The Zacks Analyst Blog Highlights:Merck, Johnson & Johnson, Chesapeake Energy,
Royal Dutch Shell and Chevron
CHICAGO, Oct. 26, 2012
CHICAGO, Oct. 26, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Merck & Co. Inc. (NYSE:MRK),
Johnson & Johnson (NYSE:JNJ), Chesapeake Energy Corporation (NYSE:CHK), Royal
Dutch Shell plc (NYSE:RDS.B) and Chevron Corporation (NYSE:CVX).
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Here are highlights from Thursday's Analyst Blog:
Earnings Preview: Merck & Co.
Merck & Co. Inc. (NYSE:MRK) is set to announce its third quarter 2012 results
on October 26, 2012, before the opening bell. The Zacks Consensus Estimate for
the third quarter is 93 cents per share, down 1.1% from the year-ago earnings
of 94 cents.
Second Quarter Recap
Merck reported second quarter 2012 earnings per share (excluding special
items) of $1.05, 4 cents above the Zacks Consensus Estimate and 10.5% above
the year-ago earnings.
Revenues for the quarter increased 1.3% to $12,311 million, just above the
Zacks Consensus Estimate of $12,129 million. Revenues were negatively impacted
by both currency fluctuations and the arbitration settlement agreement with
Johnson & Johnson
Agreement of Estimate Revisions
Of the 13 analysts following the stock, 3 analysts revised their third quarter
2012 estimate upward, while 2 analysts have trimmed their estimates in the
last 30 days.
In contrast, 2012 estimates have witnessed a downward bias over the last 30
days with 3 analysts raising estimates and 4 trimming the same.
The last 7 days saw 1 analyst raising earnings estimates for the third quarter
of 2012. For 2012, a sole analyst trimmed the estimates.
We believe that concerns regarding the impact of the Singulair patent expiry
(August 2012) has led analysts to revise their estimates downward for the
third quarter of 2012. Singulair, indicated for the chronic treatment of
asthma and relief of symptoms of allergic rhinitis, recorded $5.5 billion in
sales in 2011. The product accounted for approximately 11.4% of total revenues
Meanwhile, the upward revisions in 2012 estimates reflect the anticipated
strong sales of Januvia/Janumet and new product approvals like Victrelis as
well as cost-cutting efforts.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the third quarter of 2012 increased by a
penny to 93 cents per share in the last 30 days. The Zacks Consensus Estimate
for 2012 remained stationary at $3.81 per share in the past 30 days, which is
slightly towards the higher end of the earnings guidance range of $3.75 –
$3.85 per share provided by the company. In the last 7 days, there was no
change in the Zacks Consensus Estimate for the third quarter of 2012 and full
Merck has consistently surpassed earnings estimates in the last four quarters.
The company recorded a maximum positive surprise of 3.96% in the second
quarter of 2012. On an average, the earnings surprise was 2.86%.
We currently have a Neutral recommendation on Merck, which carries a Zacks #3
Rank (short-term Hold rating).
Chesapeake Offloads Permian Assets
Recently, US natural gas giant Chesapeake Energy Corporation (NYSE:CHK) closed
the sale of its assets in the Permian Basin. The asset sale was a part of the
company's plan to repay its term loan of $4.0 billion by the end of 2012.
It's southern Delaware Basin assets in the Permian Basin were sold to SWEPI LP
– a subsidiary of
Royal Dutch Shell plc
); northern Delaware Basin part to Chevron U.S.A. Inc. – a subsidiary of
) and producing assets in the Midland Basin to affiliates of EnerVest.
Chesapeake received $3.3 billion through these three dealings, which comprised
$2.8 billon cash. The balance proceeds are subject to certain title,
environmental and standard contingencies.
During the second quarter of 2012, the sold assets produced 21,000 barrels of
liquids and 90 million cubic feet of natural gas per day. It was about 5.7% of
total production during the quarter.
Earlier this month, Chesapeake inked a deal to sell certain assets in western
Oklahoma, in a bid to narrow cash-flow shortfall while shifting gears to
oil-directed drilling from natural gas.
Chesapeake is on track with its plan of reducing its long-term debt by
monetizing its assets and curbing lease-hold spending. This monetization
initiative is mainly aimed to cope with the mounting debt level as well as to
fill the funding gap for its 2012 expenditures that resulted from low natural
Given the gas price scenario, Chesapeake intends to deploy more funds toward
liquids. In particular, the company plans to invest heavily in the development
of its holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime.
However, we prefer to remain on the sidelines and see the stock performing in
line with the broader market. Chesapeake holds a Zacks #3 Rank, which is
equivalent to a Hold rating for a period of one to three months. We maintain
our long-term Neutral recommendation on the company.
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