Portfolio Review


Teva bids for Mylan

Teva Pharmaceutical Industries ($63; TEVA) offered to acquire Mylan ($72; MYL) in a cash-and-stock deal worth $40.1 billion. The bid values Mylan at $82 a share, a 24% premium from where the stock traded prior to the announcement. Although Mylan's stock rallied on the news, it remains well below the Teva's bid, reflecting management's previously cool response to speculation about a deal.

Mylan had said a merger with Teva would lack "sound industrial logic or cultural fit" and invite close antitrust scrutiny. Mylan may have tried to insulate itself from becoming a takeover target by proposing to acquire Perrigo ($202; PRGO) for about $28.9 billion. However, after Teva's bid became public, Perrigo's board unanimously rejected Mylan's offer as too low.

Mylan is incorporated in the Netherlands, where Dutch laws make hostile takeovers difficult. But several of Mylan's bigger investors are reportedly pressuring management to consider Teva's offer. Analysts speculated Teva may raise its offer to $90 per share or that Mylan could seek a more attractive suitor, such as Pfizer ($35; PFE). For now, Mylan remains a Buy and a Long-Term Buy.

Earnings reviews

Ameriprise Financial ($132; AMP) said per-share profits from operations rose 12% to $2.29 in the March quarter, missing the consensus by $0.04. Results excluded the unfavorable impact of a rise in long-term-care reserves. Total revenue, up 2% to $3.05 billion, also fell short of analyst expectations. Assets under management and administration increased 4% to $815 billion as net inflows and market appreciation more than offset currency headwinds. In addition, Ameriprise raised its quarterly dividend 16% to $0.67 per share, payable May 15. Ameriprise is a Focus List Buy and a Long-Term Buy.

Lam Research ($78; LRCX), a maker of semiconductor equipment, grew March-quarter earnings per share 18% to $1.40 excluding special items, topping the consensus by $0.10. Sales advanced 13% to $1.39 billion, also ahead of the consensus. Management issued bullish guidance, calming investor anxiety over a flurry of reports that semiconductor makers were cutting back on capital spending. The midpoint of Lam's June-quarter guidance calls for 17% growth of both per-share profits and revenue, exceeding expectations at the time of the announcement. Lam said higher memory spending should offset a slight decline in foundry spending. Lam is a Focus List Buy and a Long-Term Buy.

United Rentals ($96; URI) said March-quarter earnings per share jumped 49% to $1.34 excluding special items, topping the consensus by $0.21. Revenue climbed 12% to $1.32 billion. However, shares fell after management lowered the top end of its 2015 guidance range. Sales are now expected to rise 6% to 7%, versus the company's prior forecast of 6% to 9% growth. Rental rates are projected to increase 3% for the year, down from the former target of 3.5%. United Rentals is a Focus List Buy and a Long-Term Buy.

In the March quarter, F5 Networks' ($120; FFIV) per-share earnings jumped 25% to $1.59 excluding special items, exceeding the consensus of $1.50. Revenue advanced 12% to $472 million. However, shares fell in after-market trading, probably because of June-quarter sales guidance, which came in a little short of analyst expectations. The profit target was roughly in line with the consensus, calling for at least 13% higher earnings per share this quarter on minimum revenue growth of 8%. F5 also said Executive Vice President Manny Rivelo will become its new CEO, succeeding John McAdam, who will become chairman when he steps down from the CEO spot July 1. F5 remains a Buy and a Long-Term Buy.

Schlumberger ($92; SLB) earned $1.06 per share excluding special items, down 12% but $0.17 ahead of the consensus. Revenue slumped 9% to $10.25 billion, dragged down by a 13% decline in North America. Results suffered from both lower drilling activity and weaker prices. U.S. oil prices have bounced in April on lower stockpiles and anticipation that drillers are becoming more disciplined. The U.S. rig count for onshore drilling has fallen for 21 straight weeks to reach its lowest point since July 2009. Schlumberger expects spending on exploration and production to fall more than 30% in North America (33% of March-quarter revenue) and 15% in international markets (67%). Schlumberger also announced plans to slash 11,000 jobs, bringing its total cuts to 20,000 this year, roughly 15% of its staff. Schlumberger is a Long-Term Buy.

General Electric ($27; GE) earned $0.31 per share in the March quarter excluding special items, $0.01 above the consensus. Revenue fell 12% on declines of 1% for industrial and 39% for the finance arm GE is in the process of divesting. GE is rated B (average).

IBM ($165; IBM) said March-quarter earnings per share rose 9% from continuing operations, topping the consensus by $0.11. IBM's sales declined for a 12th straight quarter, slumping 12% on a 23% decline in systems hardware. IBM is rated B (average).

Deal activity heats up

Comcast ($59; CMCSa) scrambled to save its proposed $45.2 billion acquisition of Time Warner Cable ($150; TWC) by meeting April 22 with the U.S. Department of Justice. Comcast has already pledged to sell or spin off 3.9 million subscribers if the deal goes through, but Justice Department staff reviewers are reportedly leaning toward recommending the agency block the deal. In addition, six U.S. senators have asked antitrust regulators to reject the acquisition. Comcast's takeover proposal does not include a breakup free, allowing the company to walk away from the deal if it deems concessions too harsh. However, Wall Street banks could lose up to $380 million in adviser fees should the takeover fall apart. J.P. Morgan Chase ($63; JPM), which is advising Comcast, could lose fees of $25 million. Comcast is a Buy and a Long-Term Buy. J.P. Morgan is a Long-Term Buy.

Wells Fargo ($55; WFC) is reportedly in initial talks to acquire General Electric's ($27; GE) U.S. commercial-lending and leasing portfolio. GE may also sell its portfolio, containing $74 billion in loans, in smaller parts. In other news, a U.S. judge ruled that Wells Fargo violated a 2010 mortgage settlement for failing to properly evaluate homeowners seeking to avoid foreclosure. The bank had agreed to offer loan modifications worth up to $2.7 billion. Wells Fargo is a Long-Term Buy. GE is rated B (average).

Magna International ($53; MGA) agreed to sell the bulk of its interiors business to Grupo Antolin for about $525 million. The interiors unit, considered separate from Magna's seating operations, generated 2014 sales of $2.4 billion, or 7% of total company revenue. Magna is a Focus List Buy and a Long-Term Buy.

EU probing search engines

Regulators from the European Union reportedly plan a comprehensive review of the transparency of online search results provided by Google ($549; GOOGL), Microsoft ($43; MSFT), and Yahoo ($44; YHOO). A formal announcement is expected May 6. In other news, Google announced plans to launch Project Fi, a new wireless service in the U.S. that will run on networks maintained by Sprint ($5; S) and T-Mobile. Unlike most other plans, Google's service allows subscribers to pay only for data used each month. The service, available for Google's new Nexus 6 smartphones, costs $20 a month plus $10 per gigabyte. Google is a Buy and a Long-Term Buy. Microsoft is rated B (average). Sprint is rated C (below average).

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