Ranbaxy Laboratories RANBAXY.BO, the Indian based but Japanese majority owned generics pharmaceutical firm, just the other day lost its long time employee and current CFO, Omesh Sethi. Sethi announced his resignation from the firm without any explanation. The resignation comes approximately six months after the firm lost its CEO, Atul Sobti, back in August. Ranbaxy, one of the largest generic drug manufacturers and the largest by sales in India, has been beset with a number of problems. The company come under increased scrutiny and ultimately an import ban on a number of its generic drugs by the United States FDA back in 2008 after it was discovered there were a number of manufacturing defects at its plants. According to an article in Bloomberg,
The Food and Drug Administration in the U.S., the world’s largest drug market, in 2008 blocked the import of more than 30 generic medicines from two Ranbaxy factories in India because of manufacturing defects. There is no evidence the drugs are harmful though the violations may lead to defective products, the FDA said at the time.
The firm also lost its original CEO not long before Atul Sobti was hired. According to The Economic Times of India,
The departure of the CFO follows exit of other top senior executives which began with promoter and CEO Malvinder Singh’s abrupt resignation in May 2009. A year later, his replacement Atul Sobti also stepped down citing differences with the Japanese firm in running the company.Automotive Aftermarket Still Revving Up After Two Solid Years
Passenger vehicles are living much longer today, over 10 years on average, and the rise in consumers maintaining their vehicles has benefited the automotive aftermarket, a sector BB&T Capital Markets Analyst Anthony F. Cristello says has strong fundamentals and years left in what he deems a multiyear cycle.
“If you look at Advance (AAP) and AutoZone (AZO) and O’Reilly (ORLY), the big three parts retailers, their stocks were up over 50% in 2010, which followed a year of outperformance from 2009,” Cristello said. “We think the companies are probably healthier than they’ve ever been. It’s just a question of when this wave or cyclical benefit begins to fade, what happens?”
Cristello predicts increased price competition and industry consolidation when the tailwinds do begin to fade but for now, he’s sees upside. In addition to “buy” ratings on the big three in auto parts retailers, Cristello is positive on suppliers with diversified business models.
“We follow a company called Federal-Mogul (FDML), which we have a ‘neutral’ rating on it right now, but that story could benefit because they do have some OE exposure, along with the stability of its aftermarket segment. When new vehicle sales start to accelerate, it will help the OE segment,” he said. “Installers, such as Monro Muffler (MNRO), over the longer term will continue to do well. . . . The company basically services vehicles and doesn’t rely on the do-it-yourself market.”
Patient Safety Technologies (PSTX.OB) Provides Solution to Common Surgical Error
An estimated one of every 8,000 general surgeries results in one of the most common and preventable surgical errors — retained sponges — a solution to which was co-invented by the president and CEO of Patient Safety Technologies, Brian E. Stewart.
“Before and after every surgical procedure, all surgical articles used, including sponges, are counted to make sure that they are not unintentionally left inside the body,” Stewart said. “Our [Safety-Sponge System] tracks sponges, the most difficult and problematic articles to account for, down to the individual level by adhering a simple, unique identifier to each one. Used in conjunction with a small handheld scanner, we call it the SurgiCounter, the system allows for more accurate counts prior to the patient being closed.”
To date, the Safety-Sponge System has been used in more than 1.5 million procedures using more than 36 million Safety Sponges, Stewart says. The number of surgical opportunities to use the sponge is about 32 million per year in the U.S. and twice that internationally.
“With our current customer base, we are currently a little over 1% penetrated into that procedure base,” Stewart said. “With an average revenue per procedure of $12 to $15, depending on the institution and the type of procedures that they do, that implies an immediate market opportunity of approximately $450 million.”
Patient Safety Technologies, Inc. (PSTX.OB) featured company in The Wall Street Transcript
Brian E. Stewart, President and Chief Executive Officer of Patient Safety Technologies, Inc. (PSTX.OB), talked to The Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Please begin with a brief historical sketch of
SurgiCount Medical and what you’re doing at the present time.SurgiCount Medical is the wholly-owned operating subsidiary of its publicly traded parent company, Patient Safety Technologies. I originally co-founded SurgiCount along with a surgeon, who also happens to be my father, back in the mid-1990s to address what was and still is one of the most common errors in surgery, retained surgical sponges. This preventable surgical error is estimated to happen one in every approximately 8,000 general surgeries, one every 1,500 intra-abdominal procedures. In fact, retained surgical sponges are the most commonly reported surgical adverse event reported by hospitals. Today, our core product offering, the Safety-Sponge System, has been successfully used in over 1.5 million procedures using over 36 million Safety Sponges, with no unaccounted for Safety-Sponges retained in cases where the solution has been used. We have effectively solved this issue for our user hospitals, which now includes over 65 government, teaching and community hospitals, including five of U.S. News and World Reports 2010-2011 14 “Honor Roll” hospitals, enabling them to provide improved patient outcomes, protect their staff and their bottom lines.
Medtech’s New Products Lower Costs and Improve Patient Outcomes
Despite a difficult regulatory environment, several medtech companies recently debuted new products, the biggest story being transcatheter heart valves, says Citi Investment Research Director Amit Bhalla.
“From a theme perspective, companies in 2010 that had new product stories were scarce commodities and turned out to be winners, so valuation didn’t matter as much if a new product was coming to market and was able to gain market share or advance technology,” Bhalla said.
Edwards Lifesciences (EW) and Medtronic (MDT) are the largest players in the transcatheter heart valve space, Bhalla says, adding that he has a “buy” rating on Edwards.
“We think transcatheter heart valves are beneficial to the health care system. They not only lower hospital costs in treating patients with aortic stenosis, but they also improve patient outcomes,” Bhalla said. “Those are the two big criteria that I think the health care system wants to see with new products coming to the market.”
A Comeback in Industrial CapEx To Generate Upside Surprise
With capex budgets coming back, industrial services companies that are levered to global infrastructure buildout and have recurring revenue streams are going to surprise on the upside, says Hamzah Mazari, a senior analyst at Credit Suisse.
“If you listen to what a lot of the engineering and construction firms are saying, they’re saying that a lot of projects are going to come back on the drawing board [in 2011],” Mazari said. “You have new refineries going up in the Middle East. You have nuclear plants going up in China, and you also have capex budgets coming back.”
Mazari points to Flowserve (FLS) as one of his favorite picks for 2011. Flowserve benefits from the increasing demand for the equipment it manufactures, and as a potential acquisition target by a larger, multi-industry names like General Electric (GE).
“Most of the oil and gas companies are now spending money again, and so that’s going to result in the aftermarket piece of companies like Flowserve that make industrial pumps, valves and seals surprise people to the upside,” Mazari said, adding that GE bought Dresser and Wellstream (WSM.L), both of which play in similar end markets as Flowserve.
Kennametal Inc. (KMT) featured company in The Wall Street Transcript
Frank P. Simpkins, Vice President and Chief Financial Officer of Kennametal Inc. (KMT), talked to The Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Would you please give us a history of Kennametal and an overview of your operations?
Mr. Simpkins: Our company was founded in 1938 in Latrobe, Pa., by Philip McKenna, and there are basically two areas of the company. First is on the tooling product side, and what we do is manufacture products that deliver high productivity to our customers. For example, that would include custom and standards, regular product and the customized ones specific to a customer’s needs.
We have another area leveraging advanced material sciences and application knowledge focusing on wear-resistant solutions for use in very demanding or harsh environments. Our goal is really to concentrate on increasing our customers’ productivity, and the company serves everything from airframes to underground coal mining, engines, oil wells, turbochargers, construction, etc. So we serve a very diverse end-market mix. This year, we expect to do around $2.2 billion in sales for our fiscal year, and we are a June 30 year-end reporting company. To give you a little bit more, we have some 11,000 employees in our company, and we are in 60-plus different countries. At the end of last year, 53% of revenue came from outside of North America, which is a significant change in our portfolio over the past few years.
Northeast & Mid-Atlantic Banks Ride the Next M&A Wave
A wave of M&A activity is expected to sweep the Northeast & Mid-Atlantic banking sector over the next few years, with big banks riding the crest and their smaller counterparts being swallowed by it, according to Richard D. Weiss, the director of financial services at Janney Montgomery Scott LLC.
“[Banks are] raising capital both in anticipation of higher regulatory standards and to take advantage of the forthcoming round of mergers and acquisitions,” Weiss said, adding, “I think that the next wave will be, like, massive.”
Heeding capital requirements won’t be easy for everyone, though, Weiss says. While big banks prepare to take offensive measures, some smaller banks will face the blunt end of Dodd-Frank regulatory reform and become prime acquisition targets.
“The challenges for small banks, especially those under a billion dollars in asset size or so, will be particularly daunting,” Weiss said. “As the compliance costs go up, the larger banks can spread the fixed costs over earnings assets, but a smaller bank will have trouble doing the same thing, so I think it’s going to lead to a lot of mergers and acquisitions.”
Rippling Demand for Investment in Water Solutions
Global water issues, including increased demand for clean water in agriculture and emerging markets, is pushing some industrial companies to either invest in or develop ways of improving water quality and efficiency in order to enhance their growth rates, says David L. Rose, the vice president of equity research in water and renewable energy at Wedbush Securities.
“On a thematic basis, we’re seeing companies looking for ways to invest in water, and those ways could be investing in technologies to treat water, ways to move water, ways to improve not only the quality of water but the amount of available water, clean water,” Rose said. “So there is also municipal and industrial and agricultural use of water — those are the three big categories of water users.”
One way companies target water efficiency and quality issues is through manufacturing water filters. Rose follows Pall Corp. (PLL), a company invested in this area that he says has a fair valuation, recurring revenue streams, high-margin business and a good return on invested capital.
“Pall Corp. provides filters to a variety of different industries, and it’s really a fluid company,” Rose said. “So if you have a flat screen TV, those producers of flat screen TVs, they need pure water. The life sciences or the biopharmaceutical industry needs pure water, hospitals need pure water. About 40% of their business is in the life sciences area, and even though it’s life sciences, it touches water. And they’ve experienced a significant amount of growth from emerging markets.”
« Previous Page — Next Page »CONSOL Energy (CNX) to Tap into Nat Gas and Coal Trends
In addition to increased demand for thermal coal in 2011, the switch from coal to natural gas by domestic utilities is predicted to be steady to increasing next year. One company poised to take advantage of these trends that also has attractive valuations is CONSOL Energy (CNX), says Jim Rollyson, an analyst at Raymond James Financial, Inc.
“[For CONSOL Energy] we came out with coal operations trading for something in the neighborhood of three times EBITDA versus the peer group average in the 5.5 or so times — so meaningful implied upside there,” Rollyson said. “If I did the reverse approach and said we’ve marked the coal up for this 5.5-times range, what does that leave for value that the market is giving them credit for on the E&P side? The answer is basically that the company’s proved gas reserves would easily account for the remaining value.”
CONSOL Energy has shipped some of its thermal coal to China as a lower-grade metallurgical coal, and it is positioning itself to tap into the estimated 1.5 Bcf per day of switching from coal to natural gas by domestic utilities in 2011, Rollyson says.
“They’ve been a coal company that also had a natural gas business. They significantly expanded that by buying the Dominion (D) assets back in late April, beginning of May,” Rollyson said. “If you’re kind of a hardcore energy guy and you look at everything that’s now encompassed with inside the company in terms of an asset base, you can come up with some pretty good numbers that suggest that the stock is undervalued relative to what they own.”
