This is outpacing the growth in assets, indicating that the company is efficient in converting assets to revenue. However, Avnet has over $1 billion in long-term debt.
The equity multiplier has been bumpy over the last 11 quarters, as equity had been increasing faster than the increase in total assets. This is a metric to watch, given the company?s already large total debt position. We upgrade our rating to a Hold from Sell with a target price of $31.00.
RCI Sees Competition Increase
Rogers Communications Inc.'s (RCI) wireless operations are well positioned with the biggest share (37%) of the attractive Canadian market. Wireless penetration in Canada is just about 60% compared with 70% in the mature U.S. market, providing significant growth opportunities. The company?s cable operations are growing rapidly, fueled by its "triple play" packages -- cable, telephony and Internet data services.
As the only Canadian carrier using GSM the technology used all across Europe and in many other countries Rogers is uniquely positioned to capture roaming revenue from foreign visitors. We estimate that international roamers contribute about 10% of Rogers wireless revenue.
The company, on July 11, 2008, launched Apple's (AAPL) iPhone in Canada. It is anticipated that iPhone subscribers would subscribe to both voice and data service plans. In turn, we expect wireless? average revenue per user (ARPU) levels to be positively impacted. Moreover, the company has implemented a number of customer-retention initiatives, which have helped reduce post-paid churn rate to 1.06% in 2Q08 from 1.15% in 2Q07.
However, in March 2007, the Canadian regulator concluded the market lacked competition. Through spectrum auction in July, five new entrants acquired substantial regional holdings of AWS spectrum. The new entrants coupled with the implementation of number portability will, in our opinion, increase churn and potentially dampen profitability for RCI.
To add to that, Rogers cable operations are currently facing increased competition. Bell Canada's entry into cable TV services is increasing competitive pressure, and may likely, in our view, shave Rogers? market share and cap margin expansion.
Cooper Tire Starts to Get a Grip
Cooper Tire & Rubber Co. (CTB) specializes in the manufacture and marketing of automotive products. The company?s strategy of outsourcing production to low-cost countries and other cost-reduction measures are some of the positive factors associated with the stock. However, a challenging North American auto environment, elevated raw material costs and strong competition lead us to rate the stock a Hold with a six-month target price of $11.
The North American Tire Operation segment is concentrated on developing high-performance product offerings to satisfy current market demand. These new products will improve Cooper Tire?s profitability by improving product mix. The company is working constantly to increase its capacity in order to meet the rising demand for replacement tires in the high-performance and ultra-high performance categories.
In 2008, Cooper Tire anticipates receiving approximately 2.5 million tires from the Cooper-Kenda facility with the total first phase capacity of 6.5 million units. The acquisition of Cooper Chengshan (Shandong) Passenger Tire Company and Cooper Chengshan (Shandong) Tire Company is expected to contribute $500 million in annualized net sales.
Cooper Tire is planning an expansion of over 2 million tires at Cooper Chengshan Tire. These remote sourcing strategies will not only reduce production costs but will also increase the company?s domestic production capacity, as more than 1 million tires of the company in the U.S. are sourced from China.
The company plans to launch a new premium highway-tread tire for SUVs in 2008. Further, Cooper Tire also aims to reduce costs by $70 million in 2008. The company recently announced price increases effective July 1, 2008 by up to 8% in North America.
Barr Pharma a Hold on Teva Buyout
Barr Pharmaceuticals, Inc.?s (BRL) first quarter results missed ours and the Street?s expectations by a huge margin with all the business segments performing poorly. Given the lack of significant catalysts, barring a favorable ruling in the Miraprex case, and the ongoing issues related to pricing pressure and intense competition in the generics market, we had advised investors to avoid the name for the time-being.
We had issued a Sell rating on the stock after the company posted disappointing first-quarter results and slashed its full-year outlook. However, we moved back to a Hold rating following the recent announcement regarding the takeover of the company by Teva Pharmaceuticals (TEVA). Teva and Barr entered into a definitive agreement under which Teva will acquire Barr for $7.46 billion plus the assumption of net debt of approximately $1.5 billion. This offer has come at the right time for Barr - the deal is expected to close later this year.
Meanwhile, we were pleased to see a significant improvement in generic product sales in the second quarter of 2008. Sales benefited significantly from the launch of generic Yasmin in the second quarter of 2008. Going forward, the generic product franchise should benefit from the launch of Adderall XR in April 2009 (six months exclusivity) and the settlement of the Ortho Tri-Cyclen Lo case.
Branded business sales came in at $118 million in the second quarter of 2008, an improvement over first quarter sales. The company seems to have worked through the Plan B inventory issues that had affected first quarter sales. Going forward, Barr expects sales to grow in response to increasing demand for Para B. We set our six-month target price at $72.
