With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

Large Cap Watch List (Track at Marketocracy) member Barr Pharmaceuticals (BRL - Annual Report) reported a GAAP Loss:

For the three months ended December 31, 2006, the Company recorded a loss of $390.9 million, or $3.67 per share, compared to net earnings of $94.9 million, or $0.88 per share, for the same period last year. Revenues in the period were $584 million, compared to $326 million for the same period last year.For the six months ended December 31, 2006, the Company recorded a loss of $338.2 million, or $3.18 per share, compared to net earnings of $178.1 million, or $1.66 per share, in the prior year period. Revenues in the period totaled $916 million, up from $636 million for the same period last year.

Adjusted earnings per fully diluted share for the three and six months ended December 31, 2006 would have been $0.83 and $1.70, respectively, after excluding certain charges that are primarily related to the PLIVA acquisition. For comparison purposes, in the prior year periods, adjusted earnings per fully diluted share for the three and six months ended December 31, 2005 would have been $0.92 and $1.77, respectively, excluding certain one-time items.

Consensus estimates, presumably excluding the charges, were for $0.73. But the guidance for the rest of 2007 was disappointing relative to consensus (which was for $3.23 on $2.57 billion in sales):

The Company expects its adjusted earnings per fully diluted share for the year ending December 31, 2007 to be in the range of approximately $3.00 - $3.30. The adjustments are discussed in the paragraph immediately below. The Company expects total revenues for that period to be in the range of $2.3-$2.4 billion. R&D investment for 2007 is expected to be approximately $240-$250 million. SG&A expenses for 2007 are expected to be approximately $775-$800 million.

The Company’s adjusted guidance for 2007 excludes amortization costs associated with acquired products, charges related to the step-up of inventory acquired from PLIVA, contributions from operations that the Company anticipates divesting during 2007 and stock-based compensation costs. The Company’s adjusted guidance for 2007 also excludes the impact of potential patent challenge outcomes or other business development activities that may be completed by December 31, 2007.

That’s a lot of things to be excluding and still miss the estimates out there.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.