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Halliburton Company (NYSE:HAL) Expects Tough Year Ahead

By
Carol Harper
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Halliburton Company (NYSE:HAL)

Halliburton Company (NYSE:HAL) reported adjusted earnings from continuing operations of $270 million or 31 cents a share for the fourth quarter while revenue plummeted by 42.1% YOY to $5.08 billion. Capital IQ consensus projected earnings of 24 cents a share and $5.13 billion revenue. The company recorded charges in respect of asset write-offs, as well as, severance costs of $192 million or 22 cents a share due to downturn in the energy prices and the resultant impact on its outlook. On a GAAP basis, the company suffered a net loss of $28 million or a loss of three cents a share in the fourth quarter.

Dip In Adjusted Operating Income

Halliburton Company (NYSE:HAL)’s adjusted operating income dipped 6.5% to $473 million from $506 million in the third quarter. Similarly, completion and production revenue fell 12% sequentially to $2.8 billion fuelled by pricing, as well as, activity and headwinds in every region. Drilling and evaluation revenue also dipped 5% sequentially to $2.3 billion hurt by the weak logging services and drilling activity in the America regions, Europe, Africa, and Commonwealth of Independent States (CIS).

The company’s global business witnessed 5% drop in revenue while operating income dipped 10% reflecting the decline in activities and price concessions. Also, its customer budget constraints hurt the gains from equipment and software sales. However, operating margins grew by 1.6 percentage points fueled by cost-cutting measures and the completion of tool sales.

Another Challenging Year Ahead

With oiil prices at a 12 year low, Halliburton (NYSE:HAL) expects the current year 2016 to be one of the more challenging years for the company, as well as, the industry. The company was confident that its customers would be focused on the maximization level of cost per barrel and benefiting from increased efficiency levels as both were good for the company.

Halliburton Company (NYSE:HAL) also reiterated its commitment to the acquisition of Baker Hughes Incorporated (NYSE:BHI). The company said that it was continuing its discussions with competition authorities and provided an offer of improved divestitures set to resolve any issues concerning the competition.

Halliburton Company (NYSE:HAL) is not the first company to forecast a difficult year. Last week Royal Dutch Shell Plc (ADR) (NYSE:RDS.A) announced that it expects its fourth quarter profit to decline by 40 percent. The reason which the management gave was the fall in Crude prices. The company did manage to bring down the operating costs by $4 billion.

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U.S. Dollar Trades Nearly Flat Against Major Currencies

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The U.S. Dollar continues to trade marginally lower than the Euro as the market participants are eagerly waiting for the monetary policy stance of the Federal Reserve, which will be out by Wednesday this week. The EUR/USD is seen trading down by 0.21% to 1.0830.

The Federal Reserve stance

The market expectations reflect beliefs that the Central Bank is likely to keep the rate hike on hold due to global uncertainty. The Fed had announced first rate in nearly a decade last month in December.

The Euro remains under pressure after the European Central Bank chief Mario Draghi signalled at the possibility of taking additional monetary easing measures. Also, a decline in the German business climate index to 107.3 from 108.6 also weighed on the Euro.

Japan’s battling with weakness in exports

Meanwhile, the U.S. Dollar continued to lose ground against the Japanese Yen after Bank of Japan Governor Haruhiko Kuroda hinted to undertaking more stimulus measures last Friday. Analysts are anticipating some monetary easing measures towards the end of the year. USD/JPY is lower by 0.24% to 118.01 today. Japan is already confronting a sequential decline in its monthly exports, which fell 8% during the last month.

Meanwhile, both the New Zealand and Australian Dollar traded lower than the greenback. NZD/USD shed 0.12% to trade at 0.6448 before hitting a low of 0.6425. The pair is expected to get support at 0.6409 and resistance at 0.6534. On the other hand, AUD/USD was down by 0.01% to 0.6953, trading nearly flat.

Up ahead in the day, the investors will be looking forward to consumer confidence data in the U.S. to be published later today to gauge the economic progress.

Elsewhere, GBP/USD was sharply down by 0.42% to 1.4187 during the late Asian trading hours. The U.S. Dollar Index was moderately higher by 0.02% at 99.37 against the basket of other global currencies.

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Oil And China Playing Havoc With Global Markets

By
Andy Parker
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As anticipated, a fresh weakness in oil prices slashed the gains in the Asian session. All the major Asian indices finished the day steeply lower. China’s Shanghai SE Composite Index took the worst beating as it closed the day nearly 6.50% lower at 2,749.79. Japan’s Nikkei 225 followed the trail, losing 402.01 points or 2.35% to settle at 16,708.90. There has been mounting pressure on Japan’s central bank to adopt stimulus measures in view of the persisting weakness.

Oil back in pressure

The agony for global markets resumed as the U.S. crude futures re-entered sub-$30 zones adding to previous day’s 6% fall. Global benchmark Brent is also trading near $30 level, signalling weakness in oil prices. Hong Kong’s Hang Seng fell 2.48% to 18,860.80.

At the same time, the European markets have also brushed off the Central Bank’s assurance of more monetary easing measures as major indices hit red today. The inability of oil prices to remain above $30 level, combined with an ongoing slowdown in China are the key factors driving weakness across the global markets.

U.S. market development

This is reflective in the European markets, where France’s CAC 40 was down by 1.57% or 67.53 points to 4,243.80. Euronext 100 dipped 1.46% to 838.55. A weak business sentiment in Germany sent its index DAX down by 1.29% to 9,610.25 but has since recovered to 9722. The region’s IFO survey data pointed that the business sentiment index fell to 107.3 from 108.6 in December.

Back in the U.S., the scenario was no different as Dow Jones Industrial Average took a steep plunge by nearly 208 points to close at 15,885 in previous day’s session. S&P 500 Index declined by 1.56% to 1,877.08. The key factor that will drive the U.S. markets this week will be the Federal Reserve’s policy meet, which will conclude on Wednesday. Based on the global sentiment, most of the analysts have projected that the Fed will announce rate hikes at a slower pace than earlier estimated.

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Short Covering and Weather-Driven Demand Fail To Hold Oil Price Firm

By
Carol Harper
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Two important factors, weather freezing in some parts of the Northern hemisphere and short covering both has failed to prevent the global oil price to stay firm. In fact, the short rally was taken as an opportunity to lock profit on Monday as concerns on continued oversupply of oil curbed traders from taking further positions. While Brent LCOc1 shed 67 cents at 0816 GMT, the US crude CLc1 fell 58 cents. However, the saving grace was that the oil price managed to stay above $31 a barrel level.

Record Production In Iraq

In December, Iraq witnessed a record oil production with the help of higher output from its central, as well as, the southern fields. Also, after a big increase in price over the week end, people have started booking profits. Phillip Futures analyst, Daniel Ang, told Reuters that the market continued to remain in the oversupply zone thus resulting in the bearish sentiments.

Though Saudi Arabia-based Aramco Chairman, Khalid al-Falih, indicated cost-cutting due to weak oil prices, the company was not slashing any of its fresh investments in the oil and gas production. Aside from that, Indonesia’s OPEC Governor indicated that there were slim chances of the oil cartel initiating steps to boost the oil prices. That meant the OPEC was not ready to reduce the oil production.

Weak USD Helping Oil Futures

ANZ said that the recent rally was due to a change in sentiment with a bias towards short positions. On the other hand, Morgan Stanley (NYSE:MS) believes that the weak Greenback was driving the oil futures that denominated in the US dollar currency. The brokerage said that a retracement of the Greenback, which would be like the last spring season, was one of the few possible drivers for oil price in the near-term.

The secondary driver would be any marginal changes in the fundamentals of crude supply/demand. That was also much similar to the one witnessed last year. Barclays Research note indicated that the market might face a temporary turnaround if there was no further macro deterioration, as well as, any other bearish sentiments. Weather might continue to hold its part in dictating the price.

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Game Changing Step from Twitter Inc (NYSE:TWTR) CEO Jack Dorsey

By
Carol Harper
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Twitter Inc (NYSE:TWTR)

One of the accusations Twitter Inc (NYSE:TWTR) CEO, Jack Dorsey’s, predecessor faced was that he allowed key professionals to leave the company. The exodus is still continuing as four top executive have decided to leave. That included its product chief, Kevin Weil, HRD VP, Skip Schipper, engineering head, Alex Roetter, and media chief, Katie Stanton. That forced the CEO to revamp its top management and hopes the shake-up will be a game changer that will enable him to win back investors confidence.

Additions to the Board

As a first step towards revamping, Twitter Inc (NYSE:TWTR)’s Dorsey would induct two new members to its board this week. One among them is said to be a high-profile media executive. It was reported that the CEO has made this condition a prerequisite for him to take over as CEO. Currently, co-founder, Evan Williams, is also on the board. It remains to be seen whether he would be replaced as well and how the company will fill the gap created by the exits.

The social media firm’s CEO said that technology head, Adam Messinger, would be entrusted with the responsibility of overseeing engineering, app development, user services, design, consumer product, and research in one group. Aside from that, its COO, Adam Bain, would manage the teams of media, HR, and revenue-related product on an interim basis.

Focus To Make It Easier

Twitter Inc (NYSE:TWTR)’s Dorsey has repeatedly said that his focus would be to make the site more user friendly. He was responsible for bringing in Qmid-Kordestani as the Executive Chairman of the firm. Kordestani was a Chief Business Officer in Alphabet Inc (NASDAQ:GOOGL)’s Google. Following the confirmation of CEO position in October, he disclosed the intention to slash the jobs.

Twitter Inc (NYSE:TWTR)’s Dorsey’s task appears to be to keep the top level executives intact as frequent changes has not only shifted the strategy but also paralyzed the company thus dragging down the stock. The exit of four executives may prove to be a blessing in disguise for the CEO as this may create an opportunity for him to bring in a new team that will be better aligned with his vision moving forward.

Shares of Twitter Inc (NYSE:TWTR) have fallen by 37 percent ever since Jack Dorsey took the charge. It will be interesting to watch the stocks performance as the ne w positions are filled. You can bet that Wall St. will be watching very closely as well.

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Movers and Shakers: The Week so Far in Biotech

By
Jennifer Aldershot
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biotech

It’s been a rough start to the week for a number of companies in the biotech space. Here are two of the biggest movers, alongside an analysis of what drove the decline and what it means for the company going forward.

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Novavax, Inc. (NASDAQ:NVAX)

Novavax lost more than 16% of its market capitalization throughout Monday’s US session, and premarket on Tuesday, looks set to fall farther. For those not familiar with the company, it’s a billion-dollar clinical stage biotech, which has developed its own proprietary vaccine technology, which allows it to deliver targeted gene based vaccines. It doesn’t have any products on the market as yet, but it has a promising pipeline that includes oncology candidates and an RSV vaccine (RSV is a respiratory virus that predominantly affects children). The company has backing from a range of big names, including an $89 million commitment from the Bill and Melinda Gates foundation. Yesterday, Novavax released an 8K stating it expects to report $231 million cash on its books in its upcoming earning release – a healthy number for a company in its position. So why the decline?

Well, alongside the release, the company also stated it intends to offer $300 million minimum of convertible notes (up from the initial $200 million report), due in 2023.

The company has priced the notes at a 25% premium to current prices, and has a number of extension offerings that could see the total raised come to circa $321 million (after commissions, etc). The raise should fund its pipeline through to NDA, so why is this a bad thing? One word – dilution. Convertible notes are dilutive (in most cases), meaning the company’s current shareholders will take a hit on the portion of Novavax that their holdings represent.

The company has included some anti-dilutive measures, the most notable of which is a number of privately negotiated capped call transactions. However, the efficacy of these in tackling dilution is not guaranteed, and even if successful, they will only reduce the dilution, not eliminate it. In short, Novavax shareholders lose whatever happens – it’s just a question of how much.

Shareholders in this position are often willing to accept dilution if the capital raised funds an increase in value of their current holding, longer term. As such, don’t expect a drawn out sell off. Short term, however, the market’s negative sentiment and a value driven shift generally causes some downside, and this is what we’re seeing right now.

OncoMed Pharmaceuticals, Inc. (NASDAQ:OMED)

OncoMed shed 43% on Monday, as a direct response to the release of an update regarding its phase II pancreatic cancer candidate, Tarextumab. The drug targets what are called the Notch family of proteins, which play a key role in determining the fate of a cell. Terextumab, according to OncoMed’s hypothesis, inhibits the signaling across these protein’s pathways, and in doing so, can halt the proliferation of cancer cells.

We saw some decent data in phase I trials for the pancreatic cancer indication, and the FDA gave the drug orphan designation at the beginning of last year, injecting some positive sentiment into OncoMed’s pipeline and its prospects for commercialization. The drug also picked up a big name partnership with GlaxoSmithKline (NYSE:GSK), which promised more than $300 million in milestone payments if the drug reached commercialization.

Unfortunately for OncoMed and its shareholders, phase II data failed to mimic the promise of phase I. An independent review board released a statement saying, essentially, that the drug doesn’t work. No statistically significant improvement was recorded between a placebo and a treatment arm in the blinded trial – an endpoint miss that looks to have cost the company $300 million.

Alongside the release OncoMed said it was unblinding the trial in an attempt to salvage the drug from complete development failure, but an endpoint miss is generally terminal – especially in late stage cancer indications.

Looking at the rest of its pipeline, there still remains the potential for a recovery, namely in its other phase II, demcizumab. The company has teamed up with Celgene (NASDAQ:CELG) to develop the drug in two indications, pancreatic cancer and Non-Squamous Non-Small Cell Lung Cancer, and data from both trials is expected this year. If the drug can demonstrate efficacy (we got a hint of efficacy in earlier dosing and safety trials) OncoMed could pick up some of its lost market capitalization. In light of this, and from a potential discount entry perspective, the company might be of interest to the risk tolerant investor at it’s current price.

 

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Hilton Worldwide Holdings Inc (NYSE:HLT) Bets On Its Tru Hotels to Target Millennials

By
Carol Harper
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Hilton Worldwide Holdings Inc (NYSE:HLT)

Hilton Worldwide Holdings Inc (NYSE:HLT) is betting on its new chain of hotels brand, known as Tru Hotels, to become the biggest brand in the midscale hotel category costing less than $100 a night. The company is entering the rapidly growing sector with a fresh brand to attract young and tech-savvy travelers who would like bigger lobbies and digital check-in, as well as, rooms at an affordable cost.

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Franchise Deals Signed

Hilton Worldwide Holdings Inc (NYSE:HLT) indicated that it has already struck franchise deals with 102 property owners. The company is aiming to sign 30 more deals, which are pending now. The cities included Oregon, Portland, Denver, Chicago, Houston, Dallas, and Atlanta. The company plans to launch the first Tru Hotel before the end of 2016. It appears that most of the locations would be outside the pricier markets like San Francisco or New York.

Global Head of Hilton, Phil Cordell, said that the initial focus would be small college towns, major highways and resort getaways. Eventually, it would extend the brand outside the USA. The company indicated that Tru was the 13th brand and might become the biggest as far as the number of rooms was concerned. Currently, The Hampton brand was the biggest with over 200,000 rooms spanned across 2,100 properties.

Filling The Gap In Portfolio

According to Robert W Baird & Co analyst, Michael Bellisario, Tru would fill the gap of Hilton Worldwide Holdings Inc (NYSE:HLT)’s portfolio. He believes that the midscale was one of the largest segments and that no larger global brands have penetrated into that market. The timing of the launch of the midscale brand comes when there was concern of sluggish economic growth. Already, the company’s stock dipped over 30% in the last one-year period thus dragging it below its IPO price of $20.

Hilton Worldwide Holdings Inc (NYSE:HLT) President and CEO, Christopher Nassetta, said that the company has not witnessed any significant change in its operating results in China. He said that though the country’s economy was in chaos, the mix of development helped to shift towards lower-priced hotels. He said that he could see the demand in such a market.

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Zafgen is Preparing to Mount a Beloranib Defense

By
ME Staff
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In March, 2015, development stage biotech Zafgen, Inc. (NASDAQ:ZFGN) traded for more than $50 a share. The company opened 2016 at just shy of $7 – an 86% decline across the period. The drop came as the result of two patient deaths in a phase III for its lead candidate beloranib, a weight loss treatment with a target indication of obesity in patients suffering from Prader-Willi syndrome (PWS).

At the end of last week, however, Zafgen gained 77% to top out at $10, and now trades at a 57% premium to 2016 lows. The gains come off the back of a positive topline readout for the seemingly doomed trial – topline that suggests there may still be hope for an FDA nod in the PWS indication after all. Ahead of a potential NDA submission, then, let’s take a deeper look at the drug in question in an attempt to weigh up the risk/benefit associated with administration and, in turn, figure out whether Zafgen is an opportunity for a discount allocation.

Beloranib is what’s called a METAP2 inhibitor. METAP2 is an enzyme that plays a role in a host of different processes in our bodies, and is primarily known in the biotech space as the enzyme responsible for tissue repair and for breaking down proteins. Aside from these primary functions, however, it also plays a part in lipid processing. High METAP2 activity is associated with low fat metabolism. By inhibiting the enzyme, beloranib increases lipid metabolism, converting fat to energy. In doing so, it effectively targets the obesity associated with genetic PWS.

What did the latest trial data show? The phase III had two concurrent endpoints – a statistically significant weight reduction and the improving of hyperphagia (excessive desire for food) related behavior. Two patient arms received 2.4 mg and 1.8 mg doses of beloranib, while a third arm received placebo. The dosed arms recorded average weight loss of 9.45% and 8.20% and reductions of hyperphagia-related behaviors of 7.0 units and 6.3 units respectively. Both endpoints hit in what is, essentially, a great result.

So why is this important now? Well, in December, and in the wake of the second patient death, the FDA placed an indefinite halt on the development of beloranib. At the time, all we knew was that beloranib was a high risk treatment (or so the deaths would suggest) and Zafgen didn’t have any large scale, public data to form a defense as to the benefit side of te drug. With this latest topline, Zafgen is able to mount a case for the continued development of beloranib – a case which it intends to put forward to the FDA this quarter. Whether the case will be sufficient to sway the agency’s opinion remains to be seen, but it is, at least, a shot.

We will get a little more insight before the end of the month, as the company plans to report a more detailed analysis of the trial some time in the next couple of weeks. We know the detailed analysis will include information of the drug’s impact on body composition, cardiovascular disease risk markers, metabolic endpoints, and quality of life measures. We don’t know whether any of this information will relate directly to the deaths, though we can assume that it will.

What are we looking for going forward? First, we’ll take a look at the detailed data to try and ascertain why the patients died. If the deaths came about as a direct result of treatment and there are no other mitigating circumstances, things don’t look good for beloranib. If, however, the patients in question suffered from another condition concurrently, or suffered from a particularly severe form of PWS, Zafgen may be able to persuade the FDA that a box warning, or a tightened patient population (i.e. one targeting the portion of PWS sufferers not at risk of severe AEs post-administration) justifies further development.

One thing is certain – we’re not going to get a quick turnaround. The FDA will likely want more data, which will mean more trials, cost and time. For an investor with a willingness to held on to an exposure for a few years, however, Zafgen could be a nice speculative position at its current price. Look out for the upcoming insight to shore up any bias.

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Rally Continues in Asia, Fizzles in Europe

By
Andy Parker
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The sharp recovery in oil prices has helped spur a broad market rally across Asia that continued today as the week began. Asia may have also been responding to dovish monetary policy statements coming out of the European Central Bank.

The slew of positive events prompted a rally in Asian stocks, where Taiwan’s TSEC 50 index surged the most by 1.78% to 7,894. China’s Shanghai SE Composite Index finished the day 0.75% higher at 2,938.51 while Hong Kong’s Hang Seng added up 259.63 points or 1.36% to settle at 19,340.14.

The recovery in the Asian markets came after stocks took a harsh beating last week following a deep slide in oil prices, which hit 12-year lows. However, the strong snowstorm that hit the U.S. over the weekend fueled expectations of an increase in oil demand in the coming days, which relieved anxiety over an oil glut somewhat. Oil, however, is sliding back down 3% as the trading week opens.

Troubled Euro Zone

Unlike Asian markets, European markets failed to reflect the same excitement as oil was quick to pare its early-day gains. Oil prices came under pressure as Iraq turned the oil oversupply fears into reality by pumping oil at record-high levels. Brent Crude fell by $0.94 to $31.24. U.S. crude is trading at $31.20.

Iraq is sparing no efforts to claim its share in the global oil market as its central and southern region posted a record output of 4.13 million barrels a day. The oil output has dimmed hopes of an oil price revival anytime soon. European indexes are trading mostly flat today.

Given the pressure, it is likely that U.S. markets will reflect negative sentiment, too. On Friday last week, the Dow Jones Industrial Average rallied by 1.33% or 210.83 points to 16,093.51. S&P 500 Index too surged by 2.03% to 1,906.90. US stock futures are slightly down in premarket trading.

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Denbury (NYSE:DNR) Cancels Notes Exchange Offer

By
Andy Parker
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Denbury Resources Inc. (NYSE:DNR), an oil and gas exploration company, has pulled the Notes Exchange Offer that it had previously announced to its creditors, citing certain terms and conditions that went with the offer that were not fulfilled. Following the termination of the exchange offer, the company is returning notes that may have already been tendered to their owners. The notes exchange program would have seen holders of certain old notes maturing between 2021 and 2023 swap a portion of them for notes maturing on May 15, 2022.

Denbury targeted three groups of bond holders with the notes exchange offer. The deal would have benefited holders of certain bonds due 2021, holders of certain bonds due 2022 and 2023, which it collectively calls the Old Notes.

Had the deal gone through, the holders of the Old Notes would have exchanged them for newly-issued notes that would have matured earlier on the average. Denbury intended to issue the Old Notes holders with notes that are due in mid-May 2022.

However, the exchange offer will not proceed. Denbury pointed to terms and conditions on the initially signed documents to explain the termination of the deal.

As a result, Old Notes holders who may have started tendering their notes in exchange for the newer notes will have to get them back.

Pressure in the oil market

Denbury is pulling the plug on the exchange at a time when its industry is being battered from all directions. Soft Chinese economic data and a global oil oversupply are pulling down oil stocks and Denbury has not been spared. The stock is down more than 33% year to date.

Because OPEC refused to cut back oil production and new producers like Iran are now bringing their oil to the global market, the supply and demand imbalance is expected to stretch further, pulling down oil prices in the process. It is feared that the oil surplus could rise from the present 1 million barrels per day to 1.5 million barrels per day in by the middle of 2016.

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