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The writer is a long term value investor (over 10 years experience) seeking both value in long and short ideas. Besides stock positions, the writer likes to work with options to enhance the risk/return profile of the ideas. Disclaimer: This article provides opinions and information, but does not... More
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  • Important Contract Announcements Of Last Week - Part II

    Many businesses sell their products and services gradually during the year to a wide range of customers. Some businesses and industries are highly reliant on individual contracts placed by large corporate or government customers. Especially companies operating in project management, the energy business, the aviation business or defense business often announce large one-time contract awards which can significantly move their share prices.

    The following are the most important contract announcements for the week of July 9th till July 13nd.

    Boeing (BA) the aerospace company producing commercial airplanes and defense systems announced that it received a $14.7 billion order from United Continental Holdings (UAL) for 150 narrow-body 737 aircrafts. Deliveries will be made between 2013 and 2022. The 737 MAX 9 version will achieve fuel emission reductions of an estimated 13% compared to the current version. The order was announced at the UK Farnborough air show last week. Typically the headline figure overestimates the actual value of the order as airliners get discounts compared to catalogue prices. The order which stretches over a 10-year period compares to Boeing's 2011 annual revenues of almost $69 billion. Shares of Boeing ended the week flat.

    Noble Corporation (NE) the offshore drilling contractor for the oil and gas industry announced that it signed a drilling contract with Anadarko Petroleum Corporation (APC) for a new ultra-deepwater drillship. The drillship is currently under construction in South Korea and is expected to be operational by 2013 when it will be used in the Gulf of Mexico. The three year deal is likely to generate $677 million in revenues and includes provisions for higher operating costs. The three year deal represents roughly a quarter of Noble's annual revenues of $2.7 billion. Investors react positively on the news of the announcement, sending shares 4% higher which marks year to date returns of 14%.

    Babcock & Wilcox (BWC) the technology innovator in power generation systems announced that its subsidiary Babcock & Wilcox Nuclear Operations Group received three US Naval Reactors contracts totaling approximately $73 million. Babcock will provide "technology development and nuclear manufacturing in support of US Navy training operations and other naval nuclear-related programs." The program represents roughly 2.5% of the company's 2011 annual revenues of $2.9 billion. Despite the nice contract, shares of Babcock fell 2% over the last week, marking year to date returns of 3%.

    United Technologies (UTX) the provider of high technology products for building systems and aerospace industries announced that its subsidiary Sikorsky Aircraft received a new five year contract from the US army. The new contract valued at $8.5 billion provides the baseline for 653 Black Hawk and Seahawk helicopters through December 2017. Under the contract the government has an option to order 263 more aircraft, which could possibly expand the order value to $11.7 billion. The five year contract represents roughly 15% of United Technologies 2011 annual revenues of $58.2 billion. Shares of United Technologies hardly reacted on the news, trading flat so far in 2012.

    Sterling Construction (STRL) the heavy civil construction company announced that the company was awarded the US 380 Project with a bid of $39 million. The company will start working on the project on March 2013 and it will construct five bridges for the project in the coming 36 months. The project represents roughly 8% of Sterling Construction's 2011 annual revenues of $501 million. Investors were modestly enthusiastic about the announcement of the project sending shares 2% higher over the week.

    Harris Corporation (HRS) the international communications and information technology company focused on governmental customers announced that it has been selected by the Department of State Bureau of Consular Affair's Development to work on its IT-systems. The one-year contract which includes four one-year options has a total ceiling value of $750 million. Harris will provide, maintain and modernize the IT of the Department. The contract represents roughly 13% of Harris' 2011 annual revenues. Shares in Harris fell 3% this week despite the sizable contract announcement, marking year to date gains of 13%.

    VeriFone Systems (PAY) the provider of electronic payment solutions announced that it was awarded a five year contract to place payment systems in Washington D.C. cabs. The five year contract is worth between $35 and $45 million and will provide GPS location services and automated trip reporting on little tablets within 6,500 cabs. The contract represents roughly 3% of Verifone's 2011s annual revenues of $1.3 billion. Shares of VeriFone ended the week 12% higher on the back of the modest size contract.

    Bristow Group (BRS) the provider of helicopter services to the offshore energy industry announced that it has secured a new $2 billion contract with Norway. Under the multi-year contract it will supply S-92 and EC225 helicopters which will support Norway's growing oil production in the North Sea. The multi-year contract approximates one and a halve times Bristow's annual revenues of $1.3 billion and send shares more than 5% higher over the last week. Year to date shares in Bristow have fallen 8% after the company was forced to lower its full year earnings guidance.

    Level-3 (LLL) a prime contractor in command, control, communication and intelligence systems announced that the company was awarded a contract by the US Special Operations Command. Under the five-year $500 million contract, Level-3 will "provide tactically deployed Special Operations Forces (SOF) users with worldwide communications connectivity." The value of the five year contract represent roughly 3.3% of Level-3's annual revenue of $15.2 billion. Shares of Level-3 ended the week roughly flat, trading up 8% so far this year.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 16 9:59 PM | Link | Comment!
  • Cash Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes - Part XXII

    This week, I will run you through the most important buyback announcements for the week of July 9nd till July 13th of 2012, which turned out to be a very quiet week in terms of buyback activity.

    While consumers and governments across the world are strapped for cash, corporations have plenty. Rather than signal long-term trust and pay more generous long-term oriented dividends, many of them have adopted share repurchases to buy back their own stock. Investors welcome these announcements, as they boost earnings per share and provide a lot of support for the share price during the repurchase periods.

    Kingold Jewelry (KGJI) the designer and manufacturer of gold jewelry in China has announced a $10 million share repurchase program. The program is sufficient to retire approximately 12.5% of Kingold's shares outstanding. Kingold will finance the plan with its current cash balances. CEO Hi Hong Jia commented on the share repurchase: "The company recently contemplated a secondary offering to help accelerate our growth, but given the decrease in our share price after the announcement of the offering, our management and Board determined that this was not in the best interest of the company or its shareholders." Shares have returned 33% year to date, trading Friday at $1.52 per share. Shares peaked around $2.50 in May and June, but given up 40% in recent weeks.

    Acme Packet (APKT) the provider of session delivery network solutions announced a $200 million share repurchase program. The program is sufficient to retire approximately 18.0% of Acme's shares outstanding. The company is taking advantage of a significant decline in its share price. Shares which traded as high as $80 per share in April 2011 have fallen 80% ever since to $16 per share. Shares of Acme rose 3% after the announcement this week, as the buyback signals trust of management in the business. The company ended its first quarter with $376 million in cash and equivalents and operates without any debt.

    Group 1 Automotive (GPI) the operator of automotive dealerships and collision centers announced a $50 million share repurchase program. The program is sufficient to retire 4.4% of Group 1's outstanding shares. The new program will replace any amount remaining under the current authorization and by June the 30th. Operating cash flows from Group 1's operations will provide the necessary funds for the repurchases and the company expects to hold the shares in Treasury, rather than cancel them. As such they remain readily available for sale again, if deemed necessary. So far in 2012 shares have traded within the $45-$60 trading range marking year to date losses of 4%.

    During the last holiday week, repurchase activity dropped to very low levels, as many corporations did not schedule any announcements for the week. Total announced deal size came in just at $250 million, making it a rather inactive week in terms of buyback activity.

    Cash-rich companies still refuse to significantly raise long-term dividends. Rather, they use one-time repurchase agreements with far less signaling power as a dispersion tool of excess cash to their shareholders

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 16 9:58 PM | Link | Comment!
  • Merger And Acquisition Recap - Part VII

    This week I will discuss the most important merger and acquisition announcements for the week of July 9th - July 13nd. With summer holidays approaching, the number and size of the announced deals were rather moderate compared to recent weeks.

    Thomson Reuters (TRI) the provider of information for businesses and professionals announced the acquisition of FXall (FX) for $22 per share, or $625 million in total. FXall is a leading independent global provider of electronic foreign exchange trading solutions for some 1,300 businesses and asset managers. FXall's Chairman Weisberg and its CFO Cooley which combined hold 32.5% of the company's shares have already agreed to tender their shares. Both firms hope that the combination of their activities will provide its customers with its services throughout the lifecycle of trades. The $22 bid per share represents a 40% premium compared to the close on the day before the announcement, marking year to date gains of 62%. FXall generates $118 million in annual revenues on which it earns $12 million per year. The acquisition which is expected to close in the third quarter of this year, will add merely 1% to Thomson Reuters' $13.8 billion in annual revenues. Shares of Thomson Reuters rose 2% this week, marking year to date gains of 8%.

    WellPoint (WLP) the health care insurer announced the acquisition of Amerigroup Corporation (AGP) in a deal valuing the company at $4.9 billion. WellPoint is offering $92 per share for the company, a premium of roughly 42% compared to the day before the announcement. The combination will provide Medicaid to 4.5 million members, making it the largest Medicaid provider of the country. WellPoint, known from its Blue Shield coverage program, decided to make a knock-out offer for the company to avoid a bidding war. WellPoint expects the deal to be accretive to 2013's earnings and add over $1 per share to 2015's earnings. Analysts already predicted a consolidation wave after "Obamacare" survived in the Supreme Court a couple of weeks ago. The acquisition of Amerigroup which generates $6.3 billion in annual revenues will result in pro-forma revenues of $67 billion for the combination. Investors react positively and shares of WellPoint rose 3.5% on the day of the announcement on Monday.

    Campbell Soup (CPB) the manufacturer of convenience foods announced the acquisition of Bolthouse Farms for $1.55 billion in an all-cash transaction. The company which holds leading positions in the markets for fresh carrots, salad dressings and premium beverages is currently owned by Madison Dearborn Partners LLC. The acquisition of Bolthouse Farms creates a $1.2 billion platform in healthy beverages when combined with Campbell's "V8" beverages. Bolthouse generated annual revenues of $689 million on which it reported adjusted EBIT of $92 million. In comparison, Campbell Soup generated annual revenues of $7.7 billion for 2011, on which it net earned $805 million.

    The deal which values Bolthouse at 2.2 times annual revenues will be funded by short and long term borrowings and is expected to close by the end of the summer. Campbell expects that the acquisition increases 2013's annual earnings per share by $0.05-$0.07, excluding transaction costs. Shares of Campbell Soup hardly reacted on the news with shares trading roughly flat for the week and the year.

    Last week was a reasonably active week in terms of active levels and deal size. The total announced deal size in the sample above came in around $7 billion. Merely 3 large acquisition have been announced, including some larger deals.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 16 9:58 PM | Link | Comment!
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