Investment Research Insights

Houston-based merchant generator, Dynegy Inc. (DYN) is moving towards being acquired by an affiliate of The Blackstone Group L.P. (BX). Post-acquisition, Blackstone will sell a portion of Dynegy’s generation assets to NRG Energy Inc. (NRG), which is proactively looking at increasing its presence in California. Blackstone plans to close the transaction by the end of 2010.

Federal Trade Commission Approval

On Wednesday, the Federal Trade Commission, in an early termination notice under the Hart-Scott-Rodino Antitrust Improvement Act, approved the deals and said that neither the acquisition deal nor the intended asset sales to NRG Energy presents any breach of antitrust regulations.

Background

On August 13, 2010, Blackstone announced that it would acquire Dynegy for $4.7 billion (including debt). Under the deal, Blackstone will pay $4.50 per share (a 62% premium on the closing price of $2.78 on August 12) in cash for about 120.6 million outstanding shares of Dynegy. In addition, Dynegy will get a 40-day period to solicit better bids for its shareholders.

Blackstone also declared that concurrently and contingent upon the agreement, it plans to sell four natural gas plants of Dynegy to NRG Energy for $1.36 billion. The four gas plants include the Casco Bay facility in Maine and the Moss Landing, Marro Bay and Oakland facilities in California.

Bourses on Fire

Dynegy’s proposed acquisition by Blackstone set the stock price heating up; it has spiked 40% over the past month. The deal is a win-win for both parties, with Dynegy’s shareholders hit hard by mark-to-market losses from forward power sales, enjoying near-term valuation upside.

 

On the other hand, Blackstone is eyeing Dynegy’s generation assets a portion of which would be sold to NRG Energy while the rest would be margin-accretive once the Midwest power market improves.

Dynegy, after having a dream run on the markets in August, seems to have run out of steam. The acquisition offer from Blackstone had given a 40-day time frame to solicit alternative bids, which ends on September 21, 2010.

 

The bullishness is reflected with the stock closing at $5.03 on September 8,2010, or at 11.8% premium over a market apprehension of another bid as it seems that the present bid values Dynegy at a discount. However, to date no alternative bids have come.

A Premature Ode to Dynegy

Dynegy’s wholesale electric power -- which is supplied to utilities, cooperatives, municipalities and other energy companies in the Midwest, the Northeast and the West Coast -- provides a relatively stable and growing earnings stream. Geographic disparity in the target markets of Dynegy has resulted in a portfolio that is well-positioned for capitalizing on regional differences in power prices and weather-driven demand.

Dynegy’s low-cost, well-operated power generation portfolio, which spreads across six U.S. states, is a diverse mix of coal, oil and natural gas. Diversified generation assets give the company’s cost structure a natural hedge against the impact of volatile commodity prices.

Dynegy’s prudent financial management has helped minimize generation dispatch costs. To cater to its coal-based generation assets, the company has contracted substantially all its coal requirements until 2012. Also, in a smart move, it inserted a non-fuel price escalator until 2013 for its coal transportation contract through rail.

Recent Trepidations in Financial Performance

In the second quarter of 2010, Dynegy on the revenue front witnessed a slide to $239 million from $450 million in the year-ago period, compared with the Zacks Consensus Estimate of $494 million. The company digested mark-to-market losses associated with forward power sales of $262 million in the quarter.

In the near-term, the Zacks #3 Rank (Hold) stock is expected to digest losses due to weak forward natural gas prices and tepid forward Midwest power prices. The company expects net loss in the range of $165 to $205 million in fiscal 2010.

The near-term outlook is no different for other Zacks #3 Rank (Hold) U.S. based independent power producers like RRI Energy Inc. (RRI), Calpine Corporation (CPN) and Mirant Corporation (MIR).
 

 
DYNEGY INC (DYN): Free Stock Analysis Report
 
Zacks Investment Research

Defense contractor Raytheon Company (RTN) announced that its unit Raytheon Missile Systems Co. has won a contract worth $165.3 million from the U.S. Department of Defense.

As per the contract, the Missile Systems wing of Raytheon will be involved in the development of Standard Missile-3 Block IIA missile. The company will provide engineering services and material for systems engineering, and will also be involved in the design and initial hardware fabrication for the missile program.

Raytheon Missile Systems is working with Japan's Ministry of Defense, Mitsubishi Heavy Industries and the Missile Defense Agency to develop Standard Missile-3 Block IIA. The new missile will provide the army a greater engagement capability against a wider variety of ballistic missile threats and more flexibility in protecting U.S. and allied forces.

The Standard Missile-3 (SM-3) is being developed as a part of the Missile Defense Agency and the U.S. Navy's sea-based Aegis Ballistic Missile Defense System. The SM-3 Block IIA is an upgraded version, an outcome of the U.S. and Japanese cooperative research program.

During the second quarter 2010, the Missile Systems unit notched almost 24% or $1,415 million of Raytheon’s total sales of $5,973 million. During the said quarter, the unit received orders worth $895 million from various agencies. The total backlog of this Raytheon unit at second-quarter end was $7,838 million, of which $6,296 million comprised funded backlog.

Raytheon currently retains a Zacks #3 Rank (short-term Hold rating). We presently maintain a Neutral rating on the stock.

Based in Waltham, Massachusetts, Raytheon Company, along with its subsidiaries, provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as mission support services to its global customers.

 
RAYTHEON CO (RTN): Free Stock Analysis Report
 
Zacks Investment Research

Houston-based merchant generator, Dynegy Inc. (DYN) is moving towards being acquired by an affiliate of The Blackstone Group L.P. (BX). Post-acquisition, Blackstone will sell a portion of Dynegy’s generation assets to NRG Energy Inc. (NRG), which is proactively looking at increasing its presence in California. Blackstone plans to close the transaction by the end of 2010.

Federal Trade Commission Approval

On Wednesday, the Federal Trade Commission, in an early termination notice under the Hart-Scott-Rodino Antitrust Improvement Act, approved the deals and said that neither the acquisition deal nor the intended asset sales to NRG Energy presents any breach of antitrust regulations.

Background

On August 13, 2010, Blackstone announced that it would acquire Dynegy for $4.7 billion (including debt). Under the deal, Blackstone will pay $4.50 per share (a 62% premium on the closing price of $2.78 on August 12) in cash for about 120.6 million outstanding shares of Dynegy. In addition, Dynegy will get a 40-day period to solicit better bids for its shareholders.

Blackstone also declared that concurrently and contingent upon the agreement, it plans to sell four natural gas plants of Dynegy to NRG Energy for $1.36 billion. The four gas plants include the Casco Bay facility in Maine and the Moss Landing, Marro Bay and Oakland facilities in California.

Bourses on Fire

Dynegy’s proposed acquisition by Blackstone set the stock price heating up; it has spiked 40% over the past month. The deal is a win-win for both parties, with Dynegy’s shareholders hit hard by mark-to-market losses from forward power sales, enjoying near-term valuation upside.

 

On the other hand, Blackstone is eyeing Dynegy’s generation assets a portion of which would be sold to NRG Energy while the rest would be margin-accretive once the Midwest power market improves.

Dynegy, after having a dream run on the markets in August, seems to have run out of steam. The acquisition offer from Blackstone had given a 40-day time frame to solicit alternative bids, which ends on September 21, 2010.

 

The bullishness is reflected with the stock closing at $5.03 on September 8,2010, or at 11.8% premium over a market apprehension of another bid as it seems that the present bid values Dynegy at a discount. However, to date no alternative bids have come.

A Premature Ode to Dynegy

Dynegy’s wholesale electric power -- which is supplied to utilities, cooperatives, municipalities and other energy companies in the Midwest, the Northeast and the West Coast -- provides a relatively stable and growing earnings stream. Geographic disparity in the target markets of Dynegy has resulted in a portfolio that is well-positioned for capitalizing on regional differences in power prices and weather-driven demand.

Dynegy’s low-cost, well-operated power generation portfolio, which spreads across six U.S. states, is a diverse mix of coal, oil and natural gas. Diversified generation assets give the company’s cost structure a natural hedge against the impact of volatile commodity prices.

Dynegy’s prudent financial management has helped minimize generation dispatch costs. To cater to its coal-based generation assets, the company has contracted substantially all its coal requirements until 2012. Also, in a smart move, it inserted a non-fuel price escalator until 2013 for its coal transportation contract through rail.

Recent Trepidations in Financial Performance

In the second quarter of 2010, Dynegy on the revenue front witnessed a slide to $239 million from $450 million in the year-ago period, compared with the Zacks Consensus Estimate of $494 million. The company digested mark-to-market losses associated with forward power sales of $262 million in the quarter.

In the near-term, the Zacks #3 Rank (Hold) stock is expected to digest losses due to weak forward natural gas prices and tepid forward Midwest power prices. The company expects net loss in the range of $165 to $205 million in fiscal 2010.

The near-term outlook is no different for other Zacks #3 Rank (Hold) U.S. based independent power producers like RRI Energy Inc. (RRI), Calpine Corporation (CPN) and Mirant Corporation (MIR).
 

 
DYNEGY INC (DYN): Free Stock Analysis Report
 
Zacks Investment Research

Abbott Labs (ABT) recently completed its acquisition of Indian company Piramal Healthcare Ltd.’s Healthcare Solutions business (Domestic Formulations) for $3.8 billion. In addition to an upfront payment of $2.2 billion, Abbott Labs will pay $400 million annually over the next 4 years.

Position Strengthened in Indian Pharma Market

The acquisition of Piramal’s Healthcare Solutions business should catapult Abbott Labs to the top position in the Indian pharmaceutical market, which is one of the world's fastest-growing. The Healthcare Solutions business, which is now a part of Abbott Labs’ Established Products Division, grew 23% in fiscal 2010 and has a presence in several therapeutic areas including antibiotics, respiratory, cardiovascular, pain and neuroscience.

The Established Products Division focuses on branded generics especially in emerging markets.

Abbott Labs estimates that the Indian pharma market will generate $8 billion in sales this year – this amount is expected to more than double in the next five years. With this acquisition, the company expects its Indian pharmaceutical business to grow 20% annually, with sales slated to exceed $2.5 billion by 2020. The combined Abbott Labs and Piramal business should have a 7% share of the market.

Emerging Markets a Focus Area

This acquisition, which is not expected to affect Abbott Labs' earnings per share guidance for 2010, is in line with the company’s goal of strengthening its presence in the generics business as well as emerging markets. The company is looking to double its presence in emerging markets, which currently account for 20% of the company’s revenues.

A few months back, Abbott Labs acquired the pharmaceuticals business of Belgian company Solvay Group. This deal has not only helped expand Abbott’s product portfolio, it has also allowed the company to expand its presence in the European market as well as emerging markets where Solvay has a strong presence.

Besides this, Abbott also signed a licensing and supply agreement with another Indian company, Zydus Cadila, for the commercialization of at least 24 Zydus products in 15 emerging markets.

Abbott Labs’ deal with Piramal is the latest in a series of deals signed by global pharma companies to expand their generics portfolio and strengthen their presence in emerging markets. While Pfizer (PFE) has agreements with two Indian companies, Aurobindo Pharma and Strides Arcolab, for the manufacture of several generic drugs, GlaxoSmithKline (GSK) has an agreement with Dr. Reddy’s Laboratories (RDY) for the development and marketing of select products in various emerging markets. Meanwhile, AstraZeneca (AZN) recently entered into a licensing and supply agreement with Aurobindo Pharma.

Neutral on Abbott Labs

We currently have a Neutral recommendation on Abbott Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). Abbott has some very strong business segments and a great late-stage pipeline. We believe Humira will continue to be a strong growth driver in the years to come.
 

 
Zacks Investment Research

Abbott Labs (ABT) recently completed its acquisition of Indian company Piramal Healthcare Ltd.’s Healthcare Solutions business (Domestic Formulations) for $3.8 billion. In addition to an upfront payment of $2.2 billion, Abbott Labs will pay $400 million annually over the next 4 years.

Position Strengthened in Indian Pharma Market

The acquisition of Piramal’s Healthcare Solutions business should catapult Abbott Labs to the top position in the Indian pharmaceutical market, which is one of the world's fastest-growing. The Healthcare Solutions business, which is now a part of Abbott Labs’ Established Products Division, grew 23% in fiscal 2010 and has a presence in several therapeutic areas including antibiotics, respiratory, cardiovascular, pain and neuroscience.

The Established Products Division focuses on branded generics especially in emerging markets.

Abbott Labs estimates that the Indian pharma market will generate $8 billion in sales this year – this amount is expected to more than double in the next five years. With this acquisition, the company expects its Indian pharmaceutical business to grow 20% annually, with sales slated to exceed $2.5 billion by 2020. The combined Abbott Labs and Piramal business should have a 7% share of the market.

Emerging Markets a Focus Area

This acquisition, which is not expected to affect Abbott Labs' earnings per share guidance for 2010, is in line with the company’s goal of strengthening its presence in the generics business as well as emerging markets. The company is looking to double its presence in emerging markets, which currently account for 20% of the company’s revenues.

A few months back, Abbott Labs acquired the pharmaceuticals business of Belgian company Solvay Group. This deal has not only helped expand Abbott’s product portfolio, it has also allowed the company to expand its presence in the European market as well as emerging markets where Solvay has a strong presence.

Besides this, Abbott also signed a licensing and supply agreement with another Indian company, Zydus Cadila, for the commercialization of at least 24 Zydus products in 15 emerging markets.

Abbott Labs’ deal with Piramal is the latest in a series of deals signed by global pharma companies to expand their generics portfolio and strengthen their presence in emerging markets. While Pfizer (PFE) has agreements with two Indian companies, Aurobindo Pharma and Strides Arcolab, for the manufacture of several generic drugs, GlaxoSmithKline (GSK) has an agreement with Dr. Reddy’s Laboratories (RDY) for the development and marketing of select products in various emerging markets. Meanwhile, AstraZeneca (AZN) recently entered into a licensing and supply agreement with Aurobindo Pharma.

Neutral on Abbott Labs

We currently have a Neutral recommendation on Abbott Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). Abbott has some very strong business segments and a great late-stage pipeline. We believe Humira will continue to be a strong growth driver in the years to come.
 

 
Zacks Investment Research

Shuffle Master Inc.’s (SHFL) fiscal 2010 third-quarter GAAP earnings grew 4.1% to $5.8 million from $5.6 million in the year-ago period. Excluding special items, earnings per share came in at 13 cents, which edged past the Zacks Consensus Estimate of 12 cents. The better-than-expected quarterly results were mainly attributable to higher revenues and improved gross margin.

Shuffle Master develops, manufactures and markets automatic card shuffling equipment and gaming products such as table games and slot machine software for the gaming industry. The company, which has manufacturing facilities in Las Vegas and at New South Wales, Australia, also distributes casino chip sorting machines and accessories.

During the quarter, Shuffle Master’s total revenue rose 14.4% to $51.5 million from $45.1 million in the year-ago period. The growth was driven by product leases and royalty revenue, which grew 15.1% to $22.0 million coupled with a 13.9% growth in product sales and service revenue to $29.5 million.

Shuffle Master’s gross profit increased 15.7% year-over-year to $31.7 million, while gross margin grew 70 basis points (bps) to 61.4%, primarily due to increased lease and royalty revenue, which carries a higher margin, compared to sales and service revenue. Total operating expenses increased 24.3% to $23.2 million, mainly due to higher severance costs, compensation and R&D expenses. Accordingly, the company’s operating profit declined 2.9% to $8.4 million from $8.7 million in the year-ago period.

Shuffle Master exited the quarter with cash and cash equivalents of $26.5 million, compared to $17.2 million of cash in the year-ago quarter. Long-term debt (including current portion) at the end of the quarter was $90.4 million, reflecting a long-term debt-to-capitalization of 34.9%. During the first nine months of fiscal 2010, the company generated $38.6 million of cash from operations and deployed $14.9 million towards debt repayment and $4.3 million towards capital expenditure.

Shuffle Master has a short-term Zacks #3 Rank (Hold) and a long-term Neutral recommendation.

 
SHUFFLE MASTER (SHFL): Free Stock Analysis Report
 
Zacks Investment Research

Shuffle Master Inc.’s (SHFL) fiscal 2010 third-quarter GAAP earnings grew 4.1% to $5.8 million from $5.6 million in the year-ago period. Excluding special items, earnings per share came in at 13 cents, which edged past the Zacks Consensus Estimate of 12 cents. The better-than-expected quarterly results were mainly attributable to higher revenues and improved gross margin.

Shuffle Master develops, manufactures and markets automatic card shuffling equipment and gaming products such as table games and slot machine software for the gaming industry. The company, which has manufacturing facilities in Las Vegas and at New South Wales, Australia, also distributes casino chip sorting machines and accessories.

During the quarter, Shuffle Master’s total revenue rose 14.4% to $51.5 million from $45.1 million in the year-ago period. The growth was driven by product leases and royalty revenue, which grew 15.1% to $22.0 million coupled with a 13.9% growth in product sales and service revenue to $29.5 million.

Shuffle Master’s gross profit increased 15.7% year-over-year to $31.7 million, while gross margin grew 70 basis points (bps) to 61.4%, primarily due to increased lease and royalty revenue, which carries a higher margin, compared to sales and service revenue. Total operating expenses increased 24.3% to $23.2 million, mainly due to higher severance costs, compensation and R&D expenses. Accordingly, the company’s operating profit declined 2.9% to $8.4 million from $8.7 million in the year-ago period.

Shuffle Master exited the quarter with cash and cash equivalents of $26.5 million, compared to $17.2 million of cash in the year-ago quarter. Long-term debt (including current portion) at the end of the quarter was $90.4 million, reflecting a long-term debt-to-capitalization of 34.9%. During the first nine months of fiscal 2010, the company generated $38.6 million of cash from operations and deployed $14.9 million towards debt repayment and $4.3 million towards capital expenditure.

Shuffle Master has a short-term Zacks #3 Rank (Hold) and a long-term Neutral recommendation.

 
SHUFFLE MASTER (SHFL): Free Stock Analysis Report
 
Zacks Investment Research

CrowdGather, Inc. (CRWG) is an Internet company that specializes in the development and hosting of forum-based websites. The firm endeavors to monetize a network of online forums and message boards. Forums remain a much undervalued part of the Internet pie with $4.8 billion, and CrowdGather is the only public company dedicated to monetizing this area.

More page results equate to more revenue, as page views have jumped from 12 million to 80 million through several mergers. CRWG is now in acquisition mode. We see value in the shares and initiate our Outperform rating on CRWG.

Forums are Unique

People are there precisely to discuss products or services, even specific brands. They pose questions to the community, ask for guidance or simply look to connect with people who share their passions. The audience is primed and ready for -- even actively seeking -- product-specific messages.

Forums remain a much undervalued piece of the Internet advertising sales puzzle partly because advertisers in the past have been fearful of hate speech or other noise emanating from a few negative posts. CrowdGather reduces this risk by bringing enthusiasts together in narrowed-down niche markets in the Gaming and Entertainment, Technology, and Leisure and Lifestyle areas.

For instance, members of Ironmass.com, a body building forum, are more likely to talk about training, nutrition and equipment than engage in hate speech or other noise. CrowdGather then uses Google Ad Sense to sell advertising to members of the forum.

With the acquisition of Adisn and Lefora the firm essentially leveraged $6.5 million in equity in exchange for an increase in revenues and page views. That stake will not be dilutive given the cancellation of 5 million shares of CEO Sanjay Sabnani’s beneficial holdings in CrowdGather.

Investors who buy the stock today are essentially getting a firm that is debt-free, growing page views at 750% (12 million to 90 million), revenues at over 400%, and has not suffered dilution.

Forum discussion topics reveal that consumers are in the middle of the research process and are seeking more information to help them make purchase decisions, and CrowdGather remains the only public company dedicated to monetizing this area. Forum contributors are simply more active on and off-line. We see value in the shares and set our price target at $2.00.
 
CROWDGATHER INC (CRWG): Free Stock Analysis Report
 
Zacks Investment Research

CrowdGather, Inc. (CRWG) is an Internet company that specializes in the development and hosting of forum-based websites. The firm endeavors to monetize a network of online forums and message boards. Forums remain a much undervalued part of the Internet pie with $4.8 billion, and CrowdGather is the only public company dedicated to monetizing this area.

More page results equate to more revenue, as page views have jumped from 12 million to 80 million through several mergers. CRWG is now in acquisition mode. We see value in the shares and initiate our Outperform rating on CRWG.

Forums are Unique

People are there precisely to discuss products or services, even specific brands. They pose questions to the community, ask for guidance or simply look to connect with people who share their passions. The audience is primed and ready for -- even actively seeking -- product-specific messages.

Forums remain a much undervalued piece of the Internet advertising sales puzzle partly because advertisers in the past have been fearful of hate speech or other noise emanating from a few negative posts. CrowdGather reduces this risk by bringing enthusiasts together in narrowed-down niche markets in the Gaming and Entertainment, Technology, and Leisure and Lifestyle areas.

For instance, members of Ironmass.com, a body building forum, are more likely to talk about training, nutrition and equipment than engage in hate speech or other noise. CrowdGather then uses Google Ad Sense to sell advertising to members of the forum.

With the acquisition of Adisn and Lefora the firm essentially leveraged $6.5 million in equity in exchange for an increase in revenues and page views. That stake will not be dilutive given the cancellation of 5 million shares of CEO Sanjay Sabnani’s beneficial holdings in CrowdGather.

Investors who buy the stock today are essentially getting a firm that is debt-free, growing page views at 750% (12 million to 90 million), revenues at over 400%, and has not suffered dilution.

Forum discussion topics reveal that consumers are in the middle of the research process and are seeking more information to help them make purchase decisions, and CrowdGather remains the only public company dedicated to monetizing this area. Forum contributors are simply more active on and off-line. We see value in the shares and set our price target at $2.00.
 
CROWDGATHER INC (CRWG): Free Stock Analysis Report
 
Zacks Investment Research

Defense contractor Alliant Techsystems Inc. (ATK) continues to prudently manage its balance sheet by announcing plans to further enhance its liquidity position. Yesterday, Alliant Techsystems put forth plans to refinance its existing senior credit facilities.

Alliant is in talks with a group of lenders to replace its existing credit facilities to strengthen its liquidity. Currently, the company has $500 million of revolving credit facility and $257.8 million in term loans. The company expects to replace these facilities with a new five-year senior credit facility of up to $1.0 billion. The new facility will comprise a $600 million revolving credit facility and a $400 million term loan.

We believe the proposed $1.0 billion refinancing will provide the company with ample finances to fund future growth and meet its debt obligations as well as its capital expenditures.

In another release, the company announced plans to sell $300 million worth of senior notes maturing in 2020. Alliant intends to use roughly $280 million of the net $300 million proceeds to redeem all of its outstanding 2.75% convertible notes due 2024. Remaining proceeds will be used for general corporate purposes.

As of the end of the first quarter of fiscal 2011, Alliant’s cash and cash equivalents were $91.9 million and long-term debt was $1.4 billion. During the quarter, the company spent nearly $35 million towards capital expenditure.

Going forward, the company expects to generate free cash flows in the range of $275 - $300 million, with capital expenditures of roughly $120 million.

Alliant Techsystems is a premier aerospace and defense company with more than 18,000 employees in 22 states, Puerto Rico and internationally, and revenues of approximately $4.8 billion. The company supplies aerospace and defense products to the U.S. government agencies, and its prime contractors and sub-contractors. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers.

Currently, we have a short-term Zacks #3 Rank (Hold) on the stock. We also have a long-term Neutral recommendation on Alliant.

 
ALLIANT TECHSYS (ATK): Free Stock Analysis Report
 
Zacks Investment Research

Defense contractor Alliant Techsystems Inc. (ATK) continues to prudently manage its balance sheet by announcing plans to further enhance its liquidity position. Yesterday, Alliant Techsystems put forth plans to refinance its existing senior credit facilities.

Alliant is in talks with a group of lenders to replace its existing credit facilities to strengthen its liquidity. Currently, the company has $500 million of revolving credit facility and $257.8 million in term loans. The company expects to replace these facilities with a new five-year senior credit facility of up to $1.0 billion. The new facility will comprise a $600 million revolving credit facility and a $400 million term loan.

We believe the proposed $1.0 billion refinancing will provide the company with ample finances to fund future growth and meet its debt obligations as well as its capital expenditures.

In another release, the company announced plans to sell $300 million worth of senior notes maturing in 2020. Alliant intends to use roughly $280 million of the net $300 million proceeds to redeem all of its outstanding 2.75% convertible notes due 2024. Remaining proceeds will be used for general corporate purposes.

As of the end of the first quarter of fiscal 2011, Alliant’s cash and cash equivalents were $91.9 million and long-term debt was $1.4 billion. During the quarter, the company spent nearly $35 million towards capital expenditure.

Going forward, the company expects to generate free cash flows in the range of $275 - $300 million, with capital expenditures of roughly $120 million.

Alliant Techsystems is a premier aerospace and defense company with more than 18,000 employees in 22 states, Puerto Rico and internationally, and revenues of approximately $4.8 billion. The company supplies aerospace and defense products to the U.S. government agencies, and its prime contractors and sub-contractors. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers.

Currently, we have a short-term Zacks #3 Rank (Hold) on the stock. We also have a long-term Neutral recommendation on Alliant.

 
ALLIANT TECHSYS (ATK): Free Stock Analysis Report
 
Zacks Investment Research

Forest Laboratories, Inc. (FRX) recently received a boost with an advisory panel of the US Food and Drug Administration (FDA) voting in favor of approving its antibiotic candidate, ceftaroline.

Committee Unanimously in Favor of Approval

The FDA’s Anti-Infective Drugs Advisory Committee voted unanimously (21-0) in favor of approving the candidate for the treatment of community-acquired bacterial pneumonia (CABP). The committee also voted unanimously (18-0) in favor of approving ceftaroline for complicated skin and skin structure infections (cSSSI).

Final Decision in October

The favorable recommendation from the advisory panel is a major positive for Forest Labs. Although the FDA is not required to follow the panel’s recommendation, it usually does so. A final decision regarding the approvability of ceftaroline should be out in late October.

The approval of ceftaroline will be a huge boost for Forest Labs, which is facing a major patent cliff from 2012 when anti-depressant Lexapro loses exclusivity. Another key drug, Namenda, is slated to lose exclusivity in 2015. Forest Labs, therefore, needs new products in its portfolio which will help compensate the loss of revenues that will take place once these key drugs start facing generic competition.

Ceftaroline became a part of Forest Labs’ pipeline with its acquisition of Cerexa Inc. in Jan 2007. In addition to developing ceftaroline on its own, Forest Labs has an agreement with AstraZeneca (AZN) for the development of a ceftaroline in combination with a novel intravenous beta-lactamase inhibitor, NXL104.

Neutral on Forest Labs

We currently have a Neutral recommendation on Forest Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). We remain concerned about the strength of the company’s pipeline relative to the loss in sales that will come with the Lexapro (2012) and Namenda (2015) patent expirations. With Lexapro losing patent protection in March 2012, roughly half the company’s top-line will be at risk to generic competition.

While Bystolic and Savella should be very meaningful contributors by that time, we believe that their combined sales will not be enough to compensate for the loss of Lexapro sales. Namenda will face generic competition in early 2015 -- this puts another $1+ billion at risk.

Given the situation, we believe that Forest will continue to seek in-licensing and acquisition activities to grow its pipeline. In fact, the company’s goal is to double the commercial value of its late-stage pipeline by 2012 through in-licensing deals and acquisitions. Forest has made significant progress in this regard and should be on the lookout for additional deals in the next couple of years.

 
FOREST LABS A (FRX): Free Stock Analysis Report
 
Zacks Investment Research

Forest Laboratories, Inc. (FRX) recently received a boost with an advisory panel of the US Food and Drug Administration (FDA) voting in favor of approving its antibiotic candidate, ceftaroline.

Committee Unanimously in Favor of Approval

The FDA’s Anti-Infective Drugs Advisory Committee voted unanimously (21-0) in favor of approving the candidate for the treatment of community-acquired bacterial pneumonia (CABP). The committee also voted unanimously (18-0) in favor of approving ceftaroline for complicated skin and skin structure infections (cSSSI).

Final Decision in October

The favorable recommendation from the advisory panel is a major positive for Forest Labs. Although the FDA is not required to follow the panel’s recommendation, it usually does so. A final decision regarding the approvability of ceftaroline should be out in late October.

The approval of ceftaroline will be a huge boost for Forest Labs, which is facing a major patent cliff from 2012 when anti-depressant Lexapro loses exclusivity. Another key drug, Namenda, is slated to lose exclusivity in 2015. Forest Labs, therefore, needs new products in its portfolio which will help compensate the loss of revenues that will take place once these key drugs start facing generic competition.

Ceftaroline became a part of Forest Labs’ pipeline with its acquisition of Cerexa Inc. in Jan 2007. In addition to developing ceftaroline on its own, Forest Labs has an agreement with AstraZeneca (AZN) for the development of a ceftaroline in combination with a novel intravenous beta-lactamase inhibitor, NXL104.

Neutral on Forest Labs

We currently have a Neutral recommendation on Forest Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). We remain concerned about the strength of the company’s pipeline relative to the loss in sales that will come with the Lexapro (2012) and Namenda (2015) patent expirations. With Lexapro losing patent protection in March 2012, roughly half the company’s top-line will be at risk to generic competition.

While Bystolic and Savella should be very meaningful contributors by that time, we believe that their combined sales will not be enough to compensate for the loss of Lexapro sales. Namenda will face generic competition in early 2015 -- this puts another $1+ billion at risk.

Given the situation, we believe that Forest will continue to seek in-licensing and acquisition activities to grow its pipeline. In fact, the company’s goal is to double the commercial value of its late-stage pipeline by 2012 through in-licensing deals and acquisitions. Forest has made significant progress in this regard and should be on the lookout for additional deals in the next couple of years.

 
FOREST LABS A (FRX): Free Stock Analysis Report
 
Zacks Investment Research

The Beige Book is a collection of mostly anecdotal information from around the country collected by the twelve Federal Reserve districts. In general, it pointed to growth that was continuing but at a slower pace than the already anemic level of the previous months.

No signs of a double-dip, but not a lot of evidence that we are about to start a vigorous uptrend in the economy either. For the most part, the report confirmed what we already knew from other economic reports. Here are some of the key passages from the report, along with some of my thoughts mixed in:

“…Continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods. Economic growth at a modest pace was the most common characterization of overall conditions...”

Economic growth at a modest pace seems to be a phrase the Fed is using a lot these days. The questions is, should we expect better than that?

There are two schools of thought. In most of the cases where the economy goes into a deep recession, the path out of it is usually very vigorous. However, recovery that happens after recessions that are caused by financial crises tend to be very slow and lackluster. There are not a lot of data points on U.S. recessions caused by financial panics, but there are plenty of examples from other advanced economies.

This case is a bit unique in that is was a very deep recession that was caused by a financial panic. So far the financial panic side seems to be outweighing the deep side.

“Reports on consumer spending were mixed but suggested a slight increase on balance. Most Districts reported that non-automotive retail sales rose compared with the previous reporting period or were above their levels from 12 months earlier.”

Being above a year ago is not a huge feat, since that was near the bottom of the recession, making it a very easy comp. Sequential growth is harder to achieve. There's not a lot of it, but at least it is still positive.

“Most Districts also reported that sales of new automobiles and light trucks were largely stable or up slightly during the reporting period, and contacts were optimistic for stable sales or slight growth over the balance of the year. A few reports indicated that inventories for various goods remained near desired levels despite slower sales in some cases, as retailers have been practicing very tight inventory management.”

That is probably very good news for companies like Ford (F), since they have made great strides in bringing their costs under control. They are solidly profitable now with sales running at under a 12 million a year pace, down from well over 16 million a year before the recession started.

The tight inventory management probably means that we will get no contribution from increasing inventories for third quarter GDP growth. That has been a major -- but diminishing -- contributor to growth in the last three quarters.

“Reports from most Districts pointed to consistent gains in travel and tourist activity, with pickups evident in the business and leisure segments alike.”

This is a good sign since leisure travel is a highly discretionary item, and shows more confidence on the part of consumers. If you are afraid you are going to lose your job, you don’t go on a vacation. Also, travel and tourism is a very labor intensive business, so a pick up in hotel occupancy is likely to lead to more jobs. When on vacation, people tend to eat out, and that will also spur more jobs.

“Manufacturing activity expanded further on balance, although the pace of growth appeared to be slower than earlier in the year. Most Districts reported further gains in production activity and sales across a broad spectrum of manufacturing industries.”

Manufacturing has been one of the real bright spots in this recovery, particularly when compared to the last two recoveries. I suspect that some of the slowdown in growth there is related to the stronger dollar hurting exports and making imports more competitive here.

“Reports on capacity utilization were mixed. Manufacturers of high-tech products have been operating near maximum capacity of late, although this partly reflects a substantial decline in industry-wide capacity over the past three years.”

That should be good news for the semiconductor industry, where there is a high degree of operating leverage. If the plants are running at near-maximum capacity, it is likely that they are making a lot of money. That would also favor the firms that have the manufacturing capacity like Intel (INTC) and Analog Devices (ADI) versus some of the smaller “fabless semiconductor” firms.

“Capital spending plans for manufacturers and firms in other industries generally indicate little change or modest increases in coming months.”

That is a bit on the disappointing side. We need strong capital investment if the economy is going to pick up steam. Obama’s new proposal to allow companies to expense equipment purchases rather than depreciate them over their useful lives might help this part of the economy pick up a bit more steam.

“Activity in residential real estate markets declined further. Most District reports highlighted evidence of very low or declining home sales, which many attributed to a sustained lull following the expiration of the homebuyer tax credit at the end of June...Residential construction activity declined in most areas in response to weak demand.”

The real estate market, especially the residential real estate market, has been the millstone around the neck of the economy, and it does not look like that is changing. We had a bit of a temporary respite due to the tax credit, but that simply pulled sales that would have been made in the summer into the spring.

We had a bit of a party; now it is hangover time. Historically, residential investment is the key locomotive pulling the economy out of a recession. The locomotive is derailed this time around.

“Demand for commercial, industrial and retail space generally remained depressed. Vacancy rates stayed at elevated levels in general and rose further in a few Districts, placing substantial downward pressure on rents.”

Don’t look for non-residential construction to take the place of residential construction. Normally non-residential construction kicks in much later in the economic cycle, so it is not that unusual that it is weak (residential construction is classic early cycle), but its weakness is not helping matters.

“Lending activity was stable to down slightly on net. Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans...with declines driven by weak business lending stemming in large part from uncertainty about future economic conditions. Consumer lending remained sluggish in general...the role of households' ongoing efforts to reduce their debt burdens. A recent flurry of refinancing activity spurred increased demand for residential mortgages, but new-purchase mortgage originations remained quite sluggish in general.”

Mortgage refinancing is providing an important boost to the economy, as mortgage rates are at levels not seen for decades. However, a very large number of people are not able to participate in it since they owe more on their current mortgage than the house is worth, or have only a small sliver of positive equity.

For those who have the ability to refinance, it can save people hundreds of dollars a month, money that can be spent elsewhere. It is an open question of how much the decline in lending is from banks not wanting to lend and how much is from businesses not wanting to borrow. Clearly both factors are at play.

“Demand for agricultural products continued to expand, and producers benefited from relatively tranquil supply conditions. Crops and livestock generally sold well in Districts with extensive agricultural sectors, including Chicago, Minneapolis, Kansas City, Dallas and San Francisco. Domestic growers have seen increased demand for grains and other commodities as a result of shortages overseas. Growing conditions were supportive of relatively high yields in most areas.”

Things are going well down on the farm, as U.S. farmers are benefiting from crop failures elsewhere in the world, most notably the drought and heat wave in Russia. It is noteworthy that the lowest unemployment rates in the country are in places like the Dakotas and Nebraska, which have very large farm economies.

“Upward price pressures were very limited during the reporting period, with the exception of selected food commodities and industrial materials.”

Deflation is probably a bigger threat right now than runaway inflation. The bond market is practically screaming that inflation is not a big worry right now.

“Wage pressures remained modest overall. Of Districts commenting on wages, most identified little or no upward pressures or increases.”

With 9.6% unemployment, that is hardly a surprise.

Overall, the tone of this Beige Book was a bit softer than the tone we were seeing a few months ago. Nothing disastrous, but not enough growth to make much of a dent in the huge army or the unemployed. Maybe that is why the call it the Beige book and not the neon orange book; at least this time around beige seems to be a very appropriate color.

 
Zacks Investment Research

The Beige Book is a collection of mostly anecdotal information from around the country collected by the twelve Federal Reserve districts. In general, it pointed to growth that was continuing but at a slower pace than the already anemic level of the previous months.

No signs of a double-dip, but not a lot of evidence that we are about to start a vigorous uptrend in the economy either. For the most part, the report confirmed what we already knew from other economic reports. Here are some of the key passages from the report, along with some of my thoughts mixed in:

“…Continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods. Economic growth at a modest pace was the most common characterization of overall conditions...”

Economic growth at a modest pace seems to be a phrase the Fed is using a lot these days. The questions is, should we expect better than that?

There are two schools of thought. In most of the cases where the economy goes into a deep recession, the path out of it is usually very vigorous. However, recovery that happens after recessions that are caused by financial crises tend to be very slow and lackluster. There are not a lot of data points on U.S. recessions caused by financial panics, but there are plenty of examples from other advanced economies.

This case is a bit unique in that is was a very deep recession that was caused by a financial panic. So far the financial panic side seems to be outweighing the deep side.

“Reports on consumer spending were mixed but suggested a slight increase on balance. Most Districts reported that non-automotive retail sales rose compared with the previous reporting period or were above their levels from 12 months earlier.”

Being above a year ago is not a huge feat, since that was near the bottom of the recession, making it a very easy comp. Sequential growth is harder to achieve. There's not a lot of it, but at least it is still positive.

“Most Districts also reported that sales of new automobiles and light trucks were largely stable or up slightly during the reporting period, and contacts were optimistic for stable sales or slight growth over the balance of the year. A few reports indicated that inventories for various goods remained near desired levels despite slower sales in some cases, as retailers have been practicing very tight inventory management.”

That is probably very good news for companies like Ford (F), since they have made great strides in bringing their costs under control. They are solidly profitable now with sales running at under a 12 million a year pace, down from well over 16 million a year before the recession started.

The tight inventory management probably means that we will get no contribution from increasing inventories for third quarter GDP growth. That has been a major -- but diminishing -- contributor to growth in the last three quarters.

“Reports from most Districts pointed to consistent gains in travel and tourist activity, with pickups evident in the business and leisure segments alike.”

This is a good sign since leisure travel is a highly discretionary item, and shows more confidence on the part of consumers. If you are afraid you are going to lose your job, you don’t go on a vacation. Also, travel and tourism is a very labor intensive business, so a pick up in hotel occupancy is likely to lead to more jobs. When on vacation, people tend to eat out, and that will also spur more jobs.

“Manufacturing activity expanded further on balance, although the pace of growth appeared to be slower than earlier in the year. Most Districts reported further gains in production activity and sales across a broad spectrum of manufacturing industries.”

Manufacturing has been one of the real bright spots in this recovery, particularly when compared to the last two recoveries. I suspect that some of the slowdown in growth there is related to the stronger dollar hurting exports and making imports more competitive here.

“Reports on capacity utilization were mixed. Manufacturers of high-tech products have been operating near maximum capacity of late, although this partly reflects a substantial decline in industry-wide capacity over the past three years.”

That should be good news for the semiconductor industry, where there is a high degree of operating leverage. If the plants are running at near-maximum capacity, it is likely that they are making a lot of money. That would also favor the firms that have the manufacturing capacity like Intel (INTC) and Analog Devices (ADI) versus some of the smaller “fabless semiconductor” firms.

“Capital spending plans for manufacturers and firms in other industries generally indicate little change or modest increases in coming months.”

That is a bit on the disappointing side. We need strong capital investment if the economy is going to pick up steam. Obama’s new proposal to allow companies to expense equipment purchases rather than depreciate them over their useful lives might help this part of the economy pick up a bit more steam.

“Activity in residential real estate markets declined further. Most District reports highlighted evidence of very low or declining home sales, which many attributed to a sustained lull following the expiration of the homebuyer tax credit at the end of June...Residential construction activity declined in most areas in response to weak demand.”

The real estate market, especially the residential real estate market, has been the millstone around the neck of the economy, and it does not look like that is changing. We had a bit of a temporary respite due to the tax credit, but that simply pulled sales that would have been made in the summer into the spring.

We had a bit of a party; now it is hangover time. Historically, residential investment is the key locomotive pulling the economy out of a recession. The locomotive is derailed this time around.

“Demand for commercial, industrial and retail space generally remained depressed. Vacancy rates stayed at elevated levels in general and rose further in a few Districts, placing substantial downward pressure on rents.”

Don’t look for non-residential construction to take the place of residential construction. Normally non-residential construction kicks in much later in the economic cycle, so it is not that unusual that it is weak (residential construction is classic early cycle), but its weakness is not helping matters.

“Lending activity was stable to down slightly on net. Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans...with declines driven by weak business lending stemming in large part from uncertainty about future economic conditions. Consumer lending remained sluggish in general...the role of households' ongoing efforts to reduce their debt burdens. A recent flurry of refinancing activity spurred increased demand for residential mortgages, but new-purchase mortgage originations remained quite sluggish in general.”

Mortgage refinancing is providing an important boost to the economy, as mortgage rates are at levels not seen for decades. However, a very large number of people are not able to participate in it since they owe more on their current mortgage than the house is worth, or have only a small sliver of positive equity.

For those who have the ability to refinance, it can save people hundreds of dollars a month, money that can be spent elsewhere. It is an open question of how much the decline in lending is from banks not wanting to lend and how much is from businesses not wanting to borrow. Clearly both factors are at play.

“Demand for agricultural products continued to expand, and producers benefited from relatively tranquil supply conditions. Crops and livestock generally sold well in Districts with extensive agricultural sectors, including Chicago, Minneapolis, Kansas City, Dallas and San Francisco. Domestic growers have seen increased demand for grains and other commodities as a result of shortages overseas. Growing conditions were supportive of relatively high yields in most areas.”

Things are going well down on the farm, as U.S. farmers are benefiting from crop failures elsewhere in the world, most notably the drought and heat wave in Russia. It is noteworthy that the lowest unemployment rates in the country are in places like the Dakotas and Nebraska, which have very large farm economies.

“Upward price pressures were very limited during the reporting period, with the exception of selected food commodities and industrial materials.”

Deflation is probably a bigger threat right now than runaway inflation. The bond market is practically screaming that inflation is not a big worry right now.

“Wage pressures remained modest overall. Of Districts commenting on wages, most identified little or no upward pressures or increases.”

With 9.6% unemployment, that is hardly a surprise.

Overall, the tone of this Beige Book was a bit softer than the tone we were seeing a few months ago. Nothing disastrous, but not enough growth to make much of a dent in the huge army or the unemployed. Maybe that is why the call it the Beige book and not the neon orange book; at least this time around beige seems to be a very appropriate color.

 
Zacks Investment Research

Onyx Pharmaceuticals Inc. (ONXX) recently announced that it has entered into an agreement with a Japanese company, Ono Pharmaceutical Co. Ltd., for the development and commercialization of two of Onyx Pharma’s compounds, carfilzomib and ONX 0912, in Japan.

Carfilzomib is currently in multiple trials for the treatment of patients with multiple myeloma and other cancers, and Onyx Pharma plans to file a New Drug Application with the US Food and Drug Administration (FDA) by the end of 2010 for accelerated approval of the candidate. ONX 0912, which is a follow-on drug of carfilzomib, is currently in phase I testing.

As per the terms of the agreement, Ono Pharma will have full rights to develop and market both the compounds for all oncology indications in Japan, while Onyx Pharma retains the marketing rights for the rest of the world.

For the deal, Ono Pharma will make an upfront payment of ¥5 billion ($59 million) to Onyx Pharma and the company will also be entitled to receive up to $280 million on the achievement of certain development and sales milestones. Onyx Pharma will also receive double-digit royalty payments on the sales of these drugs, when approved and marketed in Japan.

Japan-based Ono Pharmaceutical Co. Ltd. is primarily engaged in the manufacture and sale of pharmaceutical products. The company’s products include oral medications for the treatment of bronchial asthma, disturbances of peripheral circulation, chronic pancreatitis and overactive bladder, as well as injectable drugs for the treatment of acute lung injury, generalized intravascular coagulation syndrome, acute phase cerebral thrombosis and blood pressure regulators used during surgical operations.

We currently have a Neutral recommendation on Onyx Pharma, which is supported by a Zacks #3 Rank (short-term Hold rating). We view this deal as a positive for Onyx Pharma, as this partnership allows the company to benefit from Ono Pharma's drug development experience in Japan.

Moreover, the agreement has brought in cash, which should come in good use as Onyx Pharma conducts pre-launch activities for carfilzomib. Carfilzomib could hit the US market as early as 2011 if it is granted accelerated approval by the FDA.
 
ONYX PHARMA INC (ONXX): Free Stock Analysis Report
 
Zacks Investment Research