The Zacks Analyst Blog Highlights: United Parcel Services, FedEx Corporation, Bayer, Johnson & Johnson and Sanofi-Aventis

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Jul 06, 2011, 09:30 ET

CHICAGO, July 6, 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: United Parcel Services (NYSE: UPS), FedEx Corporation (NYSE: FDX), Bayer (OTC: BAYRY) , Johnson & Johnson (NYSE: JNJ) and Sanofi-Aventis (NYSE: SNY).

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Here are highlights from Tuesday's Analyst Blog:

UPS Raises Freight Rate

United Parcel Services (NYSE: UPS) has increased its freight rates by 6.9% on non-contractual shipments. The increase is effective August 1, in the U.S., Canada and Mexico.

The company offers a variety of less-than-truckload (LTL) and truckload (TL) services to customers through its Freight segment, which remains a significant revenue contributor. The gradually improving economy is supporting the broader market and the company remains well positioned to benefit from firming industrial fundamentals and LTL industry pricing discipline.

Continued focus on improving pricing signifies UPS' initiative to substantially better its earnings power over the next several years. In early 2011, the company increased its general rate by 4.9% for ground packages, air express and U.S. origin international shipments in an effort to solidify revenue generation along with yield expansion in the three product lines.

Likewise, the current price hike should also support UP long-term goal of robust revenue and margin expansion and earnings improvement.

Apart from the pricing improvements, United Parcel is undergoing a series of initiatives that is expected to deliver industry leading margin and earnings growth over the long term. Key among these is a renewed focus on yield improvement in the U.S. Domestic Package division.

Other drivers include increased export volumes, operating leverage benefits on 35–40% capacity expansion at Worldport and the flexible Teamster contract. Further, the company continues to expand its footprint in emerging markets such as the health care end market, which could be a larger contributor to growth in the future.

We believe the growth initiatives will aid the company to deal with near-term headwinds such as surging fuel prices, substantial capital investment and high labor unionization. These would give UPS a competitive advantage over its peers like FedEx Corporation (NYSE: FDX).

We are currently maintaining our long-term Neutral recommendation on UPS. The stock retains the Zacks #2 Rank (Buy) for the short term (1–3 months).

Boost for Bayer-Johnson & Johnson

Recently, the US Food and Drug Administration (FDA) delivered a huge boost for Bayer (OTC: BAYRY) and partner Johnson & Johnson (NYSE: JNJ) by clearing their blood-thinner (anticoagulant) Xarelto (rivaroxaban). The US regulatory body cleared the drug, which has blockbuster potential, for the prevention of deep vein thrombosis (DVT) which may cause pulmonary embolism (PE) in patients undergoing knee or hip replacement surgery. The blood-thinner is already available in Europe for the indication.

The current approval will allow Xarelto to be marketed in the US as a once-daily tablet (10 mg). The tablet is to be taken for 35 days after hip replacement and for 12 days after knee replacement.

The US approval was based on late-stage studies which showed that Xarelto was more effective than Sanofi-Aventis' (NYSE: SNY) Lovenox (enoxaparin). Moreover, Xarelto was found to be as safe as Lovenox.

While DVT refers to a blood clot in a major vein and usually develops in the legs, PE refers to an obstruction of a blood vessel in the lungs, mostly because of a blood clot. The clot causes the blockage of a coronary artery.

Xarelto is the only oral anticoagulant to be approved by the FDA for the prevention of VTE in patients undergoing operation for knee or hip replacement. The approval of Xarelto for the indication will boost the partners' top line. Moreover, it will prevent the development of blood clots post operation in patients undergoing knee or hip replacement surgery.

According to data from the American Academy of Orthopedic Surgeons more than 800,000 patients in the US undergo such operations annually. However these exercises involve the risk of patients developing DVT which may result in a PE, thereby blocking blood flow which may lead to serious consequences.

Our Recommendation

Currently, we have a Neutral stance on Bayer in the long run. The company carries a Zacks #3 Rank (Hold rating) in the short run. Our position is similar on Johnson & Johnson for the short and long-term.

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