Category: INO.com Contributors

U.S. Production And Oil Inventories Expected to Rise in 1Q18

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


According to the Energy Information Administration (EIA), U.S. petroleum inventories (excluding SPR) fell by 14.2 million barrels in the week ending December 15, 2017. They stand about 2 million barrels (mmb) higher than the rising, rolling 5-year average and are about 96 mmb lower than a year ago.

Total U.S. Oil Stocks

Commercial crude stocks fell by 6.5 mmb, and SPR stocks were built by 0.4 mmb last week. Gasoline stocks rose by 1.2 mmb, and distillate stocks gained 0.8 mmb. Primary demand rose by 640,000 b/d to average 19.948 million barrels per day (mmbd).

Crude Production

The EIA estimated (using its model, click here for presentation) that U.S. crude production rose by 9,000 barrels per day to 9.789 mmbd, the highest week in EIA’s database. Production averaged 9.740 mmbd over the past four weeks, up 11.4% v. a year ago. In the year-to-date, crude production averaged 9.313 mmbd, up 6.3% v. last year. Continue reading "U.S. Production And Oil Inventories Expected to Rise in 1Q18" →

McKesson - Mounting A Resilient Comeback

Posted on by Noah Kiedrowski

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

McKesson Corporation (NYSE:MCK) has shown signs of life as of late with a recent rally from $135 to $162 or a 20% move to the upside. The stock has demonstrated resilience over the past 12 months as this same move occurred earlier in the year as well. There’s been a tremendous amount of pressure on the pharmaceutical supply chain players due to public and political outcries over drug pricing with subsequent fierce pricing competition within the space, opioid epidemic, Amazon potentially entering the fray and possible erosion of the pharmaceutical wholesaler model. Social and political pressures over drug pricing and opioids have exacerbated these issues translating into slowing drug price increases and increased scrutiny on sales which negatively impacts McKesson’s ability to capture larger margins and volume of business. McKesson had missed several revenue targets for six consecutive quarters until its most recent quarterly earnings beat for Q2 FY2018. McKesson has paid dearly for this string of revenue misses, shedding over 44% of its market cap falling $106 per share from its all-time highs in May of 2015 falling from $240 to roughly $134 as of its recent Q3 2017 miss (Figure 1). McKesson has made a string of acquisitions throughout this time frame to circumvent the exogenous events related to its deteriorating business. As McKesson tries to navigate these challenging waters, I feel long term the stock has more upside starting with its most recent earnings beat catalyst.

3-year chart for McKesson
Figure 1 – Google Finance 3-year chart for McKesson

Opioids and Pharmaceutical Drug Wholesalers

60 Minutes recently aired a piece on the opioid epidemic unfolding in the U.S., which was highly critical of the pharmaceutical drug wholesalers and their alleged role in this crisis. An interview was conducted with DEA whistleblower Joe Rannazzisi who stated that distributors had turned a blind eye to opioids being diverted for illicit usage. The three main pharmaceutical drug wholesalers that were singled out were AmerisourceBergen (ABC), McKesson (MCK) and Cardinal Health (CAH) which all sold off significantly once the report surfaced. Opioid-related stocks were also negatively impacted as a result which consisted of a basket of micro-cap and small-cap stocks. Continue reading "McKesson - Mounting A Resilient Comeback" →

CVS: Aetna Acquisition - Desperation or Prudent Acquisition

Posted on by Noah Kiedrowski

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

CVS Health Corporation (NYSE:CVS) is going all in with a $69 billion acquisition of Aetna Inc. (NYSE:AET) to form a colossus bumper-to-bumper healthcare company. This new CVS will combine its existing pharmacy benefits manager (PBM) and retail pharmacies with the second largest diversified healthcare company via the proposed Aetna acquisition. This is a hefty price tag yet may be necessary to compete in the increasingly competitive healthcare space in the face of drug pricing pressures. The $69 billion acquisition will not come cheap and require issuing debt and diluting the share base as this will be funded via a combination of stock and cash. CVS has been in a downward spiral since its all-time highs of $112 in 2015 to lows of $67 in 2017, translating into wiping out 40% of its market cap. Several headwinds have negatively impacted its growth, and the changing marketplace conditions have plagued the stock. Exacerbating this downward movement, Amazon (AMZN) has entered the fray and has resulted in another leg down for the stock. The latter half of 2015 through 2017, the political backdrop was a major headwind for the entire pharmaceutical supply chain from drug manufacturers to pharmacies/pharmacy benefit managers (i.e., CVS and Walgreens (WBA)) and the drug wholesalers in-between (i.e. McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC)). Lastly, Amazon’s purchase of Whole Foods and behind the scenes moves in the healthcare space has incited rumors that Amazon is looking to gain entry into the pharmacy space via leveraging the Whole Foods physical footprint. The Amazon threat has become a formidable challenger in this space as it has in the past with other industries with its first real pivot after acquiring Whole Foods with major plans in entering the pharmacy space. I believe CVS will undergo short-term stock pressure but long-term appreciation as this move was a defensive yet necessary acquisition moving into the future.

CVS Health/Aetna

Aetna Acquisition

The Aetna acquisition creates the first through-in-through healthcare company, combining CVS's pharmacies and PBM platform with Aetna's insurance business. Per the agreed terms, Aetna stockholders will receive $207 per share, $145 in cash and $62 in stock. Collectively, the acquisition is valued at $78 billion.

"This combination brings together the expertise of two great companies to remake the consumer healthcare experience." "With the analytics of Aetna and CVS Health's human touch, we will create a healthcare platform built around individuals." CVS President and CEO Larry Merlo said in a statement. Continue reading "CVS: Aetna Acquisition - Desperation or Prudent Acquisition" →

Higher Bond Yields In 2018?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


As a homeowner in a high-tax Blue state, I’m not sure I have a whole lot to be personally happy about in the Trump tax reform bill. My state’s government, which is already teetering financially, isn’t likely to reduce its own taxes to compensate for the cap on deducting state and local taxes. Nevertheless, I’m happy that the measure passed.

For one thing, it’s heartening to see the Republicans stand fast for a change and actually follow through on something their constituents have demanded and expected from them, rather than caving in the face of criticism from their liberal opponents in Congress and the press. I’m also getting a lot of enjoyment listening to the breathless hyperbole by Nancy “Armageddon” Pelosi, Chuck “Fake Tears” Schumer and the gang denouncing the bill, plus the stories by their allies in the press about the “victims” of tax reform, neglecting to mention the “victims” at AT&T, Wells Fargo and all who are being given immediate raises as a result of the measure.

Not a whole lot has been written or said about one of the more likely consequences of the package, and that’s that interest rates are going to move higher in 2018.

Already, in just a few days leading up to the passage of the bill, the yield on the 10-year Treasury note jumped 15 basis points to 2.50%, its highest level since last March and just 10 or so bps below its high for the year. It’s likely to rise further in 2018. Here’s why. Continue reading "Higher Bond Yields In 2018?" →

The Fed's 2018 New Year's Resolution

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


In February Jerome Powell takes over as chair of the Federal Reserve, succeeding Janet Yellen. His first order of business should be to get the Fed off its silly, outdated and nonsensical monetary policy target of 2% inflation. He and the other members of the Federal Open Market Committee should at the very least change the inflation target number, or, better yet, find a different measuring stick altogether.

One of the Fed’s mandates, we know, is to keep inflation “stable,” as noted on the Fed’s website, citing the Federal Reserve Act (the other two mandates are achieving maximum employment and moderate long-term interest rates). The current Fed has taken to defining price stability as 2% inflation. Given that the Fed already basically believes it has accomplished the other two objectives, and price inflation has been nothing but rock-solid stable for several years, it’s not clear why it’s still so determined to get inflation up to that 2% target rate, and letting that dictate its monetary policy. If prices are stable at about 1.5%, rather than 2%, doesn’t that meet the mandate, as long as prices are stable?

During the Great Depression of the 1930s the lack of inflation – more accurately, deflation – was a big problem, feeding the downward spiral in the economy for more than ten years. Since then, economists, both on the Fed and elsewhere, have been absolutely terrified of that happening again, even though we haven’t come close to it, not even during the depths of the recent Great Recession. Now that we have seemed to have finally pulled out of the last financial crisis, it’s time to put that deflation obsession to rest. Continue reading "The Fed's 2018 New Year's Resolution" →