Day: November 22, 2020

PFE – Americans could start receiving Pfizer vaccine 'as early as 11 December'

Americans could start receiving a COVID-19 vaccine as early as 11 December, according to the chief scientific adviser for the US government’s vaccine programme.

Dr Moncef Slaoui, part of Operation Warp Speed, told NBC: “Within 24 hours from the approval, the vaccine will be moving and located in the areas where each state will have told us where they want the vaccine doses.”

The front-runner is a candidate developed by Pfizer and German partner BioNTech, which demonstrated an efficacy rate of 95% in the companies’ phase 3 clinical study.

There were no serious safety concerns observed in those who took part in the trials, with the vaccine tested on people with and without a prior coronavirus infection.

The US Food and Drug Administration’s outside advisers will meet on 10 December to discuss whether to authorise the vaccine for emergency use.

This would mean it could be used for those who are at highest risk from the virus and Dr Slaoui said it would be distributed based on each state’s population.

How close are we to a COVID-19 vaccine? Keep track of the global effort

How close are we to a COVID-19 vaccine? Keep track of the global effort

States would decide how to prioritise groups but it would be recommended that healthcare workers be vaccinated first, along with other front-line workers and the elderly.

More from Covid-19

Dr Slaoui said about 70% of the population needs to be immunised to achieve herd immunity and this would be possible by May.

But there are concerns that uptake of any vaccine could be low, due to misinformation and a well-established network of anti-vaxxers in the country.

More than 12 million people in the US have been confirmed to have had the virus, with almost 260,000 having died.

The UK has already ordered enough of the Pfizer vaccine candidate to vaccinate 20 million people but it has not yet been approved by the Medicines and Healthcare Products Regulatory Agency.

Pfizer and BioNTech expect to produce up to 50 million doses globally in 2020 and up to 1.3 billion doses by the end of 2021.

HSIC – Henry Schein: Tailwinds And Headwinds From Covid-19; Near-Term Upside Only

Investment Thesis

Henry Schein (NASDAQ:HSIC) has seen virus related disruption in its healthcare distribution and value-added services businesses this year. With near-term headwinds from Covid-19, wider industry complications and macroeconomic crosscurrents posing threats to the company, we believe that margin pressures will remain, and operating leverage will be affected over the coming periods. We see more dynamic competition in pricing activity from the above, also. HSIC’s fundamental outlook is impacted heavily by the volatility in consumables-led demand and patient volumes, which may also stretch margins in the coming periods.

Data Source: Author’s Bloomberg Terminal

Offsetting the above are the facts that HSIC has delivered sequential earnings growth amidst the pandemic. Plus, the company has large growth potential through M&A activity, targeting higher margin names, alongside expanding end-markets, all of which can bolster the fundamental picture. There are also potential Covid-19 related tailwinds via HSIC’s potential role in vaccine distribution, as reported by management. Although, shares trade at a premium to peers, and we believe that the majority of the drivers in the growth engine are well priced into the valuation also. Shares have also failed to make their recovery to pre-pandemic levels, down -4% YTD. Thus, in view of these points, we expect decent company performance, but have a balanced neutral view on the company from an investment perspective. Below we link our thesis to the overall picture, for the benefit of investors.

Catalysts for Near & Longer-Term Price Change

1). Near-Term Covid Catalysts

Covid-19 is an interesting force for HSIC. There are headwinds from patient and clinic disruption, which is balanced by exposure to Covid-related sales demand that have driven growth at the top this year. The company have in fact noted that the majority of Q3 revenue volumes were driven by PPE and Covid-related sales. However, HSIC are firm in their belief that they will play some part in the distribution of a Covid vaccine, perhaps increasing their role in testing too. HSIC does have a lengthy history in vaccine distribution, and holds several key manufacturing partnerships to support this viewpoint. Once commercial approval is granted for either or any Covid vaccine, then HSIC believes they will have a role in the commercial operations of the same, via distribution into clinics and perhaps even large workplaces. HSIC have also alluded to their role in private sector Covid testing, that has so far been contained to government. The company believe that they will receive a large allocation of testing authority, especially as the scale of testing begins to widen as testing itself becomes more privatised. These are certainly interesting viewpoints, and enable HSIC quite direct Covid-19 exposure, however we believe their claim on the testing side is a bit controversial. There are so many testing entities already designated, that competition will remain stiff to capture share of the testing market, private or not.

Covid-related labels within the product mix alongside PPE will remain important segments for HSIC, in light of the regulatory environment many workplaces are not likely to instil as businesses begin to reopen. This is especially true as mandatory Covid vaccination will be highly unlikely, thus, as a contingency, workplaces and other environments will heavily enforce PPE protocols. Many covid-related PPE units remain in short supply relative to demand, and the inelasticity in production has become evident this year, especially with face masks, face shields and sanitiser products. Thus, this segment will exhibit higher pricing phenomenon, with more dynamic competition forces as well. For HSIC, around 10% of international dental sales were fuelled by Covid-related products in the 3rd quarter, 11% in Q2. In medical sales, Covid products increased their contribution by 17% from Q2, and contributed ~24% of total sales in that segment. Dental sales seem to be an important growth driver, up ~130% YoY, with sequential growth of ~35% from Q2.

2). M&A Activity Remains Committed

Historically, acquisition activity has remained a key priority for HSIC, and the company has leveraged their M&A scale to consolidate assets in core markets, and support margins by targeting higher margin names that both complement and diversify core operations. To illustrate, HSIC has an annual marker of ~$200-$300 million in cash, that is allocated annually for acquisition purposes. They have averaged ~4 deals per year over the last 10 years, and in fact completed 4 transactions last year (2019). Recently, the company has spun off its animal health business, providing additional liquidity and capital for more M&A. We would anticipate the crux of the capital from this spinoff to be permeated towards the dental segment, which seems to be a large underlying driver across this year, especially with Covid-related tailwinds in the near-term. Nonetheless, further acquisition activity is imminent, especially targeting those higher-margin names and complementary lines to the current product mix. For instance, the company had acquired Medentis Medical in a strategic play to expand their “digital dentistry” capacity, especially for implants and the likes. Furthermore, they had acquired Lighthouse 360 as a complement to the Henry Schein One Platform, HSIC’s answer to patient management software. Therefore, we believe the company will continue on its average of ~4 transactions yearly, especially to ease pressures on operating margins, and continue the cadence of underlying growth post-pandemic.

Headwinds On The Horizon

The top-line results this year are undoubtedly driven by PPE and Covid demand. However, in Q3 management completed an inventory write down of PPE in the product mix, which saw a ~400bps YoY deficit in gross margin scores. This happened for 2 reasons. First, most of the PPE inventory was acquired from third parties, back when demand for this segment bumped pricing activity well north. Since, the correction in prices from more elastic supply and competitive pricing activity, has resulted in HSIC adjusting the balance sheet to reflect the true value of the inventory. Second, PPE products are a lower margin segment anyway, in relation to HSIC’s other categories, and have formed an overwhelming bolus of sales YTD. Both of these factors therefore drove margins down at the top.

Figure 1: Margins Remain Under Pressure

Data Source: Author’s Bloomberg Terminal

Furthermore, although it appears dental is the underlying segment winner, removing the Covid tailwind shows a flat performance in the core dental business YoY. The disruption from the pandemic on patient volumes and clinic operations is therefore apparent, and we believe HSIC has seen a weaker rebound in patient flow than peers. Ongoing volatility in patient volumes and uncertainty around clinic operations will continue to impact growth here. Additionally, once PPE sales related to Covid begin to diminish, the rebound in deferrals and patient volume may not be as strong as HSIC hopes, considering the relative recovery we’ve seen to date in the core business (outside of Covid).

Both of the above points highlight the pressure that remains on operating leverage over the coming periods. Firstly, the continued demand for PPE products will continue to drive the top-line, however, the lower margin nature of this segment coupled with the effect of inventory adjustments on the balance sheet, will certainly impact operating level margins. We would also highlight that nitrile exam gloves are now in shortage, which means that volatility in supply and therefore pricing will likely be experienced here as well. Thus, we may see additional inventory effects from this mix as well. In addition, the cadence of sequential growth quarter/quarter may not be sustainable compared to the transition from Q2 to Q3, as management have indicated that the majority of PPE sales are related clinic reopenings’, which removes the repeatability of these contributions. Operating margins were ~7% for the quarter, ~60bps decrease YoY, although operating profit increased ~450bps YoY, at ~$195 million. The disconnect in operating profits to operating leverage highlights the pressure that remains at this level, and we would postulate that additional inventory pressures on the balance sheet may also continue over the coming periods. Thus, we are more conservative on EBIT level margins vs management, estimating ~5.5% for FY2020, ~30bps lower than guidance. This represents a 184bps decrease YoY.

Financial Outlook

We’ve balanced the 3-statement model to reflect the run-down in Covid-related demand, in addition to the settling of Covid-related headwinds over the coming years. We believe it is not unreasonable to expect CAGR ~5.5% top-line growth for HSIC by 2025, with some recovery in gross margins over that period. Operating and EBITDA margins will likely remain under pressure for that period, but we see ~75bps in margin expansion at that level in years to come. Furthermore, we believe that free cash will likely convert at a rate of ~5-6% into 2025, especially given the historical acquisition pattern of HSIC.

On the credit side, the company has adequate coverage over interest expense at ~23x coverage, although, liquidity is certainly tight with only ~1.5x coverage on short-term obligations from liquid assets, and only 0.2x coverage from cash alone. Removing the value of inventory from the equation, thus simulating any further inventory write down, there is only 0.75x coverage, cash included. The debt ratio is ~18%, and has come down YoY, whilst total debt to total capital is ~25%, which has also decreased by ~300bps YoY. The company also has a $740 million available credit facility, which they have only drawn ~$10million down on to date. Net cash burn has been ~14% since Q1, although has slowed sharply quarter/quarter to net -80% burn on the Q2 cash balance.

Data Source: HSC SEC Filings; Author’s Calculations

Data Source: HSC SEC Filings; Author’s Calculations

Valuation

Given the imminent slow down in Covid-related demand and lower-margin PPE exposure in the product mix, these must be priced into the valuation. Shares are trading at 21.9x P/E, ~3x book value and only 0.95x top-line sales. Shares are also trading at ~19x free cash flow, on a FCF yield of 5.77%, on the higher side. We also see shares trading at 13.16x Q3 EBITDA, and we believe that these figures will come into correction amidst macroeconomic crosscurrents that will eventuate to the end markets for dental, value-added services and consumables-led growth. The above figures are using TTM values.

Assigning a 17.1x P/E estimate to our 2021 EPS estimate of $3.79, then we see a price target of $65:

  • 2021 12 month P/E estimate – 17.1x
  • 2021 EPS estimate – $3.79
  • 2021 Price target = 17.1×3.79 = $64.80

Assigning the 12 month P/E estimate to our 2022 EPS estimate, we see a price target of $71:

  • 2021 12-month P/E – 17.1x
  • 2022 EPS estimate – $4.16
  • 2022 Price target = 17.1×4.16 = $71

We would note to investors that the 2021 P/E estimate on our end is well below the 20x multiple that HSIC has held on average for the previous 10-year period. However, we believe this accurately reflects the risks that must be priced in from the factors mentioned above. In this vein, we are encouraged by HSIC’s ROIC scores of 11.57% for the quarter, which has grown from 9.35% YoY, and is well above the cost of capital of 7.6%. Thus, we believe that the [small] valuation premium we have assigned is justified, with the risk included. If the company failed on ROIC vs WACC comparisons, then we’d be more hesitant to attach the premium in valuation for HSIC shares.

HSIC also has ~$1.80 in free cash per share, ~$3.75 in cash per share, and a whopping ~$20 in revenue per share. Thus, whilst shares are trading at a premium to peers, much of the premium is a reflection of the per-share measures and sequential sales growth the company has exhibited this year.

Data Source: Author’s Bloomberg Terminal; Author’s Calculations

Investors can see the potentials in pricing outcomes should shares continue at the current level of support, on the chart below. This is crucial information for long-term investors seeking to understand entry and exit points over the coming few quarters. Thus, we would encourage investors to view the below chart to make the most informed reasoning possible.

Data Source: Author’s Bloomberg Terminal

Further Considerations

On the charts, shares have trended in a wide ascending channel since the selloff back in March. The level of support has been quite defined, and shares have been tested and bounced away from support 7 times over this period. We can see the regression channel via the red line, on the chart below, which indicates the mean in pricing returns from March. Since the dispersion in prices has been quite wide around this level YTD, there has been a reasonable level of volatility and downside exposure on the charts. However, shares have reverted to the mean around 6 times across the regression period, and are currently away from the line on the downside, indicating that a near-term uptick may be within the scope of the next moves. Shares have failed to break the upper level of resistance earlier this year, and are currently quite contained in the upward movement since September. Investors can view the pricing activity YTD, on the chart below.

Data Source: Author’s Bloomberg Terminal

We can see reasonable autocorrelation in multifactor exposure to RSI and momentum ranges YTD, on the chart below. The regression analysis in pricing returns to momentum in particular has been significant, and RSI ranges have shown a causal relationship to prices 4 times this year across our testing period. On board volume has begun to snake higher since May and then again in September, indicating the bullish longer-term trend. Thus, we firmly believe that the current investor sentiment is bullish, and believe further upside is likely in the near-term, based on the charts. However, in view of the foreseeable headwinds over the longer-term, the neutral view is balanced on longer-term share movement. Investors can see these causal relationships on the chart below, with onboard volume in the bottom window.

Data Source: Author’s Bloomberg Terminal

In Short

HSIC has had a year of sequential growth driven by Covid-related demand. Whilst investors have rewarded these outcomes YTD, there are several longer-term headwinds that must be priced into the valuation and future outcomes. We do see a slight disconnect in valuation and current trading, that is fuelled by near-term Covid-related demand by our estimation. The company is also adamant they will play a role in the distribution of a Covid vaccine, and participate in greater testing allocation as tests become more privatised. However, basically all of Q3 revenue volume was driven by PPE and other covid-products, especially in the outperforming dental segment. Take the covid-tailwinds out of that segment’s performance, then growth was flat YoY in the core dental business, which highlights the exposure and therefore concentration risk there.

Additionally, management are not confident the cadence of PPE scale is sustainable, and neither are we. We also see pressure on operating margins over the coming periods, as product shortages may cause pricing disadvantages and the carry through to inventory effects on the balance sheet will be recognised in operating leverage. Investors should keep an ear out for further acquisition activity, that will strengthen the balance sheet, should the company target higher margin names or more complementary product/service lines. We also view macroeconomic crosscurrents that may continue to impact patient volume volatility, and the state of the economy as a whole. Of course, any surprises from the company and/or the economy here will offset this thesis. However, we believe these factors must be priced into the valuation, and although we believe that near-term upside is likely, we hold a neutral stance as an investment considering the ex pandemic uncertainties. Thus, we set a price target of $65 in the near term, which points to the fact that most of the near-term revenue upside is already priced into the valuation. We look forward to providing additional coverage.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

BRY – Pomerantz Law Firm Announces the Filing of a Class Action against Berry Corporation and Certain Officers – BRY

NEW YORK, Nov. 22, 2020 /PRNewswire/ — Pomerantz LLP announces that a class action lawsuit has been filed against Berry Corporation (“Berry” or the “Company”) (NASDAQ: BRY) and certain of its officers.  The class action, filed in United States District Court for the Northern District of Texas, Dallas Division, and docketed under 20-cv-03464, is on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired: (a) Berry common stock pursuant and/or traceable to the Company’s initial public offering conducted on or about July 26, 2018 (the “IPO” or “Offering”); or (b) Berry securities between July 26, 2018 and November 3, 2020, both dates inclusive (the “Class Period”).  Plaintiff pursues claims against the Defendants under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).

If you are a shareholder who purchased Berry common stock pursuant and/or traceable to the Company’s initial public offering or Berry securities during the Class Period, you have until January 21, 2021, to ask the Court to appoint you as Lead Plaintiff for the class.  A copy of the Complaint can be obtained at www.pomerantzlaw.com.   To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased. 

[Click here for information about joining the class action] 

Berry purports to be an independent upstream energy company and engages in the development and production of conventional oil reserves located in the western United States.  The Company’s properties are located in the San Joaquin and Ventura basins, California; Uinta basin, Utah; and Piceance basin, Colorado.  As of December 31, 2019, Berry had a total of 3,541 net producing wells.

On June 29, 2018, the Company filed its Registration Statement on Form S-l for the IPO, which, after an amendment, was declared effective by the SEC on July 25, 2018 (the “Registration Statement”).  On or around July 26, 2018, Berry conducted the IPO, upon which the Company began trading on the NASDAQ Global Select market (“NASDAQ”), issuing 13 million shares of Berry common stock at $14 per share, generating over $138 million in proceeds before expenses.  On July 27, 2018 Berry filed its Prospectus on Form 424B4 with the SEC (the “Prospectus” and, collectively with the Registration Statement, the “Offering Documents”).

The complaint alleges that the Offering Documents were negligently prepared, and, as a result, contained untrue statements of material fact, omitted material facts necessary to make the statements contained therein not misleading, and failed to make necessary disclosures required under the rules and regulations governing their preparation.  Additionally, throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies.  Specifically, the Offering Documents and Defendants made false and/or misleading statements and/or failed to disclose that: (i) Berry had materially overstated its operational efficiency and stability; (ii) Berry’s operational inefficiency and instability would foreseeably necessitate operational improvements that would disrupt the Company’s productivity and increase costs; (iii) the foregoing would foreseeably negatively impact the Company’s revenues; and (iv) as a result, the Offering Documents and the Company’s public statements were materially false and/or misleading and failed to state information required to be stated therein.

On November 3, 2020, post-market, Berry reported its financial and operating results for the third quarter of 2020.  Among other results, Berry reported non-GAAP EPS and revenue that both fell short of estimates.  In addition, Berry reported that during the quarter, “the Company undertook certain operational improvements that caused temporary reductions in our production.  Notably, we performed some plugging and abandonment activity that resulted in the temporary shut-in of nearby wells.  Additionally, improved steam management reduced overall costs but temporarily increased water disposal and well maintenance needs, resulting in a slight decrease in production.”

On this news, the Company’s stock price fell $0.15 per share, or 5.28%, to close at $2.69 per share on November 4, 2020, representing an 80.78% decline from the IPO price.

As of the time this Complaint was filed, the price of Berry securities continues to trade below the Offering price, damaging investors.

The Pomerantz Firm, with offices in New York, Chicago, Los Angeles, and Paris is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 80 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com.

CONTACT:
Robert S. Willoughby

Pomerantz LLP
[email protected]

888-476-6529 ext. 7980

SOURCE Pomerantz LLP

Related Links

www.pomerantzlaw.com

HSY – Hershey Causes A Chocolate Futures Melt Up

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New York City isn’t known for its cocoa beans.

But Pennsylvania-based Hershey has taken to New York’s futures market to procure its cocoa supplies after West African nations imposed stiff premiums on their beans.

From West Africa To Wall St.

In the past, chocolatiers such as Hershey have bought cocoa primarily in the physical market (using traders and intermediaries to buy directly from the source).

African nations produce over 75% of the world’s cocoa but capture just 3% of global chocolate revenue, according to the International Cocoa Organization. Last year, leaders from Ivory Coast and Ghana set out to remedy those figures by creating their own “OPEC for cocoa”:

  • The nations created a $400/ton “living income differential” premium on cocoa sales to support their farmers (which went into effect last month).
  • That’s on top of the “country premium” buyers already pay the two West African nations for their highly regarded beans.

But the rising costs coupled with falling chocolate demand during the pandemic has players like Hershey looking for alternatives.

That’s where Wall Street comes in. The futures market for cocoa is typically utilized for buyer hedging or hedge fund speculation, not procuring physical beans. But beans sourced from the exchange don’t incur the living income differential premium, saving buyers hundreds per ton.

And Hershey dove right-in, scooping up heaps of futures contracts and sending prices up 20% last week alone.

Bean Backlash

Premium cocoa purveyors including the Ivory Coast and Ghana have threatened to suspend their sustainability programs if buyers don’t pony up for the new premiums. 

The tactic has previously gotten the attention of chocolate makers, who are wary of consumer backlash.

While he didn’t point any fingers yet, Ghana Cocoa Board CEO Joseph Boahen Aidoo said he is prepared to “name and shame” bean buyers that aren’t following through with their promises to contribute to farmer livelihood. 

Heads Up For Hershey Fans: Cocoa beans sourced from the exchange don’t have the same quality guarantee as physically sourced beans, in case your chocolate tastes off this holiday season.

TSLA – Tesla Updated Model S Range To 409 Miles, Report Suggests

Tesla Inc (NASDAQ: TSLA) appears to have once again increased the range of its Model S.

What Happened: According to a report by Electrek on Saturday, the electric vehicle manufacturer seems to have increased the range for its Model S Long Range Plus to 409 miles on one charge. The previous range was 402 miles.  

A reader-submitted photograph reviewed by Electrek shows a model produced this month. It bears a vehicle sticker showing an updated range of 409 miles. It is unclear whether hardware or software improvements led to the increase.

This information has not been verified and has not yet appeared in Tesla’s official description of the vehicle.

Why It Matters: Tesla has been competing with Lucid Motors’ electric vehicle, which unveiled its Air model with a 406-mile range in October.

Price Action: Tesla shares closed down 1.93% at $489.61 on Friday, and went up by 0.20% to $490.60 in after-hours trading.

Image: Courtesy of Tesla

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

QUOT – Rosen Law Firm Announces Investigation of Securities Claims Against Quotient Technology Inc. – QUOT

NEW YORK–(BUSINESS WIRE)–Rosen Law Firm, a global investor rights law firm, announces an investigation of potential securities claims on behalf of shareholders of Quotient Technology Inc. (NYSE: QUOT) resulting from allegations that Quotient may have issued materially misleading business information to the investing public.

On November 5, 2020, Quotient reported its financial and operating results for the third quarter of 2020, including revenue that fell short of consensus estimates. In addition, for the three and nine months ended September 30, 2020, Quotient reported “restructuring charges of zero and $1.5 million, respectively, certain acquisition related costs of $0.4 million and $1.0 million, respectively, and loss contingency of $2.0 million related to a contract dispute resulting from a retailer’s failure to perform certain obligations related to a guaranteed distribution fee arrangement for both respective periods.”

On this news, Quotient’s stock price fell $2.08 per share, or 21.89%, to close at $7.42 per share on November 6, 2020.

Rosen Law Firm is preparing a securities lawsuit on behalf of Quotient shareholders. If you purchased securities of Quotient please visit the firm’s website at http://www.rosenlegal.com/cases-register-1990.html to join the securities action. You may also contact Phillip Kim of Rosen Law Firm toll free at 866-767-3653 or via email at pkim@rosenlegal.com or cases@rosenlegal.com.

Follow us for updates on LinkedIn: https://www.linkedin.com/company/the-rosen-law-firm or on Twitter: https://twitter.com/rosen_firm or on Facebook: https://www.facebook.com/rosenlawfirm.

Rosen Law Firm represents investors throughout the globe, concentrating its practice in securities class actions and shareholder derivative litigation. Rosen Law Firm was Ranked No. 1 by ISS Securities Class Action Services for number of securities class action settlements in 2017. The firm has been ranked in the top 3 each year since 2013. Rosen Law Firm has achieved the largest ever securities class action settlement against a Chinese Company. Rosen Law Firm’s attorneys are ranked and recognized by numerous independent and respected sources. Rosen Law Firm has secured hundreds of millions of dollars for investors.

Attorney Advertising. Prior results do not guarantee a similar outcome.

FRT – Federal Realty: Getting Paid to Wait

Earlier this month, I indicated that I was impressed with W.P. Carey Inc.’s (NYSE:WPC) performance during its most recent quarter. The trust continues to enjoy an extremely high occupancy rate even in the midst of an ongoing pandemic.

Not all real estate investment trusts have fared as well as W.P. Carey, however. Forced temporary store closures have impacted many REITs.

One such name is Federal Realty Investment Trust (NYSE:FRT). Regardless, investors buying shares of the trust may be paid a high dividend as they wait for a full recovery from the Covid-19 pandmeic.

Quarterly highlights

Federal Realty reported third-quarter results on Nov.5. Revenue declined 11.1% to $207.4 million, but was $840,000 better than expected by Wall Street Analysts. Funds from operations, or FFO, decreased 31 cents, or 22%, to $1.12, though this beat estimates by 1 cent. Included in the figure was an $11.9 million charge related to a buyout at one of the trust’s properties.

The largest impairment to revenue and FFO results was Federal Realty’s ability to collect rent. The trust collected 85% of rent in the third quarter, which was a solid improvement from the second quarter, where just 68% of rent was collected.

Also encouraging was that Federal Realty collected 85% of rent in October, which is included in the trust’s fourth quarter. This shows that tenants abilities to pay rent may have stabilized.

Federal Realty has uncollected rent of $76 million so far in 2020. The trust has reached deferred payment agreements with tenants totaling $34 million, with the vast majority due by the end of next year. Federal Realty also agreed to modify certain leases, which will reduce total rent by $21 million.

As of Sept. 30, all of Federal Realty’s 104 properties remain open. The occupancy rate was 92.2% and the comparable portfolio was 92% at the end of the quarter, down 80 and 170 basis points from the second quarter of the year. These declines are not entirely unexpected given the number of bankruptcies that have occurred as a result of Covid-19.

Federal Realty’s portfolio remains well diversified. The trust’s top 25 tenants, which make up around 28% of annual base rents, include companies like Home Depot (NYSE:HD), CVS Health Corp. (NYSE:CVS) and the TJX Companies (NYSE:TJX).

The only property types that account for more than 10% of annualized base rents are restaurants, residential and office. While the restaurant category remains challenged as a result of Covid-19, the impact was not nearly as severe as in the prior quarter as many locations are able to offer limited dining in seating as well as carry out. Of course, this has started to change in certain geographies as additional restrictions are implemented.

One category that has improved has been retail. Based on annualized base rents, almost 97% of retail tenants were also open during the most recent quarter. For context, 92% of properties were open on July 31 and just 47% were in operation on May 1.

While results showed some weakness in the business, there were some bright spots. The trust signed 101 leases for more than 481,000 square feet of retail space during the quarter, comparable to pre-Covidlevels. This is an improvement from the second quarter when the trust signed 65 leases totaling almost 400,000 square feet of retail and office space.

Analysts surveyed by Seeking Alpha expect that Federal Realty will generate $4.55 of funds from operations for the year, which would be a 28% decline from last year. These same analysts do expect a return to growth next year as FFO is pegged at $5.12 in 2021.

Federal Realty ended the quarter with $863 million in cash and cash equivalents on its balance sheet and has additional billion in capital at its disposal. The trust also has no current debt outstanding and just $340 million due by the end of 2021.

Financially, Federal Realty’s business looks well positioned to withstand the Covid-19 pandemic. The improved rent collection is also a point in the trust’s favor. While results were not as strong as W.P. Carey’s, they are solid enough that I find the stock to be attractive.

Dividend and valuation analysis

The trust’s high yield and low valuation also contribute to the appeal of the stock.

Federal Realty’s current yield is 4.7%, more than 170-basis points above than the stock’s average since 2010. The expected payout ratio of 93% for 2020 is higher than the 10-year average payout ratio of 68%, which is something to keep an eye on going forward. I would expect the payout ratio to move closer to its long-term average once a recovery from Covid-19 takes place.

The trust also has 53 consecutive years of dividend growth, qualifying Federal Realty as a Dividend King. There are just 29 other stocks in the market place that have boosted dividends for at least five decades.

Past performance does not guarantee future results, but given the length of the trust’s dividend growth streak, it’s strong financial position and its usually low payout ratio, I continue to believe that Federal Realty’s dividend remains in good shape.

Federal Realty closed Friday’s trading session at $89.78, which gives the stock a forward price-FFO ratio of 19.7. This is a higher earnings multiple from when I last looked at the company, but still trades at a discount to the stock’s 10-year average price-FFO ratio of 23.4.

Even reverting to a lower than average multiple, say 21 or 22 times earnings, would result in a 6.4% to 11.5% return from the current share price. Add in the dividend yield and investors could be looking at a total return in the double-digit range.

GuruFocus is even more bullish on Federal Realty.

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Federal Realty has a GF Value of $118.86 at the moment. That means shares are currently trading with a price-to-GF Value of 0.76, earning the stock a modestly undervalued rating from GuruFocus. If shares of Federal Realty were to trade with their intrinsic value, then the stock could return 32% before even considering the dividend.

Final thoughts

Federal Realty’s dividend growth streak is almost unmatched; not just by its peers, but by the market as a whole. The stock’s yield remains considerably higher than its long-term average and shares trade below their intrinsic value, using either its 10-year average FFO multiple or the GF Value.

Federal Realty’s third-quarter results were again impacted by the Covid-19 pandemic. Even so, the trust saw an improvement in sequential rent collection, which has been sustained through at least the first month of the fourth quarter. All of Federal Realty’s properties and 97% of retail annual base rents remain open as of the end of September. Federal Realty is not completely out of the woods yet, but these factors could mean that the worst effects of the Covid-19 pandemic might be behind the trust.

Investors buying today would be paid a high dividend yield as they wait for Federal Realty’s business to completely heal from the pandemic. And looking at third-quarter results, that recovery is well on its way to becoming a reality.

Disclosure: The author maintains a long position in CVS Health, Home Depot and W.P. Carey.

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About the author:

Nathan Parsh

I am originally from Detroit, Michigan, before moving to Maryland to begin a career as an educator. This is my 14th year teaching. My wife and I have two young children who keep us on our toes.

CSGP – CoStar Group Agrees to Acquire Homesnap, a Digital Residential Real Estate Solutions Provider Used by 300,000 Agents Responsible for More Than Half of All US Residential Real Estate Sales

WASHINGTON–(BUSINESS WIRE)–CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, announced today that it has reached an agreement to acquire Homesnap, Inc. for $250 million in cash.

Homesnap is an industry-leading online and mobile software platform that provides user-friendly applications to optimize residential real estate agent workflow and reinforce the agent-client relationship. Over 300,000 agents nationwide use the application an average of 30 times each month. Those 300,000 agents are also the nation’s most productive, selling the majority of homes in the US. The platform enjoys high growth and engagement as the number of active monthly users has grown at a compounded annual growth rate of over 40% since 2016, while marketing product sales have risen over 75% per year over that same period. Supported by a consortium of hundreds of the country’s largest multiple listing services (MLSs), over 1.1 million real estate agents have access to Homesnap Pro. These agents represent over 90% of the residential real estate agents and listings in the United States. With the support of this impressive consortium, Homesnap’s public residential real estate portal showcases 1.3 million active property listings. Tens of millions of home shoppers use the Homesnap website and app to look for a home.

“The acquisition of Homesnap will enable us to enter a new space and expand the total addressable markets in which we can compete,” said CoStar Group founder and CEO, Andy Florance. “The estimated value of commercial real estate assets in the U.S. is $16 trillion. With the new addition of clients and information covering 90% of the estimated $27 trillion dollar U.S. residential real estate market we are almost tripling the size of our addressable markets. Over the past thirty years, CoStar has become the leading real estate technology platform by working in partnership with commercial real estate brokers to serve their needs for data, analytics and advertising exposure for their property listings. Similarly, Homesnap works in very close partnership with residential agents to serve their needs for data, analytics and advertising exposure for their property listings. We will continue to differentiate our residential real estate portal and solutions by working solely to help agents market their listings and their brands, which is in sharp contrast to other portals that increasingly advertise on top of agent listings and offer brokerage services directly.”

The addition of Homesnap’s complementary offerings will quadruple the number of professional, paying brokers and active agent users on the CoStar Group U.S. platforms from approximately 100,000 today to over 400,000. The number of U.S. property listings available across CoStar’s brands will double from approximately 1.35 million today to over 2.6 million.

“Homesnap has great relationships, data, software, and tools for residential real estate professionals that are complementary to our existing offerings,” continued Florance. “The tools and functionality developed by Homesnap for residential property agents, such as lead generation, client collaboration, and digital advertising, have direct applicability to commercial brokers. Our goal is to make these enhanced capabilities available to all of our audiences. Combining forces with Homesnap is also expected to enable us to expand and deepen our collaboration with MLSs nationwide. A very large percentage of CoStar’s clients such as investors, banks, government agencies, appraisers, suppliers, and brokerage firms are active in both commercial and residential real estate, so we believe that they would welcome a more comprehensive solution for their needs across all real estate segments.”

“Homesnap has spent years building tools that reinforce the agent-client relationship and arm both home buyers and agents with the data and software they need to find homes and do their jobs,” said John Mazur, CEO of Homesnap. “In addition, residential property agents spend an estimated $10 billion every year on software and marketing, while influencing a further $21 billion of spending in adjacent markets, such as lending, insurance and relocation services. We are excited to join CoStar Group and leverage their 30 years of knowledge and experience in property data, software and marketing to take advantage of this significant growth opportunity.”

Homesnap is also headquartered in the Washington, D.C. area, employs approximately 150 people and is projected to achieve approximately $40 million of revenue for the full year 2020, representing revenue growth of approximately 45% compared to the full year 2019. The transaction is expected to close in 2020, subject to customary closing conditions and regulatory review.

The preceding forward-looking statements reflect CoStar Group’s expectations as of November 22, 2020. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, the exact timing of the closing of the acquisition, or the exact amounts or timing of any investments related to the acquisition will occur. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, CoStar Group does not intend to update its forward-looking statements until its next quarterly results announcement.

About CoStar Group, Inc.

CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. STR provides premium data benchmarking, analytics and marketplace insights for the global hospitality sector. Ten-X provides a leading platform for conducting commercial real estate online auctions and negotiated bids. LoopNet is the most heavily trafficked commercial real estate marketplace online with over 7 million monthly unique visitors. Realla is the UK’s most comprehensive commercial property digital marketplace. Apartments.com, ApartmentFinder.com, ForRent.com, ApartmentHomeLiving.com, Westside Rentals, AFTER55.com, CorporateHousing.com, ForRentUniversity.com and Apartamentos.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. CoStar Group’s websites attracted an average of approximately 69 million unique monthly visitors in aggregate in the third quarter of 2020. Headquartered in Washington, DC, CoStar Group maintains offices throughout the U.S. and in Europe, Canada and Asia with a staff of over 4,300 worldwide, including the industry’s largest professional research organization. For more information, visit www.costargroup.com.

About Homesnap

Based in Bethesda, MD, Homesnap was founded in 2012 to provide residential real estate agents and consumers with an intuitive technology that facilities buying and selling homes. Homesnap’s flagship product, Homesnap Pro, is a free software application for real estate agents to view and manage property listings, communicate with clients, receive market alerts and schedule showings on their mobile devices. Homesnap collects data from over 500 data sources and has subscription service agreements with approximately 240 MLSs who provide data and subscription revenue to Homesnap in exchange for free agent access to Homesnap Pro. Homesnap also provides marketing products through its mobile application that agents can use to promote their listings, as well as a premium product called Homesnap Pro+, which provides agents with enhanced functionality and business intelligence through individual subscription agreements. The Homesnap platform contains approximately 1.3 million active property listings, including residential, commercial, land and other property types, covering approximately 90% of active listings. The company also aggregates information on property taxes, mortgages, individual property parcels, neighborhood schools and other property data elements.

This news release and the Company’s conference call contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about CoStar Group’s plans, objectives, expectations, beliefs and intentions and other statements including words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology. Such statements are based upon the current beliefs and expectations of management of CoStar and are subject to many risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements and the assumptions and estimates used as a basis for the forward-looking statements. The following factors, among others, could cause or contribute to such differences: the possibility that the acquisition of Homesnap does not close when expected or at all; the possibility that the parties are unable to obtain regulatory approval, or the risk that any actions required to be taken in order to receive regulatory approval may impact the expected benefits of the transaction; the risk that the businesses of Homesnap and CoStar may not be combined successfully or in a timely and cost-efficient manner; the risk that business disruption relating to the Homesnap acquisition may be greater than expected; the risk that the acquisition does not produce the expected benefits or results for CoStar, Homesnap or their customers and advertisers, including expanded and deeper collaboration with MLSs nationwide and as otherwise stated in this release; the risk that Homesnap revenues and revenue growth for 2020 will not be as stated in this press release; the risk that the combination and integration of Homesnap will disrupt CoStar Group’s or Homesnap’s operations or result in the loss of customers or key employees; uncertainty surrounding the impact of the COVID-19 pandemic, including volatility in the international and U.S. economy, worker absenteeism or decreased productivity, quarantines or other travel or health-related restrictions; the length and severity of the COVID-19 pandemic; the pace of recovery following the COVID-19 pandemic; and government and private actions taken to control the spread of COVID-19. Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in CoStar Group’s filings from time to time with the Securities and Exchange Commission, including in CoStar Group’s Annual Report on Form 10-K for the year ended December 31, 2019, and CoStar Group’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020, each of which is filed with the SEC, including in the “Risk Factors” section of those filings, as well as CoStar Group’s other filings with the SEC available at the SEC’s website (www.sec.gov). All forward-looking statements are based on information available to CoStar Group on the date hereof, and CoStar Group assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

IBM – IBM shares are down 12.7% YTD. Should I invest?

  • IBM posted better than expected results in Q3, revenues fell only 2.6% while Q3 Non-GAAP EPS was $2.58
  • With the market capitalization of $104B this stock is still undervalued relative to the market
  • IBM will acquire application monitoring company Instana

IBM (NYSE: IBM) shares are advancing this November but the price is still not able to surpass $120 resistance level. IBM is expanding its business and the company has declared a $1.63/share quarterly dividend in October.

Fundamental analysis: IBM has declared a $1.63/share quarterly dividend

International Business Machines Corporation (IBM) is an American multinational technology company that employs more than 350,000 employees in 170 countries. IBM continues to be a major player in the IT business with the capability to enthuse investors in the years to come.

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IBM posted better than expected results in Q3, revenues fell only 2.6% to $17.56B while Q3 Non-GAAP EPS was $2.58. This October, IBM announced it was spinning off the Managed Infrastructure Services unit into a new public company and this should be completed by the end of 2021.

With the market capitalization of $104B this stock is still undervalued relative to the market and maybe now could be a good time to invest in IBM shares. IBM has paid more than $16B dividends to its shareholders in the last three years and for now, dividend remains safe.

The company has declared a $1.63/share quarterly dividend this October which is in line with previous. IBM is expanding its business and according to the latest news, the company will acquire application monitoring company Instana. Instana will help to improve IBM’s hybrid cloud and the acquisition is expected to close within several months.

IBM also acquired recently TruQua Enterprises, an IT services and consulting SAP development. “Our acquisition of TruQua further strengthens IBM’s deep global expertise in finance and demonstrates our continued commitment towards supporting Chief Financial Officers’ strategic initiatives,” says Rahul Kalia from IBM.

Another useful information for potential investors is that IBM directors continue to buy shares this November and it is important to mention that retired Dow Chemical CEO Andrew Liveris has bought 2,655 shares at $112.92. Frederick Waddell has bought 1,000 shares at an average price of $107.50 while Sidney Taurel bought 5,000 shares for around $110/per share.

Technical analysis: As long the price is above $100 there is no risk of the “bear” market

IBM shares did not perform well so far in 2020 year but as long the price is above $100 this stock remains in the “bull” market. If the price falls in the upcoming months, every price in a range from $100 – $105 could be a very good opportunity for buying IBM shares.

Data source: tradingview.com

The important support levels are $110 and $100, $120 and $135 represent the resistance levels. If the price jumps above $120 it would be a “buy” signal but if the price falls below $100 it would be a strong “sell” signal and the next target could be around $90.

Summary

IBM posted better than expected results in Q3 and shares of this company are advancing this November. With the market capitalization of $104B this stock is still undervalued relative to the market and maybe now could be a good time to invest in IBM shares. IBM is expanding its business and according to the latest news, the company will acquire application monitoring company Instana. If the price falls in the upcoming months, every price in a range from $100 – $105 could be a very good opportunity for buying IBM shares.