The Zacks Analyst Blog Highlights: Chevron, ExxonMobil, Amgen, Abbott and Merck/Johnson & Johnson

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Aug 01, 2011, 09:30 ET

CHICAGO, Aug. 1, 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: Chevron Corp. (NYSE: CVX), ExxonMobil Corp. (NYSE: XOM), Amgen (Nasdaq: AMGN), Abbott (NYSE: ABT) and Merck/Johnson & Johnson (NYSE: MRK/NYSE: JNJ).

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Here are highlights from Friday's Analyst Blog:

Chevron Reaps Big Profits in 2Q

U.S. energy giant Chevron Corp. (NYSE: CVX) reported a jump in its second-quarter 2011 profits, benefiting from higher oil prices and stronger refining margins.

Earnings per share (excluding adjustments for foreign-currency effects) came in at $3.89, handsomely above the Zacks Consensus Estimate of $3.55 and the year-ago adjusted profit of $2.58.

Quarterly revenue rose 30.1% year-over-year (from $53,004.0 million to $68,948.0 million) and was 7.9% above our projection.

Capital Expenditure, Balance Sheet & Share Repurchases

The second-largest U.S. oil company by market value after ExxonMobil Corp. (NYSE: XOM) spent $8,343.0 million in capital expenditures during the quarter. Approximately 90% of the total outlays pertained to upstream projects.

As of June 30, 2011, the company had $13,335.0 million in cash and total debt of $11,520 million, with a debt-to-total capitalization ratio of about 9.1%. As part of the stock repurchase program announced in 2010, Chevron repurchased $1,000.0 million worth of shares in the June quarter.

Our Recommendation

Chevron is one of the largest integrated energy companies in the world and has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting of large, multi-year projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from continued weakness in the global economy. We are also concerned by the company's high level of capital spending, which may result in reduced returns going forward.

As such, we see the stock performing in line with the broader market and maintain our long-term Neutral recommendation, supported by a Zacks #3 Rank (short-term Hold rating).

Amgen Beats, Updates Outlook

Amgen (Nasdaq: AMGN) reported second quarter earnings per share of $1.35, 5 cents above the Zacks Consensus Estimate and 0.7% above the year-ago earnings. Total revenues increased 4% to $3,959 million in the second quarter of 2011. Revenues topped the Zacks Consensus Estimate of $3,778 million.

US revenues increased 7% during the quarter to $2,975 million. Meanwhile, international revenues increased 11% to $918 million. Foreign exchange (Fx) fluctuation boosted revenues by $34 million during the second quarter.

The Quarter in Detail

Second quarter total product sales increased 8% to $3,893 million. Revenues of Amgen's erythropoiesis-stimulating agent (ESA) Aranesp fell 3% to $585 million (US: $241 million, down 10%; ex-US: $344 million, up 2%).

US sales were down mainly due to a decline in demand that was partially offset by a price increase. International sales were boosted by favorable foreign exchange fluctuation.

Revenues of Amgen's other ESA Epogen fell 17% to $543 million, reflecting a decline in demand. The decrease in demand was mainly due to lower dose utilization despite a growth in patient population. The decline reflected the impact of the implementation of the ESRD bundling strategy earlier this year.

We expect dose utilization to continue declining in 2011. The potential implementation of label changes and reimbursement changes proposed by the Centers for Medicare & Medicaid Services could lead to a 20 – 25% decline in dose utilization.

Worldwide revenues of Neulasta and Neupogen grew 13% to $1,326 million in the second quarter. An increase in average net sales price and demand boosted US revenues to $999 million, up 15%. International revenues increased 7% to $327 million including a $14 million favorable impact of foreign currency fluctuation.

Despite a decline in share driven by increased competition in the dermatology market, Enbrel revenues increased 9% to $956 million due to an increase in average net sales price and demand. Enbrel's competitors include Abbott's (NYSE: ABT) Humira, Merck/Johnson & Johnson's (NYSE: MRK/NYSE: JNJ) Remicade and Johnson & Johnson's Stelara among others.

2011 Guidance Updated

Following the release of second quarter results, Amgen updated its revenue and earnings guidance for 2011. The company expects earnings towards the upper end of its guidance range of $5.00 to $5.20 per share. Revenues are expected towards the higher end of Amgen's guidance range of $15.1 billion to $15.5 billion.

The health care reform is estimated to impact sales by $400 million to $500 million in 2011. 2010 revenues were affected by $198 million due to the health care reform.

Amgen repurchased 13 million shares during the second quarter and has $6.4 billion left in its share repurchase program. Moreover, a quarterly dividend of 28 cents per share was declared.

Neutral on Amgen

We currently have a Neutral recommendation on Amgen. We expect investor focus to remain on the successful commercialization of Prolia/Xgeva, which is the future of Amgen.

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