Zacks Analyst Blog Highlights: Microsoft, PepsiCo, Forest Laboratories, Cypress Biosciences and Morgan Stanley - Press Releases

For Immediate Release

Chicago, IL – July 21, 2010 – Zacks.com Analyst Blog features: Microsoft Corp (MSFT), PepsiCo Inc. (PEP), Forest Laboratories, Inc. (FRX), Cypress Biosciences (CYPB) and Morgan Stanley & Co. (MS).

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Here are highlights from Tuesday’s Analyst Blog:

Earnings Preview: Microsoft

Microsoft Corp (MSFT) will report fourth quarter results on July 22, 2010. We expect the company to gain from strong business fundamentals, although growth will be tempered by currency issues related to the ongoing European crisis.

Agreement of Analysts

However, there have been a few revisions over the past 30 days. While analysts largely agreed on the company’s performance in the current quarter, 5 analysts nudged up their estimates for the June quarter and fiscal year 2010, with little impact on average expectations. We see just one downward revision for the June quarter and 2 for fiscal 2010. However, the fiscal 2011 story looks different, with 3 analysts lowering estimates for the year and 3 moving in the opposite direction.

Magnitude of Estimate Revisions

Over the same 30-day period, there have been no changes to the average estimate for the June or September quarters, while the estimates for fiscal years 2010 and 2011 have both gone up by a penny.

We expect Microsoft to report another strong quarter. However, a study of the pros and cons of investment in Microsoft shares seems in order at this point.

Pros – The many positive catalysts as stated by analysts include the continued adoption of Windows 7 at consumer and enterprise customers, recent optimism of market research firms IDC and Gartner regarding PC shipments and continued technology deployment at data centers. Microsoft is expected to be a major beneficiary of cloud computing adoption and new product cycles are expected to drive robust growth going forward.

Cons – The major risk facing the company is currency-related. With such a large market share, Microsoft will very likely be impacted by the economic crisis in Europe. This has prompted the few downward revisions.

PepsiCo Posts Strong Q2 Results

PepsiCo Inc. (PEP), which has the world's largest portfolio of food and beverage brands, delivered robust second quarter 2010 results for the 12-week period ending on June 12, 2010.

New York-based PepsiCo’s core constant currency earnings advanced to $1.09 per share in the quarter from $1.02 registered in the year-ago period, in-line with the Zacks Consensus Estimate. The year-over-year growth reflects the acquisition of its two anchor bottlers, broad-based gains across its snack and beverage portfolio in key international markets, disciplined investments and prudent cost controls.

Based on the reporting quarter’s results, PepsiCo reaffirms earnings per share growth of 11–13% on the basis of core constant currency from its fiscal 2009 earnings of $3.71 per share.

The quarterly total sales jumped 40% to $14.8 billion in the quarter from $10.6 billion in prior-year quarter, demonstrating strong growth across its business.

In the quarter, PepsiCo registered an operating profit of $2.5 billion, up 12% compared with $2.2 billion in the earlier year period.

Forest Labs Tops Zacks Consensus

Forest Laboratories, Inc. (FRX) reported earnings per share of 95 cents for the first quarter of fiscal 2011, well above the Zacks Consensus Estimate of 86 cents and the year-earlier earnings of 87 cents. Including the impact of a charge related to investigations being carried out by the US Department of Justice (DoJ) and a new product licensing fee, earnings came in at 39 cents per share.

First quarter revenues increased 5.8% to $1.07 billion, with net sales increasing 7.6% to $1 billion. While contract revenues slipped 16.6% to $39.8 million, interest income declined 42.5% to $7 million.

The Quarter in Detail

First quarter product revenues increased 7.6% to $1,020.1 million. Although Lexapro revenues remained flat at $565.2 million, Namenda, which is approved for the treatment of moderate and severe Alzheimer’s disease, delivered sales of $307.8 million, recording a growth of 18.7% from the year-earlier period. Improved patient access and increased promotional efforts should help keep Namenda sales strong.

Moreover, Forest Labs gained US Food and Drug Administration (FDA) approval in June for Namenda XR, a 28 mg once-daily extended-release formulation of memantine. Namenda XR received approval for the treatment of moderate to severe dementia of the Alzheimer’s type.

Bystolic, Forest Labs’ beta-blocker for the treatment of hypertension, posted sales of $59.5 million, up 58%. Contract revenue declined 16.6% to $39.8 million due to a decline in Benicar co-promotion income. Under its agreement with Daiichi Sankyo, Forest Labs is now receiving a gradually declining royalty rate on Benicar until the end of March 2014. Interest income declined mainly due to lower interest rates on Forest Labs’ short duration portfolio.

Forest Labs’ most recent product launch, Savella, which is approved for the management of fibromyalgia, posted sales of $20.5 million. The product, which has been developed in collaboration with Cypress Biosciences (CYPB) , was launched in late April 2009. We believe Savella may have multi-hundred million dollar potential.

Selling, general and administrative expense declined 3.8% to $300 million. The company continues to focus on promoting its currently marketed products, especially Savella and Bystolic. Research and development spend increased 15.3% during the quarter, including milestone payments of $20.1 million.

Share Repurchase

Forest Labs’ Board of Directors recently announced a new share repurchase program for up to 50 million shares. As part of the program, the company also signed an agreement with Morgan Stanley & Co. (MS) for the repurchase of shares worth $500 million under an accelerated share repurchase (ASR) transaction. Forest Labs said that Morgan Stanley repurchased about 16.9 million shares under this transaction.
 

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