Time for Lilly to Go Shopping
Posted by Eddy Elfenbein on October 22nd, 2010 at 10:53 am

There’s no question that Eli Lilly (LLY) is a cheap stock based on its earnings. The problem, however, isn’t past earnings but future earnings. The company is running out of new drugs and they need to get on the stick very soon.

Lilly has repeatedly said that they have a lot of products in development. But everyone, including me, expects them to open their wallet to make an acquisition.

The bad news is that Lilly just got slammed by Byetta (though not as badly as Amylin was hurt). The good news is that this may further spur them to make an acquisition. The talk now is that Lilly will buy either Cephalon (CEPH) or Endo Pharmaceuticals (ENDP).

By 2013, Lilly loses patents on medicines responsible for almost half its revenue. The Bydureon rejection, which stalled a new revenue source for at least two years, was compounded Oct. 20 when the company halted tests on a second experimental diabetes medicine because it wasn’t effective. Lilly Chief Executive Officer John Lechleiter yesterday ruled out “large- scale combinations” while expressing interest in smaller deals.

“An outright acquisition of Amylin certainly could make sense” if Lilly thinks Bydureon will be approved, Fernandez said in a telephone interview from Boston. Amylin, based in San Diego, lost half its market value on Oct. 20 after the Food and Drug Administration requested a study of Bydureon’s effect on heart rhythm.

Eli Lilly currently has over $5 billion cash on hand — and it ain’t earning much interest in the bank.

“Our fundamental strategy remains intact,” Lechleiter (that’s LLY’s CEO – Eddy) said during a conference call yesterday. “We’re not interested in large-scale combinations (yeah, right). I think there are many other opportunities that I think we could consider along the lines of several that we have done this year.”

Lechleiter’s plan to stick to small purchases or licensing deals won’t give investors much confidence, said Barbara Ryan, an analyst with Deutsche Bank in New York, in a telephone interview.

“A lot of those companies will just be adding to the pipeline and they’re not going to be something that the market will accrue much value to on Lilly,” Ryan said.

United Therapeutics Corp. may also be a good fit because Lilly has an 11 percent stake and the two companies are partnered on Adcirca, a lung treatment made from the ingredient in Lilly’s impotence pill Cialis, according to Fernandez. Forest Laboratories Inc. (no, gag!) would be another option to complement Lilly’s research in antidepressants and arthritis medicines, he said.

Morning News: October 22, 2010
Posted by Eddy Elfenbein on October 22nd, 2010 at 7:21 am

Stock Index Futures Signal Falls as G20 and Earnings Eyed

Geithner Push for Current Account Targets Splits G-20 Nations

AIG Raises $17.8 Billion in Record AIA Hong Kong IPO

Fannie and Freddie May Need Infusion

UK Debt Cost Falls to Lowest Since 1980s

Boeing Sales Beat `New Normal’ Pessimism as Fed May Act

Caterpillar to Acquire MWM Holding for $806 Million

Schlumberger’s Profit More Than Doubles

UPS Profit Tops Analysts’ Estimates on Global Economic Pickup

Credit Cards Soon to Get a Makeover

$10
Posted by Eddy Elfenbein on October 21st, 2010 at 1:31 pm

NICK printed $10 moments ago.

It happened. It really happened.

Google Pays 2.4% Taxes on Overseas Profits
Posted by Eddy Elfenbein on October 21st, 2010 at 11:55 am

How much are you paying on your overseas taxes? Or do you even have overseas taxes? Well, if your name is Google then you’re only paying 2.4% on the profits you generate outside the country.

For the record, the U.S. corporate tax rate is 35%.

One analyst thinks that if Google followed the normal rules the stock would be $100 lower. Mind you, Google isn’t doing anything illegal, at least not as the laws now stand. Also, there are plenty more companies doing the exact same thing.

These companies use a complicated maneuver where they send their taxes through Ireland to a tax-haven island. This is known at the “Double Irish.” Google uses Bermuda after a stop in the Netherlands. From 2007 to 2009, Google saved $3.1 billion.

This Bermuda-managed entity is owned by a pair of Google subsidiaries that list as their directors two attorneys and a manager at Conyers Dill & Pearman, a Hamilton, Bermuda law firm.

Tax planners call such an arrangement a Double Irish because it relies on two Irish companies. One pays royalties to use intellectual property, generating expenses that reduce Irish taxable income. The second collects the royalties in a tax haven like Bermuda, avoiding Irish taxes.

To steer clear of an Irish withholding tax, payments from Google’s Dublin unit don’t go directly to Bermuda. A brief detour to the Netherlands avoids that liability, because Irish tax law exempts certain royalties to companies in other EU- member nations. The fees first go to a Dutch unit, Google Netherlands Holdings B.V., which pays out about 99.8 percent of what it collects to the Bermuda entity, company filings show. The Amsterdam-based subsidiary lists no employees.

At least no one can be laid off.

Three More Earnings Reports
Posted by Eddy Elfenbein on October 21st, 2010 at 10:37 am

The most-hated rally in history continues to rally, and our Buy List is now up over 10% for the year. The S&P 500 finally broke through 1,185 this morning after failing two times before.

First, though, let’s get to three more earnings reports this morning. They all sound the same—beating forecasts and raising guidance.

Eli Lilly (LLY) reported earnings of $1.21 per share which is six cents more than Wall Street’s consensus. That’s a good showing, but the weak spot is that revenues rose only 1.7% to $5.65 billion, $120 million short of Wall Street’s estimates. As a result, the stock has pulled back modestly this morning.

Bloomberg writes:

Top-selling Zyprexa fell 0.8 percent to $1.21 billion, while the antidepressant Cymbalta gained 4.4 percent to $825.3 million and the cancer treatment Alimta rose 21 percent to $560.3 million. Higher demand outside the U.S. drove revenue growth, Lilly said.

Watch for Lilly to make some acquisitions soon. They need new drugs in the pipeline. The good news is that Lilly raised its full-year EPS forecast to a range of $4.65 to $4.75. Two months ago, the company said to expect $4.50 to $4.65. The shares are currently down about 1%.

Baxter International (BAX) is up nearly 4% today thanks to a very good earnings report. For the third quarter, Baxter earned $1.01 per share which is four cents more than Wall Street’s forecast. The company also said to expect full-year earnings of $3.96 to $3.98 per share. (Wow—that’s a narrow range, but there’s only one quarter to go.) The earlier range was $3.93 to $3.98. For Q4, Baxter sees earnings of $1.09 to $1.11 per share.

Sales of $3.22 billion, up 2.5%, topped Wall Street’s $3.16 billion forecast. Baxter noted that international sales growth was nicked by unfavorable foreign currency rates.

Sales in the bioscience business were flat at $1.39 billion, or up 3% excluding the currency impact, but Baxter noted better performance there. Contributing factors included hemophilia treatments and strong demand for a plasma-based treatment for immune disorders and another that treats an inherited condition that can hurt the lungs.

Sales in medication delivery, which includes items like intravenous solutions and drug infusion pumps. rose 5% to $1.23 billion, with growth reduced by the currency impact. Sales in the renal unit, which includes products for managing patients with end-stage kidney failure, grew 3% to $594 million.

Reynolds American (RAI) earned $1.35 per share, one penny more than estimates. The company also raised the low end of its full-year forecast. Reynolds now expects full-year EPS to range between $4.95 and $5.05. The earlier range was $4.90 to $5.05.

The number of cigarettes the company sold fell 2.6 percent to 20.1 billion sticks, but its market share rose slightly to 28.2 percent with increases in the market shares of both Camel and Pall Mall. Camel volumes grew 1.5 percent, and Pall Mall grew 45.1 percent in the quarter.

Although the company has been selling fewer cigarettes, they’ve been able to raise the price. The AP writes:

Reynolds American has aggressively promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment. During the quarter, the brand’s market share increased 2.8 points to 7.8 percent of the U.S. market.

“Pall Mall is the right product at the right time,” Daniel M. Delen, the head of R.J. Reynolds Tobacco Co., said in a news release.

Reynolds American and other tobacco companies are also focusing on cigarette alternatives — such as snuff and chewing tobacco — for future sales growth as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher.

Reynolds American said third-quarter volumes of its Kodiak and Grizzly smokeless tobacco grew only 1.2 percent due to higher levels of promotion from its competitors.

Shares of RAI are currently down about 1%.

Morning News: October 21, 2010
Posted by Eddy Elfenbein on October 21st, 2010 at 7:39 am

Federal Reserve Bank Pay Soars

China Yuan Up Late On Lower Central Parity, Weak Dollar

G-20 Seeks To Forge Currency Consensus, But Deal Elusive

Nokia Third Quarter Results Beat Forecasts

New York Fed Faces `Inherent Conflict’ in Mortgage Buybacks

Germany Doubles Growth Forecast

French Industry ‘Losing at Least £100 Million a Day’

Toyota To Recall 1.5M Vehicles for Brake Concerns

Government Should Subsidize the Québec Nordiques

Infinera Shatters Optical Land

CWS Earnings Calendar
Posted by Eddy Elfenbein on October 20th, 2010 at 6:59 pm

Here’s an update of our Buy List earnings calendar:

The Macbeth Market
Posted by Eddy Elfenbein on October 20th, 2010 at 4:42 pm

The S&P 500 close one week ago: 1178.10.

The S&P 500 close today: 1178.17.

This market is “a tale told by an idiot, full of sound and fury, signifying nothing.”

But there is good news. Nicholas Financial (NICK) got to $9.99 today, just one penny from the big One-Oh.

Gilead Sciences (GILD) and Stryker (SYK) held on to their gains today. Medtronic (MDT) also did well thanks to a good earnings report from Boston Scientific (BSX). The Buy List gained 1.29% for the day which was 0.24% better than the S&P 500. Since the end of August, the Buy List is up 16.00% compared with 12.28% for the S&P 500.

Tomorrow we have earnings reports from Baxter (BAX), Eli Lilly (LLY) and Reynolds American (RAI).

The One-Point Trend Finally Ends
Posted by Eddy Elfenbein on October 20th, 2010 at 3:02 pm

To paraphrase Churchill: “Never in the field of capital markets have so many taken so much confirmation from so little.”

The Return of the Nifty Fifty
Posted by Eddy Elfenbein on October 20th, 2010 at 2:20 pm

In the early 1970s, there was a spectacular run in a small group of stocks known as the Nifty Fifty. Here’s a list of the names.

These stocks were popular because they were seen as stable growing stocks. There was also a belief at the time that capitalism could help “bring people together” after the tumult of the 1960s.

I think the Coca-Cola ad of kids on a hilltop singing the Coke Song best captured this worldview. Other stocks like McDonalds, Disney and Eastman Kodak really tapped this idea.

What I’ve noticed recently is that a lot of these Old School Nifty Fifty guys have been doing quite well recently.

Coke (KO) just gapped up higher earnings. McDonalds (MCD) hit an all-time high today. Also, 3M (MMM), Altria (MO) and Procter & Gamble (PG) are near new 52-week highs (Philip Morris was a Nifty Fifty stock).

Is this 1972 or 2010?