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  • McDonald's declares $0.85 dividend [View news story]
    The trailing twelve months free cash flow payout ratio was 70%. If cash flows (operating cash flow only declined year over year for the first time in over a year during the June quarter, and even then declined by less than 2% year over year) stay level, the cash flow payout ratio will increase to between 72% and 73%.
    Hope that helps...
    Sep 18 05:45 PM | Likes Like |Link to Comment
  • How Much Is Novartis's New Heart Failure Medicine Worth? [View article]
    With all due respect, Given your sales estimates, it seems like this drug should generate something like $4 billion in average annual sales over the next ten years. At those levels of production (or price) gross margins should probably be around 75%. With a tax rate of 33%, they would experience 50% profit margins and generate $2 billion per year in cash for each of the next 10 or so years. That should be worth more like $20 billion in market cap today, though the market will discount that for both time and uncertainty of estimates. While This estimate might be too high, if they generate $4 billion in sales, this drug should be worth a lot more than your estimate.
    Sep 11 10:59 PM | Likes Like |Link to Comment
  • Omega to raise money with private debt offering [View news story]
    OHI is issuing "senior unsecured notes in an aggregate principal amount to be determined." (Direct copy from the press release.)
    These are bonds (technically "notes"), not stock. The only thing that should have any impact on the stock from this would be the interest rate and possibly the size of the deal (and only if either is extraordinary in some way).
    Sep 4 04:32 PM | 2 Likes Like |Link to Comment
  • AbbVie: Growth Story Or Patent Expiration Nightmare? [View article]
    "100X easier -- is that an empirical number? "
    100 x easier does not matter much, but 100x less expensive would--if it were only true.

    Personally, I suspect that Pharmaguy just made up that number. I am not an expert, but from what little I know, biosimilars cost a lot relative to small molecules to do the clinical tests to show that the efficacy and side effects are comparable to the original product. For small molecules, all one has to show is that similar levels of the drug are in the bloodstream over the same timeframes as the original compounds; the compounds themselves are supposed to be exactly the same. Biosimilars are virtually guaranteed to be slightly different as they depend on the cell line that produces the "compound", hence much more elaborate and expensive testing for the biosimilar than the generic. My guess would be that it would cost somewhere in the realm of $25 million to $50 million or so to conduct the clinical trials. This will not prevent competition, just inhibit it. For example, Abbvie currently owns the market and let's say that Novartis is well ahead of Amgen timewise in creating a biosimilar product. So, consider Amgen's position as a potential third place competitor. How much do you want to commit to a biosimilar to Humira when it takes $25 to $50 million to even play in the market?? Novartis' primary strategy would probably be to compete with Humira by cutting price--let's say by 10% from Abbvie. So, what do you (Amgen) do to compete if you know you will be the third competitor on the market, spend $25 to 50 million and cut the price of your version by another 10%?? Profitability scales with volume, and as the third place competitor, you risk probably acheive the smallest volume share (lowest productivity and lowest margins or profitability), the lowest price, and the lowest returns from your incremental $25 to 50 million investment. And you need to consider strategies for what happens if Novartis cuts their price by the second 10% as a pre-emptive move vs Amgen's entry into the market (keep in mind that Novartis would already have some reasonable volume for manufacturing scale and profitability levels by the time you enter the market). And how much does the $50 million investment in this third place biosimilar impact investment spending on Amgen's potentially most profitable products--their new research breakthroughs (whatever they may be)?? Now if the third place player has to go through all this game theory (and I have actually understated the potential scenarios), how many rational or reasonable players will enter the market, especially when it takes $25 to 50 million to play??
    Sep 4 04:13 PM | 2 Likes Like |Link to Comment
  • Social Security At 70: Always A Bad Idea [View article]

    "I didn't see any argument against the numbers presented"

    How carefully did you consider the numbers from Robert Allan Schwartz's original article?

    We know that Robert assumed that his age 62 payments would grow with inflation at a 2.47% rate annually to age 70 (he told us that in his article). What, however, is the inflation rate assumption that would apply to his age 70 payment between age 62 and age 70?? The Social Security Statement that I receive (and Robert probably receives the same template but with his numbers on it) does not indicate what the assumed inflation rate will be into the future--it assumes that each person's earnings will remain similar to the last two year's earnings and that you will receive cost-of-living increases in benefits after they start. I can't find any other comments about inflation (or cost-of-living) on the statement, but the annual payment at age 70 will increase from age 62 to age 70 with the inflation rate that occurs over that time span. I don't know what SS assumes as the inflation rate, but the probability that it is exactly 2.47% is pretty low. If SS assumes a 0% inflation rate over that time, then Robert's annual payment at age should actually be estimated at $50849 per year, or 21.5% higher.

    Robert's table is not necessarily wrong, but how confident are you that it is absolutely correct??
    Sep 1 12:11 PM | 1 Like Like |Link to Comment
  • AbbVie: Growth Story Or Patent Expiration Nightmare? [View article]
    I can not cute what or where or when (or even if) they said it but I seem to recall seeing that Novartis indicated they are working on a "generic" competitor to Humira. Novartis is one of the largest pharma firms in the world, owns one of the largest "generic" drug companies in the world, and knows how to manufacture biologics, perform actual clinical trials (as opposed to bioavailability tests), and how to muster products thru regulatory agencies worldwide. They also are smart enough to know that after spending a reasonably good chunk of cash to develop a Humira knock-off, they would prefer to have some profit left--that is, they will price the product below Humira, but not by a lot. They are also smart enough that they also find Humira appealing because probably very few, if any other, competitors will emerge and pricing likely will remain relatively firm, so profits for the second entrant (after ABBVIE) may remain attractive for a long time. Duopolies are almost as good as monopolies.
    Aug 29 03:09 PM | 2 Likes Like |Link to Comment
  • A 7.7% Current Yield For Your Retirement Portfolio [View article]
    A quick look revealed that RAS does not generate positive funds from operations (data via Schwab, so I won't absolutely vouch for it) and they are no where near running free cash flow.
    My guess (and if it costs nothing to you that may well be all it is worth) would be that this would be rated far below investment grade. Personally, I will pass on this one.
    Aug 29 02:54 PM | Likes Like |Link to Comment
  • AbbVie: Growth Story Or Patent Expiration Nightmare? [View article]
    Humira is a biologic product (produced by a living organism with complex chemical structures) not a small molecule. Potential generic competitors will need to spend considerably more time and invest considerably more money to enter this market than for most small molecule products. As such, few will attempt to compete and prices will remain much firmer--they will decline albeit much less than for a small molecules like Lipitor or Viagra.

    The FDA has talked about changing the rules on generic forms of biologics, but I have not heard where they are in that process. In any case, so-called "generic" versions will very likely be slightly different because they will need to use different cell lines to produce the protein product. Patients may react differently to the "generic" as it will be a slightly different substance. Physicians may be much less inclined to allow substitution.

    I am long Abbvie though I recently reduced my position as the deal with Shire will trigger taxable gains, so I donated some of the stock.
    The uncertainty with regard to Humira is both moving closer in time and increasing; meanwhile, the 3% and until recently declining yield (as the stock moved up) seems less appealing as the big unanswered question on Humira approaches.
    Aug 28 02:24 PM | 3 Likes Like |Link to Comment
  • Sturm, Ruger And The Case Of Depreciation Deception [View article]

    RGR's 15 year depreciation policy represents a very safe policy rather than dishonest and unethical. Anyone investor in their right mind would prefer faster depreciation of an asset rather than slower. Would you prefer a one hundred or two hundred year depreciation schedule to the 15 year schedule? Why not a ten million year depreciation schedule?? If they used a 40 year depreciation schedule so that the asset is fully depreciated in year 41, does that make their financial reporting of the asset in year 41 dishonest and unethical??
    You can clearly call the depreciation incorrect as no one knows how long the true useful life of the asset will be. However, to call it dishonest and unethical is either pure misguided thinking or is itself dishonest and unethical (misguided thinking is acceptable as we all make mistakes; but if you really knew better, then shame on you.)

    (Disclosure: I owned RGR for a couple of years but sold the stock earlier this year. Hence, I have no personal interest).
    Aug 19 08:37 AM | 2 Likes Like |Link to Comment
  • Rogers Communications (USA) declares $0.4575 dividend [View news story]
    Rogers' website indicates that the $0.4575 is the same dividend paid in each of the last two Qs. The dividend is paid in Canadian dollars--it will be close to $0.42 in US dollars after currency transalation.
    Aug 15 02:21 PM | Likes Like |Link to Comment
  • Rogers Communications (USA) declares $0.4575 dividend [View news story]
    I don't think this is actually an increase. The press release says that this "the third quarterly dividend to reflect the increased $1.83 per share annualized dividend level". That would be consistent with a $0.4575 dividend in Canadian dollars, not US dollars. If so, the dividend in US dollars will be very close to $0.42 per share, essentially the same as the dividend paid in June.
    Aug 15 02:18 PM | Likes Like |Link to Comment
  • Cisco's guidance mixed; more job cuts planned [View news story]
    Chambers is the worst CEO of any company (tech or otherwise) and including or excluding Ballmer. Chambers was not even a good CEO during the dot-com era. The stock did well, but despite him.
    Aug 14 09:23 AM | Likes Like |Link to Comment
  • Sovereign Debt: The Default Debate [View article]
    "Argentina simply did not include a restructuring clause (permitting changes with a supermajority vote of bondholders) in its original indenture."

    Keep in mind that when you are trying to borrow money, you want the terms to look attractive to potential borrowers - putting in a clause saying the debt terms can be renegotiated makes the deal look a lot less attractive to potential lenders.

    Argentina had a choice when they issued the bonds--pay a higher rate but retain the right to change the terms or pay a lower rate and face the consequences. While this makes for a reasonable explanation of why Argentina didn't include the clause, using it as a rationalization for not abiding by it seems quite like moving the goal posts right before the game-winning field goal attempt.

    BTW, I have no axe to grind in this discussion (except that we all are citizens of some nation whose fiscal and monetary status somehow ties in to credit maybe more lending rather than borrowing).
    Aug 7 01:15 PM | Likes Like |Link to Comment
  • Where Are The Digital Shorts Now? [View article]
    glorysk87 and Qniform,

    Thanks for your sensible advice.

    Unfortunately, my info is straight from the company's 10-k for FY2013 and the 10-q for the March 2014 quarter as posted on (and the numbers are the same regardless of whether you use the full document or the "interactive data" numbers). I erred in reading DLR's statement of cash flows over the past year.

    The relevant numbers, and they are readily and easily available to cross-check on
    From the 2013 10-K (all numbers in thousands):
    Net cash flow froms ops: 2013=656390 2012=542948
    Acquisition of Real estate: 2013=170322 2012=1560130
    Improvements to and advances for real estate:
    2013=1189510 2012=845761

    From the March 2014 10-q (3 months ended 3/31/2014):
    Net cash flow froms ops: 2014=116411 2013=89041
    Acquisition of Real estate: 2014=0 2013=77935
    Improvements to and advances for real estate:
    2014=224118 2013=258731

    Forget GAAP and AFFO and FFO etc. Profits are fiction, cash is real.
    There are items other than "acquisition of real estate" and "improvements to and advances for real estate" in the investing section of the cash flow statement. Those other items all appear immaterial to whether the company generates real cash returns and whether the dividend is sustainable (which is all that I am interested in). Based on the numbers above, DLR consumed a net of $703.442 million (operating cash flow minus acquisition of real estate minus the improvements stuff) in cash last year BEFORE they paid the dividend--this is the negative free cash flow I referred to above. The $400.953 million dividend payment resulted in over $1.1 billion in total cash outflow.

    Hopefully, almost ALL of the net cash invested was truly brand new investment in new buildings or equipment that generate incremental revenue and cash flow streams to DLR (hopefully only a small part of it would be NECESSARY maintenance capital spending to keep the current client lessees happy). The FFO implies this is the case, but FFO is not audited, so who knows??

    I erred as I somehow missed the "improvements to and advances for real estate" when I looked at DLR's cash flows. Admittedly, that resulted in a HUGE error. In missing that, I incorrectly thought that DLR ran positive free cash flow last year and in 1Q2014--they clearly did not. I discovered this error yesterday when I intended to support an earlier post.

    If DLR stopped or greatly slowed investing in new projects, we would know whether Jacobson's conjecture that they are understating maintenance cap spending (and hence overstating the FFO) is true. I incorrectly inferred that they had slowed the new spending greatly when I missed that one huge line. However, with current cash flow statements, we simply can not tell how closely FFO reflects the real economic value of DLR--i.e. Jacobson's theory has not been disproven.

    After realizing my error, I sold about two-third of my DLR holding yesterday--BTW, I owned some DLR before Jacobson's presentation and I had added to that position around year end 2013 when I became optimistic because I erred in missing that line in the cash flow statement. In my view, one needs to closely manage the risk they are willing to take in DLR just in case Jacobson is correct. People were not foolish to own Enron, but some who did not work for the company were fools to have virtually all of their life savings in the stock when serious questions were unanswered. In owning DLR, I am willing to bet that it is not an Enron, but I am not willing to make a sizable bet that it is not an Enron until I see some real tangible evidence.
    Aug 1 12:28 PM | 1 Like Like |Link to Comment
  • Where Are The Digital Shorts Now? [View article]
    To all:
    OOPS, ignore my previous comment.
    DLR's free cash flow according to the gaap cash flow statement was negative last year.
    My mistake.
    Jacobson could very easily be correct.
    As far as I am concerned, there is no way to confirm one way or the other what the actual truth about the financial position of DLR is.
    Jul 31 12:00 PM | 1 Like Like |Link to Comment