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Zacks Analyst Blog Highlights: Caterpillar Inc, McDonald, Terex, Johnson & Johnson and Amgen.

CHICAGO -- Analyst Blog features: Caterpillar Inc (NYSE: CAT), McDonald Corp. (NYSE: MCD), Terex Corp. (NYSE: TEX), Johnson & Johnson (NYSE: JNJ) and Amgen (Nasdaq: AMGN).

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Here are highlights from Thursday's Analyst Blog:

Caterpillar Issues Chinese Bond

Caterpillar Inc's (NYSE: CAT) subsidiary Caterpillar Financial Services Corporation has issued a two-year RMB 1billion ($150 million) bond with a coupon rate of 2% to institutional investors in Hong Kong. This makes the company the first foreign industrial multinational and the second non-financial multinational company to issue debt in Chinese currency. Caterpillar plans to use the proceeds to fund its operations in China.

Caterpillar follows McDonald's Corp. (NYSE: MCD), which in August raised RMB 200 million ($29 million) through the sale of 3% notes due in September 2013. This was the first yuan bond sale of a non-financial multinational company in Hong Kong.

Earlier the issuance of the renminbi-denominated bonds (also known as "dim sum" bonds) in Hong Kong was restricted to Chinese financial institutions. However, in February, China removed such restrictions, allowing foreign companies to issue such bonds in Hong Kong to promote the use of Chinese currency for global commerce and reduce China's reliance on the U.S. dollar. This enables any company to tap the growing dim sum markets, but subject to an approval from Beijing.

Strong international demand for such yuan-denominated products is being fuelled by expectations that the currency will appreciate, and foreign investors that invest in yuan debt sold in Hong Kong can avoid the strict capital controls in mainland China. Earlier this week, China announced it would issue yuan-denominated government bonds worth RMB 8 billion ($1.2 billion) in Hong Kong as Beijing tries to internationalize its currency. The previous issue was of RMB 6 billion in September last year.

China surpassed Japan in the second quarter to become the world's second largest economy behind the United States. This year, even though growth has begun to moderate slightly, China's economy is projected to expand by about 10%, continuing a remarkable three-decade streak of double-digit growth. This has led companies around the world to eye China as a viable expansion option.

Caterpillar has to-date remained focused on building as well as enhancing its facilities in China as part of its strategy to expand in emerging markets to meet its long-term goals. Recently, Caterpillar announced its largest facility investment to date in China of $300 million, to build a state-of-the-art manufacturing facility in Tianjin, China to manufacture the industry leading 3500 series engines.

Previously, the company had announced plans to build a new facility in Wujiang, China, to produce mini-hydraulic excavator models for China, the world's largest market for excavators in the below 8-ton class and expand its excavator facility in Xuzhou, China.

Caterpillar's competitor, Terex Corp. (NYSE: TEX), also remains focused on expanding in China. In August, Terex acquired a 65% control of privately held, Jinan-based crane maker Shandong Topower Heavy Machinery Company and entered into a joint venture agreement with Fujian South Highway Machinery Company to establish a mobile materials processing equipment manufacturing in Quanzhou, China.

Caterpillar currently retains a Zacks #1 Rank (short-term Strong Buy recommendation). We maintain our 'Outperform' recommendation on the stock.

More Product Recalls at J&J

Johnson & Johnson's (NYSE: JNJ) reputation took another hit recently with the company announcing yet another product recall. This time round, the company said that it is voluntarily recalling all lots of children's Benadryl Allergy Fastmelt tablets (cherry and grape flavors) distributed in the US, Belize, Barbados, Canada, Puerto Rico, St. Martin and St. Thomas. The company is also recalling all lots of junior strength Motrin caplets, 24 count, from the US market.

Moreover, the company said that it is recalling one product lot of Rolaids extra strength softchews (cherry flavor) from the US market. While the Rolaids product recall was initiated on the basis of complaints regarding an uncharacteristic consistency or texture, the company said that the other two product recalls were not due to quality-related issues.

Johnson & Johnson said that the Benadryl and Motrin recalls are on a wholesale and retail level and these products can continue to be used by consumers. The company stated that the recall was part of a review process which showed that there were certain shortcomings in the development of the manufacturing process.

Product Recalls Hit OTC Segment Performance

Back-to-back product recalls over the course of the year have adversely affected sales of Johnson & Johnson's consumer healthcare segment. Third quarter Consumer segment sales declined 10.6% to $3.6 billion, with OTC pharmaceutical and nutritional sales declining 19.4%. The product recall and the suspension of manufacturing at the Fort Washington, Pennsylvania plant resulted in a $240 million negative impact on revenues.

In January 2010, Johnson & Johnson had announced the recall of Tylenol, Motrin and Benadryl that were sold in the US, the United Arab Emirates (UAE), and Fiji. The product recall was initiated following complaints from customers regarding an unusual smell.

In July 2010, Johnson & Johnson recalled 21 lots of certain over-the-counter (OTC) medicines being sold in the US, Fiji, Guatemala, Dominican Republic, Puerto Rico, Trinidad & Tobago, and Jamaica. The recalled medicines included Benadryl, Tylenol (including children's Tylenol) and Motrin.

Although Johnson & Johnson has started shipping one of the recalled products, we believe the company will not be in a position to resume normal supply of all the recalled products before the first quarter of 2011. Meanwhile, the Fort Washington plant, which has been shut down, is not expected to be operational until late 2011. Johnson & Johnson is also facing legal action related to the product recall.

Other product recalls at Johnson & Johnson include the Aug 2010 recall of two hip replacement systems - the ASR XL Acetabular System and DePuy ASR Hip Resurfacing System. Johnson & Johnson also received a warning letter from the US Food and Drug Administration (FDA) regarding the marketing of its Corail Hip System for unapproved uses.

The company also recalled contact lenses from several countries in Asia and Europe. In Sep 2010, Johnson & Johnson along with Amgen (Nasdaq: AMGN) recalled certain lots of Epogen and Procrit due to the possible presence of thin glass flakes in the vials.

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Publication:Business Wire
Article Type:Company overview
Geographic Code:1U3IL
Date:Nov 26, 2010
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