In Need of Cash at AtheroGenics
Interim data for AtheroGenics, Inc.'s (AGIX) AGI-1067 in type 2 diabetes presents a mixed bag in our view. The data is good enough to continue the program and keep management and investors interested in the drug. However, the only modest efficacy and still questionable safety profile create a drug that is uncompetitive in the multi-billion dollar market for oral anti-diabetes medications. That is a chief concern to owning the stock.
The company plans to report full data in the third quarter of the year. In the meantime, cash burn and the need for financing will probably continue to weigh on the shares. Re-signing a partnership agreement for AGI-1067 could alleviate these concerns, but we find it highly unlikely an announcement will come before the full data is presented.
Management must look to raise cash to fund operations in 2009 during the second half of the current year, a daunting task with the shares trading below $1. There is also $30.5 million in debt due in September 2008. The current market capitalization is only $26 million.
There are still significant risks, in our view. We currently do not model any sales of AGI-1067. We believe the stock is likely to continue to trade sideways to down over the next few months. Our price target is $0.50.
Still Bullish on Conoco Prospects
Our continued positive outlook for ConocoPhillips' (COP) shares reflects the company's strong position in the politically stable Organization for Economic Co-operation and Development (OECD) markets and its attractive valuation.
The company has significantly strengthened its upstream portfolio through its Burlington and LUKOIL transactions and remains a premier domestic refining player. The recent alliance with
EnCana (ECA) further cements its upstream and downstream prospects. We have raised our earnings estimates to reflect a higher commodity-price deck. Our new 2008 and 2009 EPS estimates are $11.55 and $12.15, up from $11.10 and $11.45 before, respectively. We rate the shares a Buy.
We believe that acquisitions, alliances, and joint ventures in the recent past have made ConocoPhillips a strong contender to join the super majors' league of global oil companies. Growing appreciation of this fact will lower its valuation discount to that group. Meaningful progress has been made in restructuring the business portfolio by divesting non-core assets, reducing balance sheet leverage, and instituting greater capital discipline.
While the near-term outlook remains weak, the long-term prospects for the company's strong refining business remain positive. The company continues to return capital in significant amounts to shareholders through dividends and share buybacks.
