For Immediate Release
Chicago, IL - November 23, 2011 - 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
Bayer
(
BAYRY
),
Johnson & Johnson
(
JNJ
),
Netflix Inc.
(
NFLX
)
,
Lions Gate Entertainment Corp.
(
LGF
)
and
Google Inc.
(
GOOG
)
.
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Here are highlights from Tuesday's Analyst Blog:
Bayer Cut to Underperform
We recently downgraded
Bayer
(
BAYRY
) to Underperform from Neutral purely on valuation grounds. We
believe that the stock is overvalued at current levels.
Even though the US Food and Drug Administration (FDA) cleared
Bayer/
Johnson & Johnson
's (
JNJ
) potential blockbuster blood thinner Xarelto for stroke prevention
in atrial fibrillation (SPAF) earlier in the month, the associated
warning that discontinuation of the drug increases the risk of
stroke in SPAF patients could hamper its sales. Below-par showing
by Xarelto could pull down the stock significantly. Moreover, the
presence of Boehringer Ingelheim's Pradaxa (approved by the FDA in
2010) has intensified competition in the market.
Moreover, Bayer delivered average results in the third quarter
of 2011 with key drugs such as Betaferon, Kogenate and Levitra not
performing well. Sales in the Pharmaceutical segment were flat due
to weakness in the North American and Western European markets
because of healthcare reforms in those territories. Continued weak
performance in the key markets could also pull down the stock.
Moreover, the limited near-term catalysts at Bayer also concern us.
We have reduced our 2011 and 2012 earnings estimates by $0.16 and
$0.46 per ADS, respectively.
Furthermore, Bayer, which operates through three major segments-
Healthcare, Material Science and Crop Science - has been looking to
strengthen its HealthCare segment. The company has been inking
deals/making acquisitions to achieve the objective. For example, in
September 2011, Bayer purchased Kirkland, Washington based Pathway
Medical Technologies, Inc. to strengthen its HealthCare segment.
Moreover, in early 2011 Bayer inked a deal with Zydus Cadila to
strengthen its pharmaceutical operations in one of the most sought
after markets - India. However, if these initiatives fail to
deliver the desired results due to integration risks associated
with mergers, then it will weigh heavily on the stock.
These negative factors cause us to believe that the stock is
overvalued and there is little reason for investors to own the
stock at current levels.
Netflix to Raise $400 Million
Netflix Inc.
(
NFLX
)
recently announced that it will raise $400.0 million by issuing
common equity and convertible notes. The video rental and online
streaming provider expects the issuance of common equity and
convertible notes to generate proceeds of approximately $397.0
million, after deducting offering expenses.
Netflix will raise $400.0 million from two premier investors
namely T. Rowe Price Associates, Inc. and Technology Crossover
Ventures (TCV). Netflix sold 2.86 million of common stock at $70.00
per share to certain mutual funds and accounts managed by T. Rowe
Price Associates, Inc. On the other hand, TCV bought zero coupon
convertible senior notes of the company maturing 2018 for $200.0
million in a private placement.
We believe that the cash infusion will help Netflix pursue its
global expansion policy. The company is venturing into the
uncharted areas of the United Kingdom and Ireland and has already
announced a number of partnerships with premier Hollywood studios
such as Metro-Goldwyn-Mayer Studios Inc.,
Lions Gate Entertainment Corp.
(
LGF
)
and Miramax Studios.
In the third quarter of 2011, the company also ventured into
Latin America and the Caribbean, where it teamed up with local
content providers for regional language programs. We believe the
strategy to expand internationally will be accretive for Netflix
over the long term and provide the necessary platform for raising
its profitability on a global basis, as the company significantly
diversifies the risk of customer concentration in a particular
region.
However, we believe that the International operations will take
some time to contribute significantly to the company's top-line and
bottom-line growth. Moreover, the company has faced significant
criticism in the U.S. due to the increase in DVD prices and its
initial decision of splitting its operations into two and
subsequent backtracking. Netflix lost approximately 800,000
subscribers during the third quarter.
Although the company foresees a profitable fourth quarter of
2011, subscriber growth is expected to remain flat. Netflix
forecasts several quarters of losses starting from the first
quarter of 2012, as domestic profits are not expected to be high
enough to compensate the expected losses from expansion into
international markets. Netflix is expecting a net loss for the
fiscal year ending December 31, 2012, primarily attributable to
relatively flat consolidated revenues and increased investment in
the International segment.
We believe that the proceeds from the transaction will also help
Netflix to expand its streaming library, particularly in its
domestic market, which will attract new subscribers going forward.
However, an increasing debt level remains a concern, in our view.
As of September 30, 2011 Netflix had cash and cash equivalents of
$365.8 million versus a long-term debt of $200.0 million.
Further, the multi-year contracts with the studios will require
Netflix to pay approximately $3.5 billion for the rights to stream
video over the long term. Netflix also expects these costs to
increase going forward, which will remain a significant overhang on
the stock in our view.
Additionally, intensifying competition from large players such
as
Google Inc.
(
GOOG
)
in the online streaming market is also a headwind, as it will
further escalate license fees and also affect subscriber additions
over the long term.
We have an Underperform recommendation on Netflix over the long
term (6-12 months). Currently, Netflix has a Zacks #3 Rank, which
implies a Hold rating in the short term.
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BAYER A G -ADR (
BAYRY
): Free Stock Analysis Report
GOOGLE INC-CL A (
GOOG
): Free Stock Analysis Report
JOHNSON & JOHNS (
JNJ
): Free Stock Analysis Report
LIONS GATE ETMT (
LGF
): Free Stock Analysis Report
NETFLIX INC (
NFLX
): Free Stock Analysis Report
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