Organon (OGN) 21Q2 Update

21Q2 Performance in Line with Expectations; Raising Performance Rating and Lowering Price Target

21Q2 GAAP EPS of $1.68 was lower than 20Q2’s $2.14.  Although sales increased 4.5% to $1.6 billion, costs were higher as a result of new tolling arrangements with Merck and certain costs associated with the spin-off and becoming a separate public company.  Still, the results were in line with my expectations.  Organon has initiated a quarterly dividend of $0.28.

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DHC 21Q2 Update

Progress on Strategic Repositioning; Performance in Line with Expectations; Upgrading Performance Rating; Maintaining Price Target of ~$7.50.

DHC reported 21Q2 normalized funds from operations (FFO) of $12.2 million or $0.05 per share, lower than 20Q2’s $0.25, due mostly to a 780 bp decline in senior housing operating portfolio (SHOP) occupancy.  Although SHOP occupancy was down vs. the prior year, it increased 140 bp sequentially, suggesting that a bottom is in.  Still, the pace of the rebound is uncertain due to the Delta variant, among other factors.  DHC’s office portfolio also reported a  drop in profits mostly due to previous asset sales and a 100 bp decline in occupancy.  However, strong lease-ups and the added contribution from redevelopment projects should improve its profitability going forward.

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Five Star Senior Living 21Q2 Update

Five Star reported a second quarter net loss of $12.3 million, reversing last year’s $3.0 million net profit.  On a per share basis, the loss was $0.39, compared to net income of $0.10 and below my estimate of a loss of $0.11.

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American Water Works 21Q2 Update

2021 Second Quarter Results in Line with Expectations. Maintaining Neutral Rating.

AWK reported 21Q2 EPS of $1.14, up 17.5% from 20Q2.  Operating revenues increased  7.3% to $999 million.  Operating income rose 5.4% to $330 million.  Operating margin eased 60 bp from 33.6% to 33.0%, due to a refund of excess accumulated deferred income tax.  That refund was offset by a comparable drop in income tax expense, as evidenced by the drop in the effective tax rate from 24.1% to 17.5%.  Thus, net income increased 17.6% to $207 million.

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Bristol-Myers Squibb: Initiating Coverage

Initiating Coverage with an Outperform Rating. Prospects Beyond 2022 are Favorable.

With the acquisitions of Celgene in 2019 and MyoKardia in 2020, BMS has substantially transformed its business and repositioned for growth.  Drugs added to the portfolio from the two acquisitions produced 40% of its total revenues in 2020.  The company has launched six new products since 2020, including two CAR-T immunotherapies, a class of treatments that has produced miraculous responses in fighting blood cancers.  It plans to launch two potential first-in-class treatments in 2022 that have good commercial potential.  BMS also has a broad early-to-mid stage pipeline with more than 50 new compounds in clinical development.

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PSEG: A Possible Rocky Transition to T&D

It has been a year since PSEG announced a strategic review to explore divesting its fossil fuel generating assets.  Since then, management has said that it is pleased with the interest shown by potential buyers in its 6,750+ MW portfolio of mostly natural gas-fired generating plants.  The move would complete PSEG’s transition to a regulated utility (with a fleet of carbon-free nuclear generating plants).

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Bluegreen Vacations Holding Corp. Stands to Gain as Domestic Travel Improves

On May 5, 2021, Bluegreen Vacations Holding Corporation (BVH), formerly known as BBX Capital Corporation, completed the acquisition of the 7% publicly-traded ownership stake of Bluegreen Vacations Corporation (BXG) that it did not already own through a statutory short-form merger under Florida law.  BXG shareholders received 0.51 shares of BVH’s Class A common shares in the merger.  On April 5, the day of the merger announcement, BXG shares rallied 18.8%.  BXG is now a wholly-owned subsidiary of BVH.

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HPE 21Q2 Results

The Company Reported Stronger Than Expected 21Q2 Results, But Its Upwardly Revised Guidance Was Somewhat Disappointing.

HPE reported fiscal 2021 second quarter GAAP earnings of $0.19 per share, well above its most recent guidance of $0.02-$0.08 per share and ahead of my estimate of $0.12.  Its Non-GAAP earnings of $0.46 also exceeded its guidance of $0.38-$0.44 and my estimate of $0.42.  Revenues of $6.7 billion were exactly in line with my projections.

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Update on Hewlett Packard Enterprise (HPE)

HPE has posted two consecutive quarters of stronger-than-expected results.  Although the quarterly figures still lag behind the prior year, the recent strength suggests that its business is rebounding strongly off the bottom.  As noted by management, HPE’s business portfolio, which sports beefed-up offerings in cloud services, edge networking and high performance computing (HPC), is well positioned coming out of the pandemic as organizations pursue greater flexibility in their IT operations to improve their ROI and seek a more permanent role for work from home.  HPE also appears to be benefiting from a catch up in customer IT spending after pandemic-related delays.

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Five Star Alters Strategy, Its Stock Gets Slammed

In early April, Five Star announced a change in its strategy whereby it will transition out of the management of 108 smaller senior living communities (SLCs) with 7,500 living units (with an average of 69.4 units per community), close and reposition 27 skilled nursing facilities (SNFs) with 1,500 units located within its continuum of care retirement communities (CCRCs) and close 37 Ageility inpatient rehabilitation clinics that are located within the exited SLCs. The transition is expected to be completed by the end of 2021.

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