The Zacks Analyst Blog Highlights: Actavis, Warner Chilcott, Bill Barrett,
Linn Energy and Forest Oil
CHICAGO, May 22, 2013
CHICAGO, May 22, 2013 /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 Actavis, Inc. (NYSE:ACT), Warner
Chilcott plc (Nasdaq:WCRX), Bill Barrett Corp. (NYSE:BBG), Linn Energy LLC
(Nasdaq:LINE) and Forest Oil Corp. (NYSE:FST).
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Here are highlights from Tuesday's Analyst Blog:
Actavis to Buy Warner Chilcott
Actavis, Inc. (NYSE:ACT) recently announced its intention to acquire Warner
Chilcott plc (Nasdaq:WCRX) in a stock-for-stock transaction worth about $8.5
billion. This includes the assumption of Warner Chilcott's net debt of $3.4
The successful completion of this deal will lead to the creation of a leading
global specialty pharmaceutical company with combined annual revenues of about
$11 billion. The combined company will hold the third position in the US
specialty pharmaceutical market with annual revenues of about $3 billion.
The deal is expected to close by the end of this year. The two companies will
be combined to form a new company domiciled in Ireland where Warner Chilcott
is currently incorporated.
Warner Chilcott shareholders will receive 0.160 shares of the new company for
each share owned by them. This comes to about $20.08 per Warner Chilcott
share, representing a 34% premium to Warner Chilcott's closing share price
($15.01) on May 9, 2013, a day before Warner Chilcott disclosed its merger
plans with Actavis.
Meanwhile, Actavis shareholders will receive one share in the new company for
each Actavis share owned by them. Once the deal closes, about 23% of the new
company will be owned by Warner Chilcott shareholders. The new company, to be
called Actavis plc, will continue to trade on the New York Stock Exchange
under the ticker symbol ACT.
The Warner Chilcott acquisition will help strengthen Actavis' position in the
women's health (eight products) and urology (six marketed products) segments.
The company will also gain a presence in the gastroenterology (two marketed
products) and dermatology (one marketed product and a new product launch
slated for Jul 2013) markets.
Moreover, Actavis will gain a pipeline of 25 candidates include 15 targeting
the women's health market.
Once the new company is formed, specialty brand sales are expected to account
for 25% of 2013 sales, up from the current 7% contribution (stand-alone
Actavis). The deal is expected to be accretive to Actavis' 2014 earnings per
share by more than 30%. The company expects to achieve post-tax operational
synergies and related cost reductions and tax savings of more than $400
million. While a major part of these savings will be realized next year, the
full effect will be achieved in 2015.
The combined company's tax rate is expected to be about 17%, well below
stand-alone Actavis' expected effective 2013 tax rate of 27% - 29%.
We are positive on this deal which makes strategic and financial sense. The
deal is expected to be immediately accretive. Moreover, it will provide strong
operating cash flow and allow Actavis to de-lever its balance sheet. The tax
rate will also be significantly below current levels.
Currently, both Actavis and Warner Chilcott are Zacks Rank #3 (Hold) stocks.
Shares of both companies reacted positively to the acquisition news.
Another Strong Nat Gas Storage Build
The U.S. Energy Department's weekly inventory release showed a
larger-than-expected rise in natural gas supplies – the third in as many weeks
– on account of milder-than-seasonal weather. Moreover, on a further bearish
note, the build was well ahead of the five-year average levels, thereby
narrowing the deficit with the benchmark.
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report – brought out by the Energy Information
Administration (EIA) every Thursday since 2002 – includes updates on natural
gas market prices, the latest storage level estimates, recent weather data and
other market activities or events.
The report provides an overview of the level of reserves and their movements,
thereby helping investors understand the demand/supply dynamics of natural
gas. It is an indicator of current gas prices and volatility that affect
businesses of natural gas-weighted companies and related support plays.
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states rose by 99
billion cubic feet (Bcf) for the week ended May 10, 2013, higher than the
guided range (of 93–97 Bcf gain) as per the analysts surveyed by Platts. The
increase – the fifth injection of 2013 – also exceeded both last year's build
of 56 Bcf and the 5-year (2008–2012) average addition of 83 Bcf for the
Despite past week's build, the current storage level – at 1.964 trillion cubic
feet (Tcf) – is down 694 Bcf (26.1%) from the last year and is 83 Bcf (4.1%)
below the benchmark five-year average.
Natural gas stocks hit an all-time high of 3.929 Tcf last year, as production
from dense rock formations (shale) – through novel techniques of horizontal
drilling and hydraulic fracturing – remained robust. In fact, the oversupply
of natural gas pushed down prices to a 10-year low of $1.82 per million Btu
(MMBtu) during late Apr 2012 (referring to spot prices at the Henry Hub, the
benchmark supply point in Louisiana).
However, things have started to look up in recent times. This year, cold
winter weather across most parts of the country boosted natural gas demand for
space heating by residential/commercial consumers. This, coupled with flat
production volumes, meant that the inventory overhang has now gone, thereby
driving commodity prices to $4.38 per MMBtu – the highest since Sep 2011.
This, in turn, is expected to buoy natural gas producers, particularly smaller
players like Bill Barrett Corp. (NYSE:BBG), Linn Energy LLC (Nasdaq:LINE) and
Forest Oil Corp. (NYSE:FST). With the financial incentive to produce the
commodity and the subsequent improvement in the companies' ability to generate
positive earnings surprises, they are likely to move higher from their current
Zacks Rank #3 (Hold).
But natural gas demand is currently going through a lean period – with the end
of the winter heating season and ahead of the peak cooling loads for summer.
Therefore, until hot summer weather prevails across the country and increases
electricity draws to run air conditioners, the commodity may experience
above-average builds, thereby pulling down prices again.
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