MAKO Receives a Tremendous Offer from Stryker; Is Intuitive Surgical Next?
September 26, 2013
The M&A flurry continued Wednesday morning as medical devices giant Stryker (click ticker for report: ) announced it would acquire MAKO Surgical (MAKO) for $30 per share, or roughly $1.65 billion. The deal represents an 83% premium to MAKO’s Tuesday closing price, but the value remains below MAKO’s peak in late 2011 and early 2012. MAKO remains unprofitable, though the firm has experienced solid revenue expansion during the past few years, going from $34 million in revenue during 2009 to $103 million during 2012. The firm isn’t expected to earn a profit in 2013, though revenue is estimated to jump 23% from the year-ago period. Given existing conditions, MAKO might not turn a profit until at least 2015, in our
Assets Need to Go: Vale Edition
September 26, 2013
Though it has already sold nearly $3 billion in assets since 2012, Brazilian mining giant Vale (click ticker for report: ) is mulling additional asset sales. CEO Murilo Ferreira admitted Tuesday that the firm was considering selling its 40% stake in aluminum producer Norsk Hydro ASA as well as some of its oil and gas assets. Vale joins rivals Rio Tinto (click ticker for report: ), Anglo American, and BHP (click ticker for report: ) in the effort to focus on the best operations while selling off underperforming assets. As we’ve previously noted, this situation becomes difficult when every party is also interested in selling weak assets, as would-be buyers can seek out bargains and demand hefty discounts. The fundamental reasoning
Grand Theft Auto V Will Drive Fantastic Results at Take-Two
September 25, 2013
It is no secret that the video game industry is surprisingly cyclical for many players. Look no further than GameStop (click ticker for report: ), which has seen shares soar after a multi-year lull in games now appears to be over with the launch of Microsoft’s Xbox One (click ticker for report: ) and Sony’s PlayStation 4 (click ticker for report: ). The game-developing business is probably even more cyclical, but it has little to do with broader economic conditions. Rather, development is somewhat similar to biotechnology in the sense that developers may spend years developing a game before finally launching and recouping costs with extraordinarily high marginal profits. That story is playing out at Take-Two Interactive Image Source: TTWO
Take the Money and Run: Fairfax Bails Out Blackberry
September 25, 2013
Late last week, smartphone maker Blackberry (click ticker for report: ) preannounced terrible second quarter results. Revenue likely declined approximately 43% year-over-year to $1.6 billion, which is nowhere in the ballpark of consensus estimates in the $3 billion range. This amounted to 3.7 million phone sales, far less than the number of units Apple (click ticker for report: ) sold during the first weekend of its iPhone 5S/5c release. The firm will post an operating loss of $950 million to $995 million driven primarily by a pre-tax inventory charge of $930 million to $960 million. Cash fell to $2.6 billion, and the firm announced that it would lay off 40% of its global staff, leaving the company with 7,000 total
Demand Remains Modest at Emerson Electric
September 24, 2013
Dividend Growth Newsletter portfolio holding Emerson Electric (click ticker for report: ) posted August order growth that revealed moderate, but growing demand for the firm’s various products. Order Growth Remains Positive Source: EMR 8-K* As one can see from the above chart, business in August was roughly in-line with that of the previous two months, though ‘Industrial Automation’ turned positive while ‘Process Management’ decelerated slightly. Regardless, we think Emerson’s order growth is symptomatic of the broader US economy—investment in capital goods is modest but investment is still growing. Of note, European demand in the firm’s ‘Process Management’ and ‘Climate Technologies’ segments is strong, suggesting the long-awaited bottom in the Eurozone economy may be surfacing. Little else stood out from the
Will Chipotle Serve Breakfast?
September 23, 2013
Amid news about the lack of Fed tapering and the launch of Apple’s iPhone 5S (click ticker for report: ), news broke that fast food chain Chipotle (click ticker for report: ) was testing coffee products at one of its Washington, D.C. locations. Naturally, the question arises: is Chipotle going to serve breakfast? Why We Think It’s a Great Idea There’s little doubt that the consistent comparable same-store sales growth from the likes of Panera (click ticker for report: ), Chipotle, and Noodles & Co. (NDLS) suggests that meals eaten outside of the house continue to rise. At the moment, we’re comfortable saying that McDonald’s (click ticker for report: ) possesses the strongest breakfast offering with a mix of inexpensive
Niaspan Generic Could Boost Teva
September 23, 2013
On Friday, Best Ideas Newsletter portfolio holding Teva Pharma (click ticker for report: ) announced that its generic version of AbbVie’s (click ticker for report: ) Niaspan would hit the US market this week. The news is particularly noteworthy because Teva was the first-to-file, making the product eligible for 180 days of marketing exclusivity (a large windfall for the company). To learn more about the generic industry and the significant benefits of marketing exclusivity, please consult our initiation report on the generics industry here. Niaspan is a cholesterol drug used to reduce elevated TC, LDL-C (bad cholesterol), Apo B and TG levels, and to raise HDL-C cholesterol (the good variety). Niaspan had annual sales of more than $1.1 billion
FedEx Ships More Packages as Economy Strengthens
September 22, 2013
Wednesday morning, shipping goliath FedEx (click ticker for report: ) announced better-than-anticipated fiscal first quarter results. Revenue rose 2% year-over-year to $11 billion, slightly above consensus expectations. Earnings per share increased 5.5% year-over-year to $1.53 per share, also slightly above consensus estimates. Free cash flow was decent at $357 million, equal to 3.2% of total revenue. FedEx Express Express revenue was roughly flat year-over-year at $6.61 billion, but segment operating income jumped 14% year-over-year to $236 million as the firm benefitted from 50 basis points of operating margin expansion. Management cited lower pension expenses and lower maintenance costs as the main drivers of earnings expansion in the face of flat top-line performance. This ends two consecutive quarters of top-line growth,
TJ Maxx Goes (Back) Online
September 22, 2013
After an 8-year hiatus, TJX Companies (click ticker for report: ) re-launched tjmaxx.com, reestablishing the firm’s e-commerce presence. The firm tried to become an online presence back in 2004, but given the nature of the TJX’s opportunistic and odd purchasing, product allocation was sloppy and too much time and money was spent updating inventory. What do we expect from tjmaxx.com now? Although we do love TJX’s business model of buying lots of designer goods at favorable prices, we admit the model does not really lend itself to online sales. In fact, that’s one of the reasons why we think TJX, fundamentally, is one of the best stories in retail. It is simply extremely hard to replicate the in-store experience online,
McDonald’s Modest Dividend Growth
September 20, 2013
Wednesday afternoon, global fast food giant McDonald’s (click ticker for report: ) announced that it will increase its quarterly cash dividend 5% to $0.81 per share—an annual run-rate of $3.24 per share. This is in-line with our prediction that McDonald’s next dividend increase would be 5% to $3.24 per annum (see dividend report ). Interestingly, this will be the second consecutive year that McDonald’s increased its dividend at a single-digit pace. Why is the dividend growth so depressed? McDonald’s only grew revenue 2% year-over-year during its most recent quarter while earnings per share were 5% higher than the year-ago period. McDonald’s is relatively conservative in terms of capital allocation, so we aren’t surprised the company has opted to increase its
