Merck & Co. (MRK) Update

Establishing 2022 and 2023 Estimates, Maintaining Outperform Rating, Setting $85 Price Target

Following the spin-off of Organon, Merck is focused on growing its pharmaceuticals business to offset the looming loss of exclusivity on its $5 billion Januvia/Janumet franchise and others that will follow as the decade progresses.  Investors’ concerns about the impact of LOE contributed to the stock’s underperformance in 21H2.  Some investors worry that Merck’s pipeline will not sustain its revenues and profits.  My estimates anticipate that both will decline slightly in 2023.

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DHC 21Q4 Update

Lowering Estimates for 2022 and Adding 2023, Lowering Price Target to $5.00

DHC reported 21Q4 normalized FFO of $0.09 per share, compared with 21Q3’s $0.05 and 20Q4’s +$0.09.  Although the Office portfolio posted another solid quarter and the Senior Housing Operating Portfolio (SHOP) occupancy improved by 120 bp, SHOP operating costs were high, due mostly to the tight labor market.  On a positive note, management says that its operators have been able to begin raising rental rates to help cover higher operating costs.

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Bristol-Myers Squibb Update

Raising 2022 Estimate and Adding 2023, Maintaining Outperform Rating and Price Target of $73

Bristol-Myers Squibb Company (BMS) achieved many operational milestones in 2021, advancing its development pipeline through clinical trials, new drug applications and regulatory approvals.  At its November Investor Event, management said that it would further advance these initiatives in 2022 and beyond, bolstering its early- and mid-stage pipeline through internal development, licensing agreements, partnerships and acquisitions.  Facing the headwinds from loss of exclusivity (LOE) for some of its key products, the company must generate significant revenues from new medicines and grow revenues of its existing brands through new indications and product extensions.

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The Drivers of Large Cap Stock Performance in 2021

Estimated Returns by Sectors, Industry Groups and Industries

Large cap stocks, as measured by the Lark Research Large Cap index (the “Index”) which currently mirrors the S&P 500, turned in another impressive performance in 2021.  The Index posted a price return of 26.8%, much better than 2020’s solid 16.9% return.

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DHC Announces Sales of Joint Venture Interests in Certain Office Properties

Sales Raise Over $1 Billion, Giving the Trust the Means to Retire the 9.75% Senior Notes due 2025 When They Become Callable in June 2022.

DHC announced on January 31 that it has entered into a joint venture with two institutional investors on 10 of its Office properties.  The joint venture is valued at $703 million and will have $456.3 million of secured debt.  The JV investors will pay $196.5 million for an 80% equity stake.  DHC will receive cash proceeds of $653 million and retain a 20% equity interest.  The 10 properties are valued at $657 per sq. ft.  The $703 million estimated value equates to a capitalization rate of 4.98%, based upon full year 2021 actual cash net operating income (NOI).

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Notes and Analysis from Campbell Soup’s Fiscal 2022 Investor Day

Since 2019, Campbell Soup Company has jettisoned several businesses to focus on its core Meals and Beverage (M&B) and Snacks segments.  It has also acquired new growth platforms in Pacific Foods and Snyder’s-Lance.  Its $1 billion enterprise cost savings program is now 83% complete.

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Mistras Group: Waiting for the Full Recovery

Mistras Group is a leading provider of non-destructive testing (NDT) and related asset protection services that monitor the condition of critical infrastructure and equipment to ensure safe and efficient operations and maximize uptime.  The company’s business has suffered during the pandemic from the decline in usage that temporarily reduced the frequency of maintenance and repair.  Although its revenue has rebounded well off the lows, its 21Q3 performance and 21Q4 guidance suggest at least a pause in its recovery.  Accordingly, investors may be concerned that its recovery will be incomplete.

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Toll Brothers (TOL) 21Q4 Update

Toll Brothers reported stronger-than anticipated fiscal 21Q4 results that once again exceeded my and the consensus estimates.  Its diluted earnings per share were $3.02, up 95% from $1.55 in 20Q4.  My estimate was $2.51 and the consensus estimate was $2.50.

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Organon 21Q3 Update

Organon reported 21Q3 GAAP EPS of $1.38 which exceeded my estimate of $1.31.  Revenues were in line with my estimates and operating costs were lower, except for a $25 million increase associated with the acquisition of in-process research & development.

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SJI 21Q3 Update

SJI reported a 21Q3 GAAP net loss of $25.8 million or $0.23 per share, wider than 20Q3’s net loss of $10.3 million or $0.10.  On an economic earnings basis, which adjusts for fluctuations in the fair market value of derivatives and other unusual or one-time costs, the 21Q3 net loss was $18.8 million or $0.17 per share, compared with 20Q3’s net loss of $6.0 million or $0.06 per share.  I had anticipated GAAP and economic earnings net losses of $0.16 per share.

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