For Immediate Release
Chicago, IL – September 29, 2010 – Zacks.com Analyst Blog features:Endo Pharmaceuticals Holdings Inc. (ENDP), Lennar (LEN), D.R. Horton (DHI), International Paper (IP) and Berkshire Hathaway (BRK.B).
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Here are highlights from Tuesday’s Analyst Blog:
Endo Pharma to Take Over Qualitest
In a bid to diversify its business and bolster its position in the generic and pain drug portfolios Endo Pharmaceuticals Holdings Inc. (ENDP), a US-based specialty healthcare solutions company which develops branded products and specialty generics, will purchase the privately-held Qualitest Pharmaceuticals (a generic company) for $1.2 billion in cash. Almost 40% of the acquiree company’s revenues are derived from its pain portfolio.
The deal has been approved by the Board of Directors of Endo Pharma. The deal is expected to close either by year-end or early next year. Endo Pharma anticipates the deal to be accretive to adjusted earnings in the first full year following its closure.
Endo Pharma intends to use its cash balance to finance the deal to the extent of $500 million, $300 million will be financed through its credit facility and the funding for the balance has been arranged. The merged entity, which is expected to have in excess of 3,000 employees, will provide more comprehensive healthcare solutions across its diversified business lines in Branded Pharmaceuticals, Generics, Devices & Services in key therapeutic fields including pain and urology.
Endo Pharma expects the acquisition to add approximately $400 million in annual revenues and $0.40 in annual adjusted earnings. Moreover, the revenues from the generics business of the merged entity is expected to grow by at least 15% over the next two years.
The deal is expected to result in cost synergies of $30 million by 2013 on an annualized basis. The synergies relate to procurement, distribution, manufacturing and other general and administrative costs.
2nd Downleg in Housing Prices
There were only four cities that saw prices rise on a seasonally adjusted basis, but fortunately they were fairly big cities. New York posted the largest gain with a 0.96% raise, followed by Washington DC with a 0.58% rise. The other two winners on the month were Chicago, up 0.10%, and Boston, up 0.03%.
The cities faring the worst on the month are an interesting group since many were among the worst hit early on, but which have started to rebound over the last year. It looks like that rebound might be running out of steam. Others have been seemingly perpetually on the list of hard-hit cities. Worst hit was Phoenix, where prices fell 1.66% on the month followed by Las Vegas, off another 1.44%. Tampa was down 1.40% while the Twin Cities (Minneapolis/St. Paul) fell 1.21%.
On a year-over-year basis, the strongest cities are in California, which was an early poster child for the housing bust. San Francisco leads the way with a 11.06% rise, followed by San Diego, up 9.26%. LA completes the Golden State sweep with a 7.50% year-over-year increase. DC was up 6.51% and the Twin Cities were up 6.28%. Phoenix also is one of the biggest year-over-year gainers with a 3.40% increase, despite being the biggest month-to-month loser.
On the downside, Las Vegas continues to roll snake eyes for those that gamble on its housing market, down 4.82% over the last year. At the other end of the spectrum is Charlotte, NC, which early on in the bust seemed immune from the national trend. It is down 3.49% over the last year. Tampa is more in the Las Vegas camp, down hard early and still falling, off 3.29% over the last year. Chicago is down 1.74%. Seattle was the only other city to see a decline of more than 1% in the last year, down 1.62%.
The graph below tracks the cumulative declines for each city over time. If the red bar is shorter to the downside than the yellow bar for a city, it indicates that prices in that city have risen since the start of this year. In every city prices are below where they were in April 2006, but there is a huge variation.
Las Vegas is the hardest hit, with prices down 57.20% from the peak, followed by Phoenix down 51.86%. At the other end of the spectrum are Dallas, where prices are down only 3.77% and Denver where they are down 8.89%. (Note: the percentage declines I am quoting are from when the national peak was hit; the numbers in the graph are relative to that city’s individual peak, so there is a little bit of difference.)
The homebuyer tax credit was propping up home prices, but now with that support gone, prices are resuming their downtrend. People had until June 30 to close on their houses, and they had to agree to the transaction by April 30. That pulled sales into those months that might otherwise have happened in July or August. The credit was up to $8,000, so almost nobody would want to close their deal in early July and simply leave that money on the table.
The tax credit is a textbook example of a third party subsidizing a transaction. When that happens, both the buyer and the seller will get some of the benefit. The buyer gets his when he files his tax return next year, the seller gets hers in the form of a higher price for the house. Since the tax credit is now over, that artificial prop to housing prices has been taken away.
Sales of existing houses simply collapsed in July, dropping 27.2% on the month. The extremely high ratio of homes for sale to the current selling pace is sure to put significant downward pressure on prices. There is still quite a bit of “shadow inventory” out there as well. That is, homes where the owner is extremely delinquent in his mortgage payments and unlikely ever to make up the difference, but that the bank has not yet foreclosed on or foreclosed houses that have not yet been listed for sale.
It was not until inventories climbed above the six month mark that prices started to fall. They really collapsed as the months of supply moved into the double digits. The extensive government support for the housing market, including the tax credit, but also the Fed buying up $1.25 Trillion in mortgage paper to artificially depress mortgage rates helped boost sales and bring the months of supply back down. Now that support is over, and the months of supply far exceed the worst we saw during the heart of the bust (note: the graph is not updated to include the August data).
The tax credit was not a very effective means of stimulus, but it did help prop up prices, and that is a pretty important accomplishment, even if it proves to be ephemeral. The credit cost the government about $30 billion. A large part of that money went to people who would have bought anyway, but perhaps would have done so in July or August rather than May or June. To the extent it rewarded people for doing what they would have done anyway, it did nothing to stimulate the economy.
Also, turnover of existing houses really does not do a lot to improve the economy. It is the building of new houses that generates economic activity. It is not just about the profits of Lennar (LEN) or D.R. Horton (DHI). A used house being sold does not generate more sales of lumber by International Paper (IP) or any of the building products produced by Berkshire Hathaway (BRK.B). It does not put carpenters and roofers to work. New homes do.
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