• Morning News: April 25, 2017
    Posted by on April 25th, 2017 at 5:14 am

    OPEC Cuts Make North Sea Oil Most Alluring in Asia for 7 Years

    ECB Meeting Comes at a Precarious Time for Markets

    Trump Slaps Duty on Canada Lumber, Intensifying Trade Fight

    Trump Seeks 15% Corporate Tax Rate, Even If It Swells The National Debt

    Partisan Divide Over Economic Outlook Worries Ben Bernanke

    FCC’s Pai To Describe Net Neutrality Plans This Week

    Supreme Court Rebuffs G.M.’s Bid to Limit Ignition Switch Lawsuits

    T-Mobile Open To Merger Talks, New Subscribers Top Estimates

    Wells Fargo Shareholders Get Their Chance to Mete Out Punishment

    Novartis Moves M&A Search to Early-Stage Drugs on Price Gain

    Waymo Testing Self-Driving Car Ride Service in Arizona

    Marissa Mayer Will Make $186 Million on Yahoo’s Sale to Verizon

    Not An Inside Job: How Two Analysts Became SEC Whistleblowers

    Cullen Roche: Let’s Talk About Shrinkage and The Most Dangerous Narratives are Usually the Smartest

    Howard Lindzon: All-Time Highs for Nasdaq 100, Poison Pays and The ReBirth of Active Investing

    Be sure to follow me on Twitter.

  • Express Scripts CEO on Anthem
    Posted by on April 24th, 2017 at 5:27 pm

  • Express Scripts Earns $1.33 per Share
    Posted by on April 24th, 2017 at 4:41 pm

    For Q1, Express Scripts (ESRX) reported earnings of $1.33 per share. Wall Street had been expecting $1.32. Express had previously given a range of $1.30 to $1.34 per share.

    The company is also raising its full-year guidance. The previous range was $6.82 to $7.02 per share. The new range is $6.90 to $7.04 per share.

    For Q2, they’re looking for $1.70 to $1.74 per share. Wall Street was at $1.68 per share.

    Express also updated their status with Anthem. It looks like the two may part ways at the end of 2019.

    The Company’s current long-term PBM contract with Anthem expires on December 31, 2019, and Anthem is currently engaged in a Request for Proposal (RFP) process for a PBM service provider following the end of its contract with Express Scripts. While the Company has not formally participated in the RFP process, in recent months, management for the Company and Anthem have had several conversations in which the Company proposed providing as much as $1 billion in annual value ($3 billion in the aggregate) in the form of price concessions for 2017-2019 in connection with a negotiated contract extension for the period beyond 2019 at prevailing market rates. Although conversations have been ongoing, the Company was recently told by Anthem management that Anthem intends to move its business when the Company’s current contract with Anthem expires on December 31, 2019, and that Anthem is not interested in continuing discussions regarding pricing concessions for 2017-2019 or in receiving the Company’s proposed pricing for the period beyond 2019. As a result, today Express Scripts has elected to provide information as to its financial performance with and without Anthem, without any obligation to do so, in order to demonstrate that the Company’s core PBM business, excluding Anthem, is well positioned for future growth. See Appendix A for additional details regarding the Company’s relationship with Anthem and the history of the agreement between the parties.

    “It is difficult for us to understand why Anthem has not recognized the potential value which could be brought forth by engaging in meaningful discussions regarding a mutually beneficial pricing arrangement for the remaining term of our contract and beyond,” said Tim Wentworth, President and CEO of Express Scripts.

    The shares are down about 11% in the after-hours market.

  • Some Numbers on Today’s Market
    Posted by on April 24th, 2017 at 4:21 pm

    A very good day for us. Here are some numbers.

    The S&P 500 rose 1.08% to close at 2,374.15.

    Our Buy List today gained 1.83%, thanks to a 19.50% gain for CR Bard. Without BCR, the rest of the Buy List was up 1.05% which was basically inline with the market. By the way, Becton, Dickinson (BDX) fell 4.44% today.

    For the year, our Buy List is now up 8.75% compared with 6.04% for the S&P 500. That doesn’t include dividends.

    We hit new highs today in AFL, ADS, BCR, FISV, MSFT, MCO, SHW and SYK.

    The broader market saw new highs for the Nasdaq. It’s not far from breaking 6,000. Among S&P 500 sectors, we had new highs in Industrials, Consumer Discretionary and Tech. Among S&P 500 stocks, new highs beat new lows 78 to 2.

  • The Stunning Success of Tobacco Investing
    Posted by on April 24th, 2017 at 12:53 pm

    The Wall Street Journal has an article today on the amazing profitability of tobacco stocks. This seems to be a fact well-hidden from everyone except us stock-pickers. After all, the tobacco biz goes all the back to the founding of the country.

    The WSJ article has several factoids. Here are a few:

    “Americans spent more at retail stores on cigarettes in 2016 than they did on soda and beer combined.”

    “The number of cigarettes sold in the U.S. fell by 37% from 2001 to 2016.”

    “Over the same period, though, companies raised prices, boosting cigarette revenue by 32%, to an estimated $93.4 billion last year.”

    “An average pack in the U.S. cost an estimated $6.42 in 2016, up from $3.73 in 2001.”

    “The operating profits of U.S. tobacco manufacturers have grown 77% since 2006 to $18.4 billion in 2016.”

    “In 2000, U.S. tobacco companies’ price-to-earnings ratios were about a third of their consumer-staples peers’. Today, they’re roughly 10% higher.”

    “The S&P 500 Tobacco Index fell 22% between 1998 and 2002. Over the past decade, it’s up 178%, outperforming the broader S&P 500, which climbed 58%.”

    “The industry sells 5.5 trillion cigarettes each year to the world’s one billion smokers.” (Can that be right? Wow. That means the average smoker smokes 5,500 cigarettes each year, or about 15 per day.)

    “About 42% of the average U.S. pack price is tax.” In Britain, it’s 82%.

    “The adult smoking rate in the U.S. fell to 15% in 2015, from 25% in 1995. The rate among high-school students dropped to 11% from 35%.”

    I was recently reading the Hendrik Bessembinder paper, “Do Stocks Outperform Treasury Bills?” He ran the numbers of all the stocks listed in the CRSP database. He found that the top-performing stock from July 1926 to December 2015 was Altria. The gain was 2,029,630.4%.

    Here’s a look at how tobacco stocks as a whole have performed over the last 17 years.

    That’s a 1,300% gain for the sector. Tobacco has done so well that the S&P 500 looks like a flat line in comparison. If anything, that chart understates tobacco’s gain because it doesn’t include dividends.

  • CR Bard Opens at $303.65
    Posted by on April 24th, 2017 at 11:04 am

    Shares of CR Bard opened today at $303.65. That’s a nice increase of $50.58 over Friday’s close.

    Going by Friday’s close for BDX, the buyout price for BCR is $317.

    As I write this (at 11 am), BCR is at $304.52 while shares of BDX are currently down about 3.7% to $178.49. Since part of the deal is in BDX shares, that drops the buyout price down to $313.55. Note that shares of acquirers typically drop after a deal is announced.

    That means that BCR (at $304.52) is going for 2.88% below its buyout price. That’s not a big surprise since the deal is probably about six months from closing. There’s also probably a small discount priced in if the deal falls apart. That’s possible but very unlikely.

  • Morning News: April 24, 2017
    Posted by on April 24th, 2017 at 7:13 am

    France Delivers Euro’s Latest Existential Question

    German Business Confidence Climbs to Highest Since July 2011

    Trump’s America to Win as China Stumbles, Steel Veteran Says

    U.S. Chamber of Commerce Chief Expects Basic NAFTA Deal By Mid-2018

    Becton to Buy C.R. Bard in $24 Billion Medical Supply Deal

    Syngenta Defends GMO Corn as Merger Shifts Blame to China’s Door

    LafargeHolcim CEO’s Resignation on Syria Creates Power Vacuum

    Why Amazon Can’t Kill Costco

    No Longer A Dream: Silicon Valley Takes On The Flying Car

    The Electric Car Revolution Now Faces Its Biggest Test

    Tesla’s Big Model 3 Bet Rides on Risky Assembly Line Strategy

    JAB Puts Jimmy Choo, Bally Up for Sale to Focus on Coffee

    Malaysia to Pay $1.2 Billion to Abu Dhabi Fund Over 1MDB Scandal

    Josh Brown: Cheap. Capital. Is. Awesome.

    Jeff Miller: Time To Rebuild the Wall of Worry?

    Be sure to follow me on Twitter.

  • CR Bard’s Earnings Report
    Posted by on April 23rd, 2017 at 6:39 pm

    Not that it matters much now, but CR Bard (BCR) just released their Q1 earnings report which was scheduled for later this week.

    Bard had previously said they expected Q1 EPS between $2.60 and $2.66, and full-year EPS between $11.45 and $11.75. It turns out for Q1, they made $2.87 per share. They now expect full-year EPS between $11.65 and $11.90. For Q2, they’re expecting $2.75 to $2.85 per share. Wall Street had been expecting $2.87.

    I’ve lifted our Buy Below on BCR to $330 per share.

    First quarter 2017 net sales were $938.8 million, an increase of 7 percent on an as-reported basis over the prior-year period. Excluding the impact of foreign exchange, first quarter 2017 net sales increased 8 percent over the prior-year period. Divested products and acquisitions in the last twelve months favorably impacted net sales growth by approximately 70 basis points.

    For the first quarter 2017, net sales in the U.S. were $657.2 million and net sales outside the U.S. were $281.6 million, an increase of 5 percent and 14 percent, respectively, over the prior-year period. Excluding the impact of foreign exchange, first quarter 2017 net sales outside the U.S. increased 17 percent over the prior-year period.

    For the first quarter 2017, net income was $178.1 million and diluted earnings per share were $2.37, an increase of 53 percent and 54 percent, respectively, as compared to first quarter 2016 results. Adjusting for amortization of intangibles and certain items that affect comparability between periods as detailed in the tables below, first quarter 2017 net income was $215.4 million and diluted earnings per share were $2.87, an increase of 22 percent and 23 percent, respectively, as compared to first quarter 2016 results.

    In conjunction with the first quarter results, the company is also updating financial guidance for the full year and providing financial guidance for the second quarter of 2017. For the full year 2017, net sales are now forecasted to increase between 5 percent and 6 percent on an as-reported basis. Excluding the impact of foreign exchange, full year 2017 net sales are forecasted to increase between 6 percent and 7 percent over 2016. Full year 2017 diluted earnings per share, after adjusting for amortization of intangibles and certain items that affect comparability between periods, are projected to be between $11.65 and $11.90, representing growth between 13 percent and 16 percent compared to full year 2016 results.

    For the second quarter 2017, net sales are forecasted to increase between 4 percent and 5 percent on an as-reported basis. Excluding the impact of foreign exchange, second quarter 2017 net sales are forecasted to increase between 6 percent and 7 percent over second quarter 2016. Second quarter 2017 diluted earnings per share, after adjusting for amortization of intangibles and certain items that affect comparability between periods, are projected to be between $2.75 and $2.85, representing growth between 8 percent and 12 percent compared to second quarter 2016 results.

  • The BCR/BDX Press Release
    Posted by on April 23rd, 2017 at 6:32 pm

    Here’s the press release:

    FRANKLIN LAKES, N.J. and MURRAY HILL, N.J., April 23, 2017 /PRNewswire/ — BD (Becton, Dickinson and Company) (NYSE: BDX), a leading global medical technology company, and C. R. Bard, Inc. (NYSE: BCR), a medical technology leader in the fields of vascular, urology, oncology and surgical specialty products, announced today a definitive agreement under which BD will acquire Bard for $317.00 per Bard common share in cash and stock, for a total consideration of $24 billion. The agreement has been unanimously approved by the Boards of Directors of both companies.

    The combination will create a highly differentiated medical technology company uniquely positioned to improve both the process of care and the treatment of disease for patients and healthcare providers. The transaction will build on BD’s leadership position in medication management and infection prevention with an expanded offering of solutions across the care continuum. Additionally, Bard’s strong product portfolio and innovation pipeline will increase BD’s opportunities in fast-growing clinical areas, and the combination will enhance growth opportunities for the combined company in non-U.S. markets.

    This financially compelling transaction will be immediately accretive and is expected to generate high-single digit accretion to adjusted earnings per share (EPS) in fiscal year 2019. Approximately $300 million of estimated annual, pre-tax, run-rate cost synergies are expected by fiscal year 2020. Separately, BD also expects to benefit from revenue synergies beginning in fiscal year 2019. The transaction is expected to improve BD’s gross margins by approximately 300 basis points in fiscal year 2018, increase BD’s earnings per share growth trajectory to the mid-teens, and generate strong cash flow.

    Vince Forlenza, BD’s chairman and chief executive officer, said, “Combining with Bard will accelerate our ability to offer more comprehensive, clinically relevant solutions to customers and patients around the globe, creating a strong partner for healthcare providers who are increasingly focused on delivering better outcomes at a lower total cost. Our two purpose-driven organizations are well-aligned strategically, sharing a strong track record of performance and a deep commitment to addressing unmet needs in today’s challenging healthcare environment. We expect the transaction to contribute meaningfully to BD’s plans for revenue growth and margin expansion, and generate outstanding value both near- and long-term for shareholders. I am excited to welcome Bard’s talented employees to our strong and dedicated team as we bring together two companies with such complementary capabilities, values and strong reputations for delivering superior results.”

    Tim Ring, Bard’s chairman and chief executive officer, said, “We are confident that this combination will deliver meaningful benefits for customers and patients as we see opportunities to leverage BD’s leadership, especially in medication management and infection prevention. We also believe that we can expand our access to customers and patients through BD’s strategic selling capabilities, and that our fast-growing portfolio in emerging markets can significantly benefit from their well-established international commercial infrastructure. Our two companies share the conviction that a product leadership strategy focused on unmet needs and improved outcomes that provide economic value to the global healthcare system will provide long-term shareholder returns.”

    John Weiland, Bard’s vice-chairman, president and chief operating officer, added, “BD and Bard share a common purpose with highly compatible organizations. We are very proud of the business and culture we have built over 110 years, focused on quality, integrity, innovation and service. We have long had great respect for BD and find in them a similarly strong, results-oriented culture that prioritizes execution and long-term value creation. In addition to significant benefits for our customers, patients, and shareholders, we believe this combination will provide our employees with new and exciting opportunities as part of a highly competent, dynamic global organization. We look forward to this next chapter in our company’s great history.”

    Strategic Highlights

    Will create new opportunities to build on BD’s leadership position in medication management and infection prevention with an expanded offering of solutions across the care continuum.

    Will bring together highly complementary product sets to create unmatched solutions for customers, enhancing growth opportunities for the combined company.
    By combining Bard’s strong leadership position and innovation pipeline in fast-growing vascular access segments – PICCs (peripherally inserted central catheters), midlines and drug delivery ports – with BD’s leadership and innovation in IV drug preparation, dispensing, delivery and administration, the new company will be better positioned to provide end-to-end medication management solutions across the care continuum.
    Will further expand BD’s leadership in infection prevention, with offerings positioned to address 75 percent of the most costly and frequent healthcare associated infections (HAIs). Through the combined solutions set, the new company will have a more comprehensive, clinically relevant offering to address Surgical Site Infections (SSIs) and Catheter-Related Blood Stream Infections (CRBSIs).
    Bard’s strong product portfolio and innovation pipeline will increase BD’s opportunities in fast growing clinical areas, including peripheral vascular therapy, oncology and bio-surgery.

    Bard’s clinically differentiated offerings create more meaningful scale and relevance for BD in high-growth categories of oncology and surgery.
    Bard will expand BD’s focus on the treatment of disease states beyond diabetes to include peripheral vascular disease, urology, hernia and cancer.
    BD’s leading global capabilities and infrastructure will further accelerate the combined company’s growth outside of the U.S., creating more opportunities for patients and clinicians around the world to benefit from BD’s and Bard’s product technology.

    Together, BD and Bard will bring to market an expanded portfolio of clinically relevant products, with opportunities to drive near-term revenue synergies outside of the U.S.
    Bard, which registered approximately 500 products internationally in 2016, has made significant progress expanding outside of the U.S. in recent years, particularly in emerging markets, where Bard is among the fastest growing medical technology companies.
    Bard’s strong presence in vascular access and surgery will also help drive sales of the highly complementary CareFusion portfolio outside of the U.S.
    The combined company will have a large and growing presence in emerging markets, including $1 billion in annual revenue in China.
    Transaction Highlights

    Under the terms of the transaction, Bard common shareholders will be entitled to receive approximately $222.93 in cash and 0.5077 shares of BD stock per Bard share, or a total of value of $317.00 per Bard common share based on BD’s closing price on April 21, 2017. At closing, Bard shareholders will own approximately 15 percent of the combined company.

    BD expects to contribute approximately $1.7 billion of available cash to fund the transaction, along with, subject to market conditions, approximately $10 billion of new debt and approximately $4.5 billion of equity and equity linked securities issued to the market. Bard shareholders will also receive $8 billion of BD common stock. BD has also obtained fully committed bridge financing. At closing, BD estimates the combined company will have pro forma leverage of approximately 4.7x and is committed to deleveraging to below 3.0x leverage within three years of closing. BD expects to continue the suspension of its share repurchase program. BD is also committed to annual dividend increases while reinvesting in the business to continue to drive long-term growth.

    The transaction is subject to regulatory and Bard shareholder approvals and customary closing conditions, and is expected to close in the fall of 2017.

    Integration Plans

    BD has a successful integration track record, as demonstrated by its 2015 acquisition and integration of CareFusion. BD has put in place a plan to ensure a seamless integration with Bard. A designated integration team, comprised of senior members of both organizations, will be led by Bill Tozzi, a seasoned BD executive who most recently served as worldwide president of the Medication and Procedural Solutions business and earlier was corporate controller for BD. At the closing of the transaction, Tim Ring, chairman and chief executive of Bard, and an additional Bard director, are expected to join the BD Board of Directors, which will be expanded by two directors. BD is confident in its ability to achieve synergies as it brings together two world class companies and expects to offer opportunities for talented employees to become part of an even more dynamic global leader.

    BD Organizational Update

    BD expects to create a third segment within the company – BD Interventional — where the Bard businesses will report both operationally and financially. BD is separately announcing today the appointment of Tom Polen, 43, currently executive vice president and president of the BD Medical Segment, as president of BD, effective immediately. In his new role, Mr. Polen will oversee BD’s Medical and Life Sciences segments, as well as the new Interventional segment.

    Transaction Conference Call and Webcast Information

    BD and Bard will conduct a live conference call and webcast on April 24, 2017 at 8:00 a.m. (ET). The webcast of the conference call, along with related slides, will be accessible through BD’s and Bard’s websites. The conference call will also be available for replay through BD’s and Bard’s websites, or at (800) 585-8367 (domestic) and (404) 537-3406 (international) through the close of business on May 1, 2017, confirmation number 13011331.

    BD Earnings Update

    BD’s earnings conference call, previously scheduled for Thursday, May 4, 2017, has been rescheduled for Tuesday, May 2, 2017, at 8:00 a.m. (ET). BD will issue a press release detailing the quarter’s earnings earlier that morning. The webcast of the conference call, along with related slides, will be accessible through BD’s website at www.BD.com/investors and will be available for replay through Thursday, May 9, 2017.

    Bard Earnings Update

    Bard separately today announced first quarter 2017 financial results, which are available on Bard’s corporate website, and is canceling the previously scheduled earnings conference call on April 26, 2017.

    Advisors

    Perella Weinberg Partners LP is acting as lead financial advisor to BD. Citi is also serving as a financial advisor to BD and will be providing fully committed financing. Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel to BD. Goldman, Sachs & Co. served as financial advisor to Bard. Wachtell, Lipton, Rosen & Katz served as legal advisor to Bard.

  • CWS Market Review – April 23, 2017
    Posted by on April 23rd, 2017 at 6:09 pm

    Great news broke on Sunday. Becton, Dickinson (BDX) said they’re buying CR Bard (BCR) for $24 billion, or $317 per share. That’s a 25.3% premium to Friday’s closing price!

    This is terrific news and it’s great seeing a long position get rewarded so handsomely.

    Here’s how the deal work. BCR shareholders will get $222.93 per share in cash plus 0.5077 shares of BDX. That works out to $317 based on Friday’s close.

    Here’s the press release.

    Don’t worry. There’s nothing you have to do right now. The deal is expected to close this fall. I’ll have more details in upcoming issues of CWS Market Review. But first, I wanted to let you know about this news as soon as possible.

    – Eddy

    P.S. Hooray!!!!