Rational for cost cutting

Today, Jefferies takes a bit of a different tack. It upgrades AstraZeneca (AZN +2%) to "Buy" based on the expectation that management's greed in preserving its bonuses will motivate the team to do whatever is necessary to prop up earnings. Apparently, its bonus plan specifies that the company's dividend must be 1.5 times covered which implies a floor EPS of $4.20. Earnings will come under pressure for the next three years due to patent expirations and the timing of regulatory approvals for pipeline products so executives will have to cut costs or make acquisitions to deliver enough earnings for them to receive their payouts.

To demonstrate his/her confidence that management has a keen eye on the bonuses, the analyst's EPS forecast is 10% above consensus for 2015 - 2017. AZN executives would probably describe the situation differently considering the expectation that they employ a long-term view and act in shareholders' best interest.





We all know we have a bloated sales force. We all know a minimum of 50% of all calls are false. We all know metrics drive this sales force. Well folks please read the article. This gives a "fresh reason" why senior management will have to cut costs. To me it's a no brainer. To senior management it's bonus money in their pockets. Next 12 months will be a very bumpy ride for sales.

Rational for cost cutting