European Stocks at 52-Week Lows: COV, NOK, TI, RIG
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Dublin-based Covidien is a leading global healthcare products company that creates innovative medical solutions for better patient outcomes and delivers value through clinical leadership and excellence. Covidien manufactures, distributes and services a diverse range of industry-leading product lines in three segments: Medical Devices, Pharmaceuticals and Medical Supplies. Its products are sold in over 140 countries.
Covidien’s revenue has gone up and down, but been generally on an upward trend, to a company high of $11.6 billion. Free cash flow has been positive each year since it began publicly reporting financials in 2007. In 2011, its gross margin, operating margin and net margin all improved from 2010.
With its falling stock price and increased earnings, Covidien’s P/E has reached an all-time low of 10.8. Its P/B ratio is near its historical low, and its P/S is slightly higher.
In Covidien’s most recent investor meeting in September, the company announced its goals and initiatives for 2012. It wants to use its strong cash flow to fund business expansion, pay dividends and use its recently expanded stock buyback program. Its key initiatives are to broaden its innovation focus, aggressively manage its portfolio, capitalize on emerging markets opportunities and optimize spending to provide for investments in innovation and growth.
It expects that 2012 net sales will increase 3% to 5% in 2012 versus 2011 and that free cash flow will exceed $1.9 billion, excluding any legacy tax payments.
On Thursday, Covidien announced it would spin off its pharmaceuticals business into a standalone public company. The remaining medical products business would have annual sales of approximately $9.8 billion.
“This transaction, if completed, would give both businesses greater flexibility to focus on and pursue their respective growth strategies, while potentially providing shareholders with greater value over the longer term,” Covidien President and CEO Jose E. Almeida said in a statement.
The company raised its dividend 12.5% to $0.20 per ordinary share to $0.225 per ordinary share in September. In August, it announced a share repurchase program of up to $2 billion. In the 12 months ending June 2011, Covidiend returned more than $1 billion to shareholders in dividends and share repurchase, representing more than 50% of its free cash flow. The company’s stated annual goal is to return 25% to 40% of free cash flow to shareholders.
Nokia was a global leader in mobile communications whose devices are used by 1.3 billion worldwide each day.
Nokia’s revenue has declined since 2008, and net income levels for the past two years were the lowest of the decade. The company has still produced strong free cash flow, however. In 2010 it generated $5.5 billion, increased from $3.9 billion in 2009.
Its stock price has declined 50% in the last year, likely due to ever-decreasing quarterly revenue and earnings over the last several quarters, and lack of a real competitor product to Google’s Android and Apple’s iPhone. However, on Wednesday, the company introduced its Lumia 710, its first Windows Phone in the U.S. Nokia’s strategy with the product is to target the nearly 150 million Americans who haven’t yet bought their first smartphone. After a rebate and a two-year contract, the phone will cost just $50.
The company made some drastic measures this year. In November they announced they would cut approximately 23% of their workforce in order to trim annual operating expenses by $1.35 billion by the end of 2013. It says the layoffs are necessary to align its strategy more toward mobile broadband equipment, the fastest-growing segment of the market.
A study by HIS iSuppli released in July predicted that tablet sales will help drive a 57.8% increase in the shipments of mobile broadband devices in 2011. In 2010, the growth rate was similar, at 57.4%. Another study conducted by Strategy Analytics in November showed that mobile broadband device market will claim a global installed base of over 525 million units by 2016.
Telecom Italia SPA ADS (TI)
Telecom Italia, based in a country on the edge of insolvency, has seen its stock slid 18% over the last 12 months. Nevertheless, revenues have been strong, increasing from 2009 to 2010, and higher for the trailing 12 months at $41 billion. Earnings also reached their highest level over the decade in 2010, at $4.7 billion.
The company’s cash holdings have been lower than in previous years, equaling about $7.2 billion in the third quarter of 2011, with no long-term debt, and $54 billion in long-term liabilities. The company’s strong free cash flow has been sufficient to cover its dividend, though. Cash flow has increased for the last three years. The company has reduced its dividend each year since 2009. In 2010 it was $0.45.
Telecom Italia will also have to reduce its labor force. MF-Dow Jones reported that chairman and CEO Franco Bernabe told a Senate committee on Nov. 29 that cuts will have to happen as "Two important new trend reversals occurred in the third quarter; there was less demand for access to fixed-line by alternative operators, and there were overall fewer broadband lines overall."
The company will also launch its new Biblet ebook reader on Friday, which will feature a 6-inch touch screen display, a keyboard, mobile access to newspaper sites, along with other features. The e-reader will be released in Italy.
Transocean LTD. is an international provider of offshore contract drilling services for oil and gas wells. Transocean has a market cap of $12.71 billion; its shares were traded at around $40.19 with a P/E ratio of 19.4 and P/S ratio of 1.3. The dividend yield of Transocean stocks is 7.9%. Transocean had an annual average earnings growth of 19% over the past 10 years. GuruFocus rated Transocean the business predictability rank of 2-star.
Year to date, Transocean’s stock has fallen 43%. Its recent decline may be due to a U.S. Department of the Interior committee assigning blame to multiple parties for the 2010 Deepwater Horizon explosion. The Dallas Business Journal reports that litigation is pending between the companies involved, although Transocean said in its 2010 annual report that it believed it is “contractually indemnified against all claims stemming from the environmental and economic impacts of the hydrocarbons spilled into the Gulf of Mexico.”
Also in December, Brazil is suing Transocean and Chevron for $10.6 billion for their alleged part in an oil spill near Rio de Janeiro in November. The law suit also requests that the companies cease drilling in Brazil all together.
Transocean’s revenue has been declining each year from $12.7 billion in 2008 to $9.6 billion in 2010. Earnings dropped from $3.2 billion in 2009 to $961 million in 2010. That year’s financial results were impacted by the Macondo Well incident of $116 million, as well as $1 in after-tax charges primarily as a result of the impairment of its standard jackup fleet. Excluding the additional charges, net income would have been over $2 billion.
Transocean shareholders approved a $0.79 per share dividend in May with a total payout for the year of approximately $1 billion.
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