The Zacks Analyst Blog Highlights: Merck, Johnson & Johnson, Chesapeake Energy, Royal Dutch Shell and Chevron

Zacks


For Immediate Release

Chicago, IL – October 26, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Merck & Co. Inc. (MRK), Johnson & Johnson (JNJ), Chesapeake Energy Corporation (CHK), Royal Dutch Shell plc (RDS.B) and Chevron Corporation (CVX).

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Here are highlights from Thursday’s Analyst Blog:

Earnings Preview: Merck & Co.

 

Merck & Co. Inc. (MRK) is set to announce its third quarter 2012 results on October 26, 2012, before the opening bell. The Zacks Consensus Estimate for the third quarter is 93 cents per share, down 1.1% from the year-ago earnings of 94 cents.

Second Quarter Recap

Merck reported second quarter 2012 earnings per share (excluding special items) of $1.05, 4 cents above the Zacks Consensus Estimate and 10.5% above the year-ago earnings.

Revenues for the quarter increased 1.3% to $12,311 million, just above the Zacks Consensus Estimate of $12,129 million. Revenues were negatively impacted by both currency fluctuations and the arbitration settlement agreement with Johnson & Johnson (JNJ).

Agreement of Estimate Revisions

Of the 13 analysts following the stock, 3 analysts revised their third quarter 2012 estimate upward, while 2 analysts have trimmed their estimates in the last 30 days.

In contrast, 2012 estimates have witnessed a downward bias over the last 30 days with 3 analysts raising estimates and 4 trimming the same.

The last 7 days saw 1 analyst raising earnings estimates for the third quarter of 2012. For 2012, a sole analyst trimmed the estimates.

We believe that concerns regarding the impact of the Singulair patent expiry (August 2012) has led analysts to revise their estimates downward for the third quarter of 2012. Singulair, indicated for the chronic treatment of asthma and relief of symptoms of allergic rhinitis, recorded $5.5 billion in sales in 2011. The product accounted for approximately 11.4% of total revenues in 2011.

Meanwhile, the upward revisions in 2012 estimates reflect the anticipated strong sales of Januvia/Janumet and new product approvals like Victrelis as well as cost-cutting efforts.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the third quarter of 2012 increased by a penny to 93 cents per share in the last 30 days. The Zacks Consensus Estimate for 2012 remained stationary at $3.81 per share in the past 30 days, which is slightly towards the higher end of the earnings guidance range of $3.75 – $3.85 per share provided by the company. In the last 7 days, there was no change in the Zacks Consensus Estimate for the third quarter of 2012 and full year 2012.

Surprise History

Merck has consistently surpassed earnings estimates in the last four quarters. The company recorded a maximum positive surprise of 3.96% in the second quarter of 2012. On an average, the earnings surprise was 2.86%.

Our Recommendation

We currently have a Neutral recommendation on Merck, which carries a Zacks #3 Rank (short-term Hold rating).

 

 

Chesapeake Offloads Permian Assets

 

Recently, US natural gas giant Chesapeake Energy Corporation (CHK) closed the sale of its assets in the Permian Basin. The asset sale was a part of the company’s plan to repay its term loan of $4.0 billion by the end of 2012.

It’s southern Delaware Basin assets in the Permian Basin were sold to SWEPI LP – a subsidiary of Royal Dutch Shell plc (RDS.B); northern Delaware Basin part to Chevron U.S.A. Inc. – a subsidiary of Chevron Corporation (CVX) and producing assets in the Midland Basin to affiliates of EnerVest.

Chesapeake received $3.3 billion through these three dealings, which comprised $2.8 billon cash. The balance proceeds are subject to certain title, environmental and standard contingencies.

During the second quarter of 2012, the sold assets produced 21,000 barrels of liquids and 90 million cubic feet of natural gas per day. It was about 5.7% of total production during the quarter.

Earlier this month, Chesapeake inked a deal to sell certain assets in western Oklahoma, in a bid to narrow cash-flow shortfall while shifting gears to oil-directed drilling from natural gas.

Chesapeake is on track with its plan of reducing its long-term debt by monetizing its assets and curbing lease-hold spending. This monetization initiative is mainly aimed to cope with the mounting debt level as well as to fill the funding gap for its 2012 expenditures that resulted from low natural gas prices.

Given the gas price scenario, Chesapeake intends to deploy more funds toward liquids. In particular, the company plans to invest heavily in the development of its holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime.

However, we prefer to remain on the sidelines and see the stock performing in line with the broader market. Chesapeake holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We maintain our long-term Neutral recommendation on the company.

 

 

 

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Read the analyst report on MRK

Read the analyst report on JNJ

Read the analyst report on CHK

Read the analyst report on RDS.B

Read the analyst report on CVX

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