From Standard & Poor's Equity ResearchCOWEN CUTS SCHERING-PLOUGH TO NEUTRAL FROM OUTPERFORM
Schering-Plough (SGP) and Merck (MRK) were trading lower on Mar. 31 on cholesterol drug news. Cowen analyst Steve Scala downgrades Schering, saying based on Enhance data, consensus expert view, likelihood of further Vytorin/Zetia market share erosion, delay in Improve-It results, he moves to the sidelines pending further visibility on this cholesterol franchise and the company's pipeline.
Scala says a review of the data clearly shows addition of Zetia to simvastatin failed to lead to benefit, despite its significant LDL and CRP (C Reactive Protein) lowering. ACC panel recommended Vytorin/Zetia be reserved for patients who do not get to goal on statin/niacin/fibrate combinations or are statin intolerant until results of Improve-It provide answer of Zetia's ability to impact outcomes as result of its LDL lowering.
GOLDMAN SAYS ABBOTT LABS COULD ULTIMATELY BENEFIT FROM MERCK/SCHERING'S DISAPPOINTING ENHANCE STUDY
Goldman Sachs analyst Lawrence Keusch says over time, the Enhance study could move physicians to focus on a combination therapy with products that use more potent members of the statin class, as well as well-characterized lower-powered statins. With Abbott Laboratories (ABT) recently launching Simcor and the upcoming second quarter Phase III data for ABT-335 (next-generation fenofibrate) + rosuvastatin (Crestor), ABT's cholesterol franchise could ultimately benefit, in his view.
Although he's not revising forecasts yet ($122 million in 2008), he estimates that every $50 million in Simcor sales could generate EPS of $0.01-$0.02. He remains confident in ABT's 2008 outlook for 13%-14% EPS growth. He maintains the stock on Americas Conviction Buy List.
GOLDMAN CUTS FAIRPOINT COMMUNICATIONS TO AMERICAS CONVICTION SELL LIST
Goldman Sachs analyst Jason Armstrong says that with imminent close of Fairpoint Communications' (FRP) deal to purchase Verizon's (VZ) Northern New England access lines, he believes risks around FRP are set to go materially higher. He notes significant secular headwinds, high leverage, sizeable integration task all make for challenging near-term trajectory.
Says given that Public Utility Comm. (PUC) imposed de-leveraging requirements, he sees EBITDA declines, and believes sustainable dividend levels could be well below even 35% mandated PUC cuts. He also notes restrictions imposed by regulatory bodies include minimum capex requirements, mandatory dividend cuts, leverage caps, and M&A restrictions.
He sets a $6 12-month target price on the stock.
AUTO, TRUCK SUPPLIERS UPGRADED BY BAIRD
Baird analyst David Leiker says he's upgrading several stocks, raising targets in conjunction with his new market overweight group rating for auto, truck suppliers. He raises Methode Electronics (MEI), Accuride (ACW), ArvinMeritor (ARM), Commercial Vehicle Group (CVGI), Magna International (MGA), Tenneco (TEN) and Visteon (VC) to outperform from neutral; and upgrades BorgWarner (BWA), Modine Manufactuing (MOD) and Superior Industries (SUP) to neutral from underperform.
He notes he would look to upgrade BorgWarner, Stoneridge (SRI) and Strattec Security (STRT) to outperform from neutral at lower prices.
Leiker says, among outperform-rated stocks, his Top Ideas (names where he would be the most aggressive) remain Snap-On (SNA), Gentex (GNTX), Johnson Controls (JCI) and Autoliv (ALV); these are the higher-quality companies with solid near-term fundamentals that are trading in lower half of the valuation range, but these mainstream ideas may not outperform the group.