The Zacks Analyst Blog Highlights: Boeing, Textron, United Technologies, Honeywell and Cell Therapeutics

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Aug 25, 2011, 09:30 ET

CHICAGO, Aug. 25, 2011 /PRNewswire/ -- 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: Boeing (NYSE: BA), Textron (NYSE: TXT), United Technologies (NYSE: UTX), Honeywell (NYSE: HON) and Cell Therapeutics Inc. (Nasdaq: CTIC).

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Here are highlights from Wednesday's Analyst Blog:

Durable Goods Orders Greatly Improve

New Orders for Durable Goods rose 4.0% in July. That was well above consensus expectations of an increase of 1.9%. In addition, the June numbers were revised upwards. It was first reported as a decrease of 2.1%, but now they say new orders fell just 1.3%.

Durable goods orders are a volatile series, and it is not uncommon for a big drop in one month to be followed by a rise the next -- more common than two months in the same direction, and three or four months in a row is rare. Still, these numbers are good news, and argue strongly that we are not about to fall back into a recession.

Jumbo Jets Create Jumbo Swings

Part of the story was the extremely volatile Transportation Equipment side, and more specifically, from the Non-Defense Aircraft component, which is often the case when we get an unusually good (or bad) headline durable goods number. That is mostly orders for big 777s and 747s from Boeing (NYSE: BA), which are very expensive items. It also includes orders for business jets from firms like Textron (NYSE: TXT).

A few orders for new jumbo jets can really skew the numbers for the month. It was part of the story, but not all of it, as even without them the numbers were solid. Excluding transportation equipment, new orders rose 0.7%, well above expectations for a 0.1% decrease. Last month was revised upwards to a rise of 0.6% to from 0.1%.

Overall, transportation equipment orders were up 14.6% in July, and non-defense aircraft orders were soared 43.4%. In June, overall transportation orders were down 6.7%, and non-defense aircraft were down 24.0%.

If one want to gauge how much demand for long lasting goods is coming from the private sector, then one needs to strip out orders from the Pentagon (although it still counts civilian orders from the government). Falling defense orders tempered the overall increase.

Excluding defense, orders for durable goods up 4.8% after falling 0.9% (revised from -1.89%) in June. Orders for defense aircraft fell 6.1% on top of a 20.5% decline in June. Overall orders for defense capital goods (throw in orders for tanks and ships, etc.) fell by 7.8% on top of a 3.3% decline in June.

Core Capital Goods

One of the most significant details of this report is what is known as "core capital goods." Those are orders for non-defense capital goods, excluding aircraft. That is a very good proxy for what businesses are investing in equipment and software.

That investment is a direct input into the GDP growth calculations, and one of the real bright spots for the economy in this recovery. That is the sort of spending that is a bet on the economic future of the country, and is also one of the areas that trends to swing with overall economic conditions. Those swings are a big factor in determining if the economy is growing or shrinking.

On that front, the news so far this year had been one of steady improvement, but June put a scare into the market. In June they were originally reported as a decline of 0.4%. That got revised away to an increase of 0.6%. However, it is now the July numbers that look soft, with a drop of 1.5%.

Business investment in equipment and software has been one of the bright spots in the recovery, adding 0.41 points of the 1.30 total growth in the economy, even though it is just 7.33% of the total GDP. The upward revision to June should mean that its contribution is greater when the revised GDP figures come out on Friday. If not revised away, though, the July decline would indicate a smaller contribution (or perhaps even a drag, but too early to tell) in the third quarter.

The non-defense aircraft segment was the strongest part of this report, but that is not particularly unusual. Those numbers are volatile in the extreme. This month they rose 43.4%. In June they plunged 24.0% (revised from down 28.9%). In May they posted a jump of 31.4%.

Those numbers are tame relative to an eye-popping 5,558.2% increase in January. That is not a typo, but a reflection of a total collapse of such orders in December (down over 95%). Did I mention that non-defense aircraft orders can be very volatile? Given recent announcements by Boeing, look for more increases in that segment in August.

The rise in orders is good news not only for the big names like Boeing, and the big name suppliers like United Technologies (NYSE: UTX) and Honeywell (NYSE: HON), but eventually it is bad news for thousands of much smaller sub-contractors as well.

Good News for Cell Therapeutics

Cell Therapeutics Inc. (Nasdaq: CTIC) recently announced that it has moved a step closer to getting its lead pipeline candidate pixantrone approved in the European Union. Cell Therapeutics submitted a response to the Day 120 List of Outstanding Issues to the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) relating to the Marketing Authorization Application (MAA) filed for pixantrone.

Cell Therapeutics is looking to get pixantrone approved for the treatment of relapsed, aggressive non-Hodgkin's lymphoma (NHL) in patients who have not responded to other treatment options.

Cell Therapeutics is expecting to get an opinion from CHMP regarding approval of pixantrone in the first quarter of 2012. Approval of the drug in Europe will boost Cell Therapeutics' top line and provide it with some much needed funds.

In the US, Cell Therapeutics has been allowed to re-submit its new drug application (NDA) to the US Food and Drug Administration (FDA) after being denied approval on the basis of the first NDA filing. In December 2010, Cell Therapeutics filed an appeal against the regulatory body's decision to deny approval to pixantrone due to concerns that the late stage trial PIX301 (which formed the basis of the NDA filing) had not sufficiently proved the effectiveness of the drug.

The FDA asked Cell Therapeutics to conduct an additional trial to determine the safety and efficacy of pixantrone. Cell Therapeutics met with the FDA Office of New Drugs (OND) in May 2011 which allowed it to re-submit the NDA for pixantrone without the need for an additional trial.

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