sales, British GDP, German CPI, US Redbook, US consumer confidence, eurozone business climate, British consumer confidence, Japanese manufacturing PMI, Japanese industrial production
- Earnings Expected: Pfizer, Inc. (NYSE: PFE), ADT Corporation (NYSE: ADT), Fidelity National Financial (NYSE: FNF), Garmin Ltd. (NASDAQ: GRMN), GlaxoSmithKline PLC (NYSE: GSK)
- Economic Releases Expected: German retail sales, French PPI, Spanish GDP, German unemployment rate, Italian CPI, US GDP, US oil inventory data
- Earnings Expected From: Merck & Company, Inc. (NYSE: MRK), Exxon Mobil Corporation (NYSE: XOM), Visa Inc. (NYSE: V)
- Economic Releases Expected: US car sales data, British manufacturing PMI, US manufacturing PMI, Japanese unemployment rate
- Earnings Expected From: Chevron Corporation (NYSE: CVX), CVS Corporation (NYSE: CVS), Estee Lauder Companies, Inc. (NYSE: EL)
- Economic Releases Expected: Spanish manufacturing PMI, French manufacturing PMI, eurozone manufacturing PMI, British construction PMI, eurozone unemployment rate, US nonfarm payrolls, US unemployment rate
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