The Zacks Analyst Blog Highlights: Watson Pharmaceuticals, Honeywell International, BorgWarner, United Technologies and Johnson Controls

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Apr 27, 2012, 09:30 ET

CHICAGO, April 27, 2012 /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 Watson Pharmaceuticals Inc. (NYSE: WPI), Honeywell International Inc. (NYSE: HON), BorgWarner Inc. (NYSE: BWA), United Technologies Corp. (NYSE: UTX) and Johnson Controls Inc. (NYSE: JCI).

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Here are highlights from Thursday's Analyst Blog:

Watson Nears Heavyweight Status

Watson Pharmaceuticals Inc. (NYSE: WPI) recently announced its plans to acquire Iceland-based Actavis Group for an upfront payment of euro 4.25 billion.

As part of the acquisition agreement, Actavis shareholders can receive up to 5.5 million shares of Watson Pharma in 2013, on the achievement of certain pre-negotiated performance targets in 2012. The companies expect the transaction to close in the fourth quarter of 2012.

We note that this acquisition will make Watson Pharma the third largest global generics company. Additionally, the takeover will more than double the company's commercial position in key European markets as well as emerging markets, including Central and Eastern Europe and Russia.

Actavis currently markets 1,000 products in more than 40 countries worldwide. Moreover, the company has about 300 projects in its pipeline and recorded revenues of $2.5 billion in 2011.

Watson Pharma anticipates to record pro-forma revenue of about $8 billion in 2012. Additionally, the company expects the transaction to be immediately accretive to non-GAAP earnings before synergies. More than $300 million of annual synergies is expected to be achieved within three years after the closure of the deal. The synergies will be mostly cost synergies consisting of selling, general and administrative (SG&A) and research and development (R&D) expenses and corporate costs.

This acquisition will help increase Watson Pharma's international markets generic revenues to 40% from 16% recorded at the end of 2011. Further, the combined company will have 45 first-to-files and 30 marketing exclusivities in the US.

Just four months into 2012, Watson Pharma has already announced two acquisitions. In January, the company announced the acquisition of Australia-based Ascent Pharmahealth Ltd. for AU$375 million (about US$393 million) in cash. Ascent Pharmahealth is the Australian and Southeast Asian generic pharmaceutical wing of Strides Arcolab Ltd. The transaction, which was signed and closed immediately, is expected to be accretive to 2012 non-GAAP earnings.

Honeywell's Chinese Contract

Honeywell International Inc.'s (NYSE: HON) group company, UOPLLC, will help China's Shandong Chambroad Petrochemicals Co. to produce key petrochemicals through its UOP C3 and C4 Oleflex™ processes. This is the first plant in China which combines the two processes to produce propylene, and second in the world to produce isobutylene.

In 2014, the new unit is expected to start production. The units will produce 133,000 metric tons of propylene and 87,000 metric tons of isobutylene annually. The production facility is located in Binzhou City, Shandong Province, China.

Propylene is the main ingredient for producing films and packaging and isobutylene is for fuels and synthetic rubber. Engineering design, technology licensing, catalysts, adsorbents, equipment, staff training and technical service will be provided by Honeywell's UOP.

More than 15% of worldwide demand for propylene is from China and the company expects it to rise by 5% to 6% in 2012.

For further expansion, the company is focused on growth factors such as investments in new products, technology demarcation, expansion in the emerging markets and initiatives in key processes. Honeywell's short-cycle businesses, as well as its commercial aerospace spares and residential and commercial retrofit businesses, are performing impressively well and are expected to support the company's future growth outlook.

However, a change in the U.S. government's defense and aerospace funding could adversely impact sales of Aerospace's defense and space-related products and services.

Based in Morris Township, N.J., Honeywell International Inc. is a Fortune 100 company providing technical and manufacturing support to customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. The major competitors of Honeywell are BorgWarner Inc. (NYSE: BWA), United Technologies Corp. (NYSE: UTX) and Johnson Controls Inc. (NYSE: JCI).

We currently maintain our Outperform rating on Honeywell, corresponding with a Zacks #1 Rank (Strong Buy recommendation) over the next one-to-three months.

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