There are a number of strategic benefits to supermarket giant Wal-Mart Stores Inc’s (NYSE:WMT) decision to open a large milk manufacturing plant, Jefferies believes.
The broker hosted a call with Wayne Olsen, an industry expert in milk manufacturing and the associated supply chain, and he highlighted some of the potential strategic benefits.
These included leverage with existing vendors as the industry consolidates; producing lower cost milk so Wal-Mart can pass through better prices and drive traffic to its stores; improving the quality through longer shelf-life and thereby reducing spoilage losses.
Olsen crunched the numbers and reckons it plausible that Wal-Mart could consistently have low-priced milk in the stores served by the manufacturing plan, possibly at a price of around US$2 a gallon.
“This would likely get a lot of attention and potentially drive incremental traffic,” the note observed.
Jefferies is bullish on Wal-Mart, rating it a ‘buy’ all the way up to US$86; the shares currently trade at US$71.68.
Profit-takers moved in after Concordia International Corp (NASDAQ:CXRX) shot up more than 15% on Monday on the back of media reports that the pharmaceutical company is considering the sale of a minority stake to a private equity investor, and using the funds to reduce its debt burden.
Back in April, Canaccord Genuity notes, the company said it was initiating a strategic review after receiving approaches from private equity but the disruption caused by Britain’s decision to exit the European Union has made a takeover unlikely in the broker’s view.
“Our thoughts were that an equity raise at the current stock price would be unlikely, as it would be very dilutive. Nonetheless, if a deal could be structured that could take a meaningful dent out of the company’s debt pile, we expect that could open the opportunity for multiple expansion,” Canaccord said, as it stuck by its ‘speculative buy’ rating.
Moving over the border to Canada, Concordia’s sector peer Theratechnologies Inc (TSE:TH) continues to get the thumbs-up from Mackie Research, despite the company reporting slightly weaker third quarter sales of its flagship EGRIFTA product.
Sales of C$8.95mln were below the consensus forecast of C$9.4mln and down from C$9.2mln in the same period last year.
On the plus side adjusted underlying earnings )EBITDA) were better than expected, coming in at C$1.3mln versus Mackie’s forecast of C$0.8mln.
“Egrifta continues to provide a solid revenue base for TH [Theratechnologies] to build upon. We believe the reason for owning the stock is for the growth potential surrounding TH’s novel HIV treatment – ibalizumab,” Mackie said.
“We expect more ibalizumab data pertaining to safety and the primary endpoint at the ID Week in New Orleans on October 29, more clinical data pertaining to the secondary endpoints in November, a BLA [biologic license application] filing for ibalizumab in Q4/2016 and US commercialization in Q3/2017,” the broker added.
Ibalizumab has a US Food and Drug Administration priority review designation that would shorten the BLA review time from 10 months to six months, Mackie noted.
Shares were up 2.8% at US$2.97 on Tuesday afternoon, still some way below Mackie’s US$4.40 price target.