Let’s take a look at analysts’ morning notes.
- Good outlook for Massey Energy (MEE): Massey has agreed to a $69 per share mainly stock deal with Alpha Natural Resources (ANR). Press commentary suggests that Arch Coal was also in the bidding, and this might have contributed to the size of the premium. The market has been friendly toward coking coal deals as evidenced by appreciation of both the target and buyer in the Walter Energy deal. Yet it probably faces some challenges. We suspect the landlocked U.S. steelmakers may have something to say about this level of consolidation in the Central Appalachian coking coal market.
- Bullish on Advanced Micro Devices (AMD): AMD shares have under-performed in 2011, catalyzed by the abrupt departure of the CEO earlier this month. In light of the volatility, we recently chatted with interim-CEO Thomas Seifert to better understand the dynamic environment at AMD and we came away increasingly bullish. AMD’s share loss in server remains a sore spot with investors, particularly given Average Selling Prices declines in the fourth quarter. However, AMD’s customers acknowledge that AMD’s server products are competitive and design wins are sufficient but they are lacking in direct customer interaction. To this end, AMD has deployed 150 employees to re-connect with end-customers.
- Solid outlook on Yum! Brands (YUM): We are looking forward to the completion of Yum’s 2010 and 2011 re-franchising targets for the U.S. which will significantly reduce Yum’s stake in Pizza Hut and KFC. This should be a positive for investors particularly given multi-year sales declines at KFC and difficult comparisons for Pizza Hut in 2011. We believe Yum! Brands is well positioned to continue double-digit EPS growth in 2011 despite tough profit comparisons through a combination of unit growth, pricing, increased share buybacks and ongoing currency tailwinds.
- Excited for Alpha Natural Resources Massey Energy deal: We see the merits of the proposed combination of Alpha and Massey. The deal creates a top-three global metallurgical coal producer. The addition of Massey’s reserve base of 2.9 billion tons to Alpha’s 2.3 billion tons should provide ANR with substantial growth potential at a time when such opportunities in the Central Appalachian region are scarce and global coal markets are tightening.
- Chevron (CVX) beat Street expectations: We expect a reversal in 2011 as easing technical restrictions on recently sanctioned projects in the Gulf of Mexico and Brazil support strong bookings. Despite the largest upward revision in earnings when marked to the current strip, CVX remains the least expensive U.S. integrated trading at a 30% discount to large-cap peers.
- Lowering estimates on BancorpSouth (BXS): Based on our forecasts, the bank will now build capital following the dividend cut. We are forecasting Tier 1 common capital to build to 9.3% by year-end 2011. Low loan growth continues to drag on interest income. Loan growth should continue to be weak, and with run-off in the construction book, it will be difficult for the bank to build loan balances in 2011. With the company holding higher cash and securities balances, interest income could continue to be weak for the next couple of quarters.