Zacks Bull and Bear of the Day Highlights: SIRIUS XM Radio, Meritor, Dendreon, Merck and Roche
CHICAGO, Dec. 9, 2011 /PRNewswire/ -- Zacks Equity Research highlights SIRIUS XM Radio (Nasdaq: SIRI) as the Bull of the Day and Meritor, Inc. (NYSE: MTOR) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Dendreon Corporation (Nasdaq: DNDN), Merck, Inc. (NYSE: MRK) and Roche (OTC: RHHBY).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We upgrade our recommendation on SIRIUS XM Radio (Nasdaq: SIRI) to Outperform, based on its huge subscriber additions, launch of new SIRIUS XM 2.0 radio, improved credit ratings and better financial outlook. The company reported highly improved financial results for the third quarter of 2011, beating both the top and bottom line Zacks estimates.
Moreover, the company will get pricing flexibility starting this quarter, after the completion of a stipulated FCC regulation. The pricing flexibility will be a great boost for the company's top-line growth.
Huge subscriber additions coupled with an upgraded S&P credit rating from BB- to BB and the launch of new SIRIUS XM 2.0 will drive the stock going forward. We thus upgrade our rating to Outperform with a price target of $2, based on 28.6x our fiscal 2011 earnings estimate.
Meritor, Inc. (NYSE: MTOR) is a globally recognized automotive parts supplier. However, the company has high customer concentration, which implies limited scope for margin expansion. Further, the recent turmoil in the global economy is expected to continue to mar its results.
We are also disappointed about Meritor's deteriorating cash flow. Although the company's fiscal fourth quarter profit was ahead of the Zacks Consensus Estimate by $0.19 per share, we remain concerned about its long-term outlook.
Our long-term Underperform recommendation on the stock indicates that it will perform lower than the broader market. Our $5.50 target price, 3.8X our 2012 EPS estimate, reflects this view.
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Dendreon to Sell Victrelis Rights
Dendreon Corporation (Nasdaq: DNDN), which is currently going through a rough patch, tried a hand at improving its financial position. This time, Dendreon has entered into a deal to sell its royalty interest in Merck, Inc.'s (NYSE: MRK) hepatitis C product Victrelis. Dendreon acquired the intellectual property rights to Victrelis in July 2003 from Merck and co-developer Corvas International, Inc.
The Victrelis royalty rights were bought by CPPIB Credit Investments Inc., a wholly owned subsidiary of CPP Investment Board (CPPIB), for $125 million in cash. CPPIB is a professional investment management organization which manages funds for the Canada Pension Plan. The deal is expected to close by the end of this year.
We believe that the sale of this royalty interest will strengthen Dendreon's cash position which is currently struggling from a dismal performance of its prostate cancer vaccine, Provenge. In a similar drive to bolster its finances, Dendreon announced in September this year that it will lay off almost a quarter of its workforce as part of a drastic restructuring plan. The plan was announced to reduce spending to cope with disappointing Provenge sales.
Victrelis is approved for the treatment of chronic hepatitis C (CHC) who are previously untreated or who have failed previous interferon and ribavirin therapy. Victrelis is the first in a new class of medicines known as hepatitis C virus (HCV) protease inhibitors to gain approval. Victrelis is approved in the US, EU and Brazil. Merck has an agreement with Roche (OTC: RHHBY) for the global marketing of Victrelis as part of a triple combination therapy.
Our Recommendation
We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
The successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive the company to profitability. Though we still have faith in the long-term prospects of Provenge, the drug has so far failed to live up to expectations, clouding our visibility for the next few quarters. We believe the stock will remain range bound for some time and prefer to remain on the sidelines until visibility on Provenge's performance improves. Moreover, in the long run, we remain concerned about the company's dependence on Provenge and the lack of a decent pipeline. We believe Dendreon has little to fall back on if Provenge falls short of expectations. We also remain cautious on the continuous uptick in operating expenses, particularly in the light of Provenge's weak performance.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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