Several of the UK's largest and best known companies have been in the headlines in the past week. Morningstar analysts provide their reactions to some of the latest news from LSE-listed multinationals.
Following news that CEO Warren East will retire on July 1, Morningstar is maintaining its fair value estimate and moat and stewardship ratings. Simon Segars, a board member since 2005 and president of ARM will take over the CEO position. "ARM was in capable hands under East, as the company is in the midst of tremendous revenue growth as the firm's low-power processors are ideally suited to run the substantial majority of the world’s smartphones today," commented Morningstar analyst Brian Colello.
At its investor day last week, AstraZeneca announced new strategic initiatives, including cost cutting and increasing its focus on high-reward therapeutic areas. Based on the new initiatives, Morningstar analysts don't plan to change their fair value estimate, which represents a slight premium to the current stock price. "We believe Astra's fundamental outlook remains challenged by an industry-leading amount of patent losses combined with a poor pipeline," commented Morningstar's Damien Conover. "However, from a valuation perspective, we believe the market may be slightly overestimating these problems." Conover continues to view AstraZeneca's economic moat as wide, as the company still maintains a strong portfolio of very high-margin drugs, but the lacking pipeline productivity relative to the patent losses keeps his economic moat trend rating at negative.
BP announced an $8 billion share buyback programme with the proceeds it received from divesting TNK-BP. This is roughly $3 billion more than Morningstar analysts were expecting based on management's previous comments on the subject.
Morningstar's Stephen Simko suspects the positive reaction to the news was in large part because it hints that the increasing cost estimates from Macondo-related business claims won't undo BP's previously stated plans to return a lot of cash to shareholders in the coming years via repurchases and increased dividends.
Simko's fair value estimate for BP remains unchanged.
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