Earnings reports of BIIB, CS and FCX are reviewed. All companies mentioned retain our Buy rating and price targets unless otherwise specified.
Biogen (BIIB) - First quarter revenues increased by 1% while GAAP net income fell by 1%, both compared to a year ago. Non-GAAP income, which removes costs related to acquisitions and divestitures, increased 15% from a year ago. Non-GAAP per share earnings increased 31%, as the share count fell 12% from a year ago. Overall, fundamentals at Biogen are progressing favorably.
Cash flow from operations of $1.5 billion remains strong. Biogen repurchased 7.3 million shares for $2.2 billion in the first quarter, at an average price of $308/share, about 5% above Thursday’s closing price. Cash/equivalent balance of $4.8 billion fell modestly from year-end, while debt remains unchanged at $6.0 billion.
The shares fell as Biogen pushed out its FDA filing for aducanumab, its potential blockbuster Alzheimer’s treatment, likely meaning that government approval would occur in 2021, not 2020 as expected. Biogen’s shares surged last year on optimism over this treatment, so any delays are seen as increasing the risk that the treatment isn’t approved.
Credit Suisse (CS) - Adjusted pre-tax income was CHF951 million (CHF = Swiss francs, worth just over $1), excluding a large gain from the sale of the InvestLab business and from major litigation provisions. The adjusted pre-tax income was 11% below the year-ago result. Revenues increased 2% from a year ago, excluding the gains, as trading and net interest income rose. Operating expenses fell 6%. Offsetting the higher revenues and lower costs was a large CHF1 billion increase in its loan loss reserves. The return on tangible equity was just above 9% in the quarter - respectable in our view.
The bank is in a much stronger position than it was in the prior downcycle. Its 12.1% capital ratio is healthy although down from 12.7% last year. Also, its businesses are more weighted toward stable and less capital intensive wealth management services and lower-risk Swiss lending. Credit Suisse shares are down about 40% YTD, after having traded roughly at our inception price around the year-end. The shares currently trade at about 40% of tangible book value and likely will rebound strongly when the capital markets and economy recover.
Freeport-McMoran (FCX) - Adjusted per-share loss of $(.16) was generally in-line with the $(.17) consensus estimate. A year ago, Freeport earned $.05/share. Revenues fell 26% primarily due to lower copper production (-16%) and prices (-16%), as well as lower production of gold and molybdenum. Gold prices rose 24% from a year ago. The company has reduced production at its Indonesian (transition to underground mining at Grasberg) and Peruvian (Covid-19) mines. The pandemic is slowing the Grasberg transition - which will reduce Freeport’s value capture in advance of the 2022 turnover to the Indonesian government. The company is negotiating an extension.
Critically, the company announced specific steps (outlined in general last month) to bolster its cash position, including cutting $1.3 billion in operating costs and $800 million in capital spending. It also has refinanced and extended some of its debt maturities, such that the nearest principal maturity on its senior notes is in 2022. Freeport ended the quarter with $1.6 billion in cash, with another $3.5 billion available on its line of credit. Total debt of $10.1 billion appears manageable. Freeport shares jumped 6% in mid-day trading.
We think the shares are overly discounted and have good rebound potential, driven by an eventual global economic recovery that should boost copper prices and volumes. Rising gold prices and volumes provide incremental support in the interim.