American Airlines (AMR) Vice President and Treasurer Describes Citigroup (C) and GE (GE) Financings

2009-11-23 19:01:52

TWST: More recently, I believe the company has focused on strengthening its liquidity and its financial standing in what is clearly a challenging environment for all airlines. Talk a bit about those initiatives.

Ms. Goulet: As you said, it has been a very challenging environment in which to raise liquidity, but year-to-date, we have been very successful. We have raised substantially more than $5 billion year-to-date. Even during the first half of the year, when conditions were about as bad as they could get, we were able to arrange financing both for new delivery aircraft as well as for aircraft already in our fleet. And I think all of this is frankly testament to the fact that we have met our obligations as they have come due, as opposed to resorting to the bankruptcy courts as a number of our competitors have.

Things really got cranking early in the third quarter as the capital markets did begin to reopen. We raised about $800 million of financing in both public and private transactions secured by aircraft, again, already in our fleet or new aircraft that we will be taking delivery of. But the cornerstone of our efforts was laid in September, when we arranged $2.9 billion of financing with two of our long-time key business partners. The first of those is Citigroup (C). We did a $1 billion advance sale of AAdvantage miles with Citi. And then we did two transactions with General Electric (GE) - a $282 million loan facility secured by owned aircraft, and then we put in place with GE a $1.6 billion sale-leaseback commitment that will finance aircraft that we will take delivery of in 2010 and 2011. So those three transactions, the Citi transaction and the two GE transactions, totaled just about $2.9 billion.

Institutional Pharmacy Provides Value Investors With Opportunity

2009-11-19 15:47:40

Carl Gardiner has been a financial analyst for over 18 years, including eight years in investment analysis and management. Prior to joining Schafer Cullen Capital Management, he was an investment analyst and portfolio manager at two research-driven, value-oriented investment funds, Copper Arch Capital and North Sound Capital. From 1992 to 2000, he was a Director at Merrill Lynch, as an investment banker in New York and London. Mr. Gardiner began his career at Fox Asset Management, a value-oriented money management firm. He received a MA degree in International Economics from Johns Hopkins School of Advanced International Studies in 1992 and a BA degree with High Honors from the University of Virginia in 1989.

TWST: Would you be able to give us any examples of the type of companies that are like core holdings or new acquisitions?

There are far fewer of those just lopsided, obviously mispriced opportunities, so we are now back more into our normal mode of finding situations that are overlooked. In this vein, the last stock I'd mention is our most recent purchase, Omnicare (OCR). Omnicare trades at a little over 9 times 2009 earnings, with a $2.8 billion market value. Omnicare is the largest institutional pharmacy in the US, serving skilled nursing facilities and assisted living facilities, with a 50% share of this market. There are some interesting things going on at Omnicare that have great potential to boost returns over the next two to three years. Most importantly, having consolidated the industry, the company is finally taking advantage of its scale. Omnicare is nearly through an initiative to automate and centralize certain repetitive functions, so that it can downsize its over 200 regional pharmacies saving over $100mm a year in costs and freeing resource for customer retention activity. Omnicare has a number of other cost-saving initiatives underway as well. Finally, the wave of branded drugs going generic gives Omnicare a gross profit lift, and while this has been underway for the past few years, there is still some runway here.

Sprint (S) Suffering From Market Saturation In Telecom Sector?

2009-11-11 17:37:17

TWST: You mentioned saturation in the market. Are we at market saturation in this sector?

Mr. King: Certainly these segments themselves are still growing, but growth has slowed significantly over the last several years. From an industrywide perspective, wireless net adds have fallen off by several million from their peak on an annual basis. You have carriers like Verizon (VZ) and AT&T (T) that continue to do well. But more and more, they are doing it at the expense of carriers like Sprint (S) that continue to lose postpaid subscribers. So from an industry standpoint, there is still growth, but it's certainly much slower growth than it has been in the past.

CHRISTOPHER C. KING is a Senior Telecom Services Analyst and Principal at Stifel Nicolaus, where he covers telecommunications and cable services firms. His current coverage universe consists of rural local exchange carriers (RLECs) as well as Regional Bell Operating Companies (RBOCs), in addition to a focus on Latin American and national independent wireless carriers. Mr. King joined the Legg Mason telecommunications equity research team in January 2001. He was an Equities Trader and fixed-income Analyst with Wachovia Bank and Allfirst Bank. Five years prior to joining Legg Mason/Stifel, Mr. King was a Financial Analyst with Allfirst in the company's brokerage and capital markets groups. Mr. King has a bachelor's degree in politics and economics from Wake Forest University and an MBA with a concentration in finance from the University of Maryland.

Read more of the interview with Mr. King and other Telecom sector analysts.

Dr. Reddy's Laboratories (RDY): Best Pharma Stock In India

2009-11-08 09:17:58

Prashant Nair is a Mumbai-based Director and Analyst who covers the Indian pharmaceutical, health care and agrochemical sectors for Citi Investment Research.

TWST: Tell me about Dr.Reddy's (RDY). What is it that you like about them?

Mr. Nair: Dr.Reddy's is probably one of the best players in the global generics industry in our view, definitely one of the best players among the Indian generic companies. They have a very strong presence in the U.S. and in the Russia-CIS markets. They have a portfolio of products pending approval - not only plain vanilla generic filings, but also a whole lot of patent challenges and limited competition opportunities. So they have products that can help them gain more traction with the trade going forward. It's a company that is fully integrated in terms of manufacturing, and therefore enjoys the cost advantage that Indian companies have been known for. But at the same time, they have now come to a stage where they have built a certain amount of leverage on the front end in some of the important markets. We think that going forward, this company will potentially grow much faster than most of its competitors in India.

Read more about Prashant Nair's India Stock Picks in the current Pharmaceuticals Report.

Biologics, Biosimilars, and Specialty Pharma

2009-11-06 11:51:38

David Amsellem is a Principal and Senior Research Analyst at Piper Jaffray who covers specialty pharmaceuticals. Prior to joining Piper Jaffray in 2008, Mr. Amsellem spent five years at Friedman Billings Ramsey, where he was a Senior Research Analyst covering small- and mid-cap pharmaceuticals from 2006 to 2008, and a Senior Associate on the biotechnology equity research team from 2003 to 2006. Mr. Amsellem was recognized as the number one-ranked analyst in North America for accuracy of earnings estimates in the pharmaceuticals sector in the 2008 Financial Times/StarMine "Best Brokerage Analyst" survey. He graduated from Cornell University with a bachelor's degree in industrial relations.

TWST: Where are you focusing your attention in the smaller-cap pharma space these days?

Mr. Amsellem: In terms of the smaller caps - companies under 10 billion or under 5 billion in market cap - typically we focus on specialty pharma companies with significant brand businesses. Our focus is mainly outside of generics for now. We typically like companies that have managed their product life cycles well. In other words, they have the ability, either through development or acquisition, to sustain cash flow growth even after key top-line drivers have seen their patents expire. So companies that have been active on the acquisition front, companies that have been active in terms of deepening their R&D pipeline to where they can really sustain their business models over the long term, those are companies that we tend to be more favorably disposed towards. The reality in the specialty pharma business is that assets have finite lives. In the biotech space, biologics have much greater patent protection, much greater market exclusivity, especially when compared to small molecules. I'm thinking about where biosimilars will be, and it's going to be much tougher for generic competitors to really make a major dent into biologics the way they have in small molecules. So for specialty pharma, the goal for companies is to continually find ways to reinvent themselves. That is the challenge, and it's a big challenge, and it's one of the reasons that the multiples for spec pharma companies typically trade closer to, say, big pharmas than they do to big biotech.

TWST: What do you mean?

Mr. Amsellem: The challenge with specialty pharma is terminal value, right? You have a product that's generating cash flow, but it goes off patent and in three years, five years, seven years - whatever it is - it's a finite life, whereas biologics don't have that kind of issue yet. That is being legislated now though. Now for a spec pharma company, five years down the road - maybe earlier, maybe later - you can see a significant decline in revenue and a significant decline in earnings power. That dramatically impacts terminal value. So on one hand you have businesses that generate very significant cash flows. In terms of value and cash flows, these are stocks that are pretty cheap by and large. But there is the challenge of terminal value. So that's why you've seen this kind of multiple compression. You've seen that with Big Pharma as well. In terms of this idea of finite patent life and generic competition on the horizon, that's probably the single biggest reason for multiple compression in the space. And this is just something you just don't see - or haven't seen historically - with biotech.

TWST: What types of deals are you seeing?

Mr. Amsellem: I think there are deals that kind of fall all over the spectrum - ex-U.S. companies looking to gain a commercial footprint in the United States. A recent example of that is the Japanese pharma company Sumitomo, which recently announced that it's purchasing Sepracor for more than $2.6 billion. And that's an easy way for a deep-pocketed Japanese company to access a sales force so they can readily establish a commercial infrastructure here. That's one such example. Certainly, we're seeing consolidation in Big Pharma. In terms of the mid- and small-cap companies, you are seeing more in-licensing and product acquisitions. Certainly, companies in my space, such as Forest (FRX) and Cephalon (CEPH) continue to be active in acquiring specific products, acquiring small companies to add to their pipeline. So I think that in the case of pharma M&A, activity is varied and it continues to be brisk.