Increasing exposure to patent expiries and downward trends in pipeline quality continue to underpin Moody’s negative outlook for the industry, though the outlook for generics is more positive.

Excerpts from Moody’s latest Global Pharmaceuticals Firms Industry Outlook:

Fitch has a slightly more positive view than Standard & Poor’s of the prospects for US retailers and consumer products companies. We featured S&P’s outlook earlier this week, in which S&P said that industries that depend on discretionary consumer spending may not rebound anytime soon.

Fitch says it expects increased stability among retailers as cash flow improves and sees 2010 as a turning point for consumer products companies.

Research Recap has highlighted the relative strength of South Korea’s economy and its manufacturers during the economic downtown, so we thought it would be helpful to take a deeper look at the country. The Economist Intelligence Unit is now estimating the country’s real GDP growth in 2009 at 0.6%, compared with an expected contraction of 1% previously estimated. By special arrangement with the EIU we are pleased to offer complimentary access to the EIU’s latest Country Report South Korea.

Highlights:

Analysts are mostly skeptical about the likelihood of Hershey (HSY) and Ferrero mounting a successful joint bid for Cadbury (CBY) to thwart Kraft’s (KFT) pending bid for the company. However, the threat of a rival bid may be enough to coax a slightly sweeter offer from Kraft.

Both Bloomberg and Reuters offer good summaries of analyst opinion and FT Alphaville weighs in with a JP Morgan analysis arguing that it is difficult to see how the financing would work for Hershey without it either almost doubling its existing equity (and convincing shareholders to buy it), or losing its investment grade credit rating.

We all know there’s no such thing as a free lunch so it should come as no surprise that a new IMF working paper finds that the long-term costs of economic stimulus measures outweigh the short-term benefits.

The paper, which is not official IMF policy, uses the IMF’s Global Integrated Monetary and Fiscal Model to compute short- run multipliers of fiscal stimulus measures and long-run crowding-out effects of higher debt.

Tuesday ResearchRecap featured HBS professor Bill Sahlman’s provocative if problematic proposal for a new “monitor of management excesses” to address the systemic corporate governance flaws that contributed mightily to the near collapse of the financial system.

Now, in a similar vein, Booz and Company partner Richard Rawlinson offers thoughtful suggestions on how corporate leadership can and should change to address the same issues.

Fitch Ratings says Europe’s oil refining sector is experiencing considerable cash flow pressure due to a cyclical trough, particularly with regards to depressed refining margins and low refinery utilisation rates.

Fitch expects 2009 to be one of the weakest years in the past ten years for operating cash flows for European refiners.

With the U.S. unemployment rate at its highest in more than a quarter century–and likely to rise further–industries that depend on discretionary consumer spending may not rebound anytime soon, Standard & Poor’s says in a new report.

S&P’s Chief Economist David Wyss predicts that unemployment will continue to climb, reaching 10.6% in mid 2010. “Even with Congress’ extension of jobless benefits and the pace of job losses having slowed since the worst of the recession, Americans will probably remain frugal until there’s a verifiable significant reduction in unemployment–and that could take years to happen. In addition, a still-unstable housing market and concerns that the economy could again falter continue to outweigh any so-called wealth effect that the recent rebound in stock markets may have created. ”

A pair of new reports from Forrester Research offer sobering data for newspapers and magazines planning to charge for content. A recent American Press Institute survey found that 58% of newspaper respondents are considering initiating paid access for currently open/free news and information online, and nearly 25 % expect to implement a paid strategy in the next six months. “This is a big change, considering that 90 % of the responding newspapers currently do not charge for content, and only 3% currently have a paid-only site.”

But in Publishers Need Multichannel Subscription Models Forrester finds that “most consumers (80%) say they wouldn’t bother to access newspaper and magazine content online if it were no longer free (no surprise), and the rest are split about how they’d like to pay for content:

capGemini’s latest annual European Energy Markets Observatory (EEMO) charts the deteriorating financial condition of European utilities.

Key findings:

Moody’s estimates that Kraft’s (KFT) proposed offer for Cadbury’s (CBY) would push Kraft’s debt-to-EBITDA ratio above 4.0, weakening Kraft’s financial metrics beyond the typical bounds of a Baa2 rating. “Given its large global scale, strong cash flows and broad portfolio of household brands such as Oscar Mayer, Nabisco, and Maxwell House, Kraft’s rating can tolerate higher leverage than most of its peers’ – but within limits,” Moody’s writes in an Issuer Comment.

Beyond the balance-sheet implications of the proposed acquisition, we now question whether Kraft has put itself on a path of external growth through leveraged acquisitions.

Fitch Ratings expects rating actions taken as a result of a new review of commercial real estate exposures will be concentrated among the midsized regional and smaller US banks.

In most cases, rating actions will likely be limited to one notch, but more significant downgrades are quite possible among the banks with the greatest exposure.

Guest Post by Oxford Analytica

The US corporate sector has slashed costs over the past year, eliminating over 7 million jobs and trimming the workweek to a record low. However, the painful rise in unemployment (to an official rate of 10.2% in October) has been accompanied by a record surge in productivity and falling unit labour costs, bolstering equity values and padding corporate profits. This trend suggests that the rebound may be more robust than widely expected.

Moody’s may be regretting singling out Carter’s (CRI) as an exception to its negative outlook for the apparel industry. Last week, we quoted Moody’s as saying:

“A well-executed retail strategy can turn a profit, grow the business, and increase market share. Our upgrade of Carter’s rating in September partly reflected the company’s sustained same-store sales growth and margin expansion in its retail business, even in the recession.” [ Analysts at BMO Capital Markets initiated coverage of Carter on Oct 28 with an "outperform" rating. Analysts at Sterne Agee upgraded the company from "neutral" to "buy" on Oct 4.]

Nearly 16 million new US broadband subscribers will emerge over the next five years, but more than half of those will come in the next two years, according to Forrester Reseearch. Due to slowing organic growth, the Internet access market will be characterized by shifts across platforms.

• Over the next five years, xDSL subscriptions will fall as subscriptions to fiber-to-the-home (FTTH) broadband rise from 4% to 10% of US online households.
• Cable modem subscribership will remain steady, with only very modest overall broadband market share loss compared with telco broadband (fiber and xDSL combined).
• Consumers will continue to migrate away from dial-up, for which steady losses will continue over the next two years.
• Shifts will also occur relative to the speed tiers to which consumers subscribe, with both supply and demand factors encouraging more consumers to buy higher-speed service. (Click chart to enlarge)

Standard & Poor’s is pouring cold water on “contingent capital,” the hot new way to shore up bank balance sheets, recently popularized by Lloyd’s Banking Group. In a new report on the topic, S&P made it clear it does not believe contingent convertibles will do much to help banks improve their tangible common equity.

As outlined in our criteria, we do not consider contingent capital securities to be a form of common equity. We can include them as hybrid equity depending on their exact features.

A new study from Grant Thornton documents an alarming 22% decline in the number of publicly traded U.S. companies since 1991 and lays the blame on low cost electronic trading and increased regulation such as Sarbanes-Oxley. Interesting, then, that in its prescription for how to reverse the trend, the accounting firm does not suggest repealing or rolling back SOX. In fact in a draft email it is suggesting supporters send to congress, GT specifically notes that the proposed changes would comply with SOX:

“Alternative Public Market Segment: A public market solution that provides an economic model to support the “value components” (research, sales and capital commitment) in the marketplace. This solution would establish a new market segment that benefits from a fixed spread and commission structure. It would be subject to traditional SEC registration and reporting oversight (e.g., annual and quarterly reporting, Sarbanes-Oxley compliance).”

Kraft’s (KFT) decision to stand pat on its offer for Cadbury (CBY) should come as no surprise to readers of ResearchRecap. From the beginning, we doubted that Kraft’s initial “indicative offer” would set off a bidding war. Other potential bidders each have their own impediments to making a bid and Kraft itself is constrained in how much it can raise its offer by credit issues. And the fall in Kraft’s share price means the company’s formal bid is actually worth less than the original one.

With Cadbury’s swift and firm rejection of the formal offer from Kraft we appear set for a period of standoff before learning whether a deal will ultimately be consummated.

The Bank of England’s Monetary Policy Committee (MPC) on November 5 decided to continue its unorthodox program of asset purchases, known as quantitative easing (QE). This is the United Kingdom’s one remaining policy instrument for promoting recovery from the recession, which has reduced GDP by about 5%. Conventional interest rate policy is exhausted, with an interest rate of 0.5%. Further expansion of fiscal policy is virtually precluded by the size of the budget deficit, now 12% of GDP, and the sharp increase of the debt/GDP ratio.

Prior to the crisis, the MPC failed to take account of asset prices and took no action to curb the upsurge in real estate prices. However, such action was not within its present remit, which is limited to achieving a predetermined target rate for inflation, with some concern for growth and stability. If asset price bubbles are to be addressed by the MPC, its terms of reference must be redefined:

Default activity in 2009 has been heavily concentrated in the media and entertainment sector.

Consumer products, media and entertainment, and retail/restaurants remain the most negatively affected sectors amid the economic downturn, according to Standard & Poor’s Ratings Services.