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The Zacks Analyst Blog Highlights: Elan, Biogen Idec, WuXi PharmaTech, QLT and Reynolds American

Zacks Equity Research

For Immediate Release

Chicago, IL April 23, 2013 – 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 Elan Corporation (ELN), Biogen Idec (BIIB), WuXi PharmaTech (WX), QLT Inc. (QLTI) and Reynolds American Inc. (RAI).

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Here are highlights from Monday’s Analyst Blog:

Elan Turns Down Royalty’s Offer

Elan Corporation’s (ELN) Board of Directors recently rejected Royalty Pharma's offer to acquire all the shares of Elan for $11.25 or less per share.

Elan’ Board of Directors believed that Royalty Pharma’s offer significantly undervalued the company’s current business platform and its future prospects. The Board was unanimous in rejecting the offer. Meanwhile, the company advised its shareholders not to take any action in relation to the Royalty Pharma offer.

Last week, Elan announced the final results of its modified Dutch auction tender offer, of a maximum aggregate value of $1 billion, to repurchase its ordinary shares, including ordinary shares represented by American Depositary Shares. As a result of the tender offer, the Dutch auction strike price stands at $11.25.

We note that 1 ADS is equal to 1 share of Elan.

Following the determination of the Dutch auction strike price at $11.25, Royalty Pharma confirmed that its offer for each outstanding share and ADS of Elan is also the same. Earlier Royalty Pharma announced its offer at different prices for different Dutch auction strike prices, where it mentioned that if the strike price is $11.25, it will offer the same for each outstanding share and ADS of Elan.

Royalty Pharma had also stated that it was not aware of Elan’s current cash position. If the latter does not disclose its cash position, Royalty Pharma would have to reduce its offer by $1.00 and Elan’s shareholders would have an option to receive up to $1.00 in cash depending on its cash position.

Meanwhile, Elan closed its Tysabri (natalizumab) collaboration transaction with Biogen Idec (BIIB) earlier this month. As a result, Biogen gained full strategic, commercial and operational control over the drug.

Elan, a biotechnology company, currently carries a Zacks Rank #3 (Hold). Currently, well-placed biotech stocks include WuXi PharmaTech (WX) and QLT Inc. (QLTI). Both stocks carry a Zacks Rank #1 (Strong Buy).

Will Reynolds Beat Estimates?

Reynolds American Inc. (RAI) is set to report its 2013-first quarter results on April 23. In the last reported quarter, the company posted a 2.6% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Reynolds benefited from improved pricing and volume gains for moist snuff products that offset declines in cigarette volumes and marketing expenses.  

Revenues slipped marginally from the year-ago quarter mainly due to declining cigarette shipment volumes. Governmental actions and anti smoking campaigns have led to the decline in shipment volumes. Moreover, higher excise taxes and increasing popularity of other tobacco products led to the decline. However, the American Snuff and Santa Fe segment reported positive results on the back of innovations and positive pricing during the quarter.

Earnings Whispers?

Our proven model does not conclusively show that Reynolds American is likely to beat earnings this quarter. That is because a stock needs to have both a positive Zacks Earnings Expected Surprise Prediction (ESP) and a Zacks Rank of #1, 2 or 3 for this to happen (Read: Zacks Earnings ESP: A Better Method). That is not the case here as you will see below.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate stands at 69 cents. That is a difference of 0.00%.

Zacks Rank #3 (Hold): Reynolds’Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a non positive ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

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Read the analyst report on ELN

Read the analyst report on BIIB

Read the analyst report on WX

Read the analyst report on QLTI

Read the analyst report on RAI

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