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Jazz Pharmaceuticals (NASDAQ: (JAZZ - Free Report) – Free Report)is a $9 billion drug company focused on developing and commercializing innovative products to meet unmet medical needs in neurology, psychiatry, and oncology.
On August 8, Jazz reported a weaker-than-expected quarter and guidance which knocked the shares down from $155 to $140. But I was licking my chops at the opportunity to buy this key franchise trading at just 11X next year's projected EPS of $13. This article will explain why.
First, you have to understand where JAZZ has been successful. Their top commercially-successful drug is Xyrem for the treatment of narcolepsy. Xyrem will comprise nearly 75% of JAZZ's total projected sales this year of $1.64 billion.
JAZZ's second most-important revenue generator is Erwinaze, part of a chemotherapy program to treat patients who have acute lymphoblastic leukemia, or ALL, a type of blood cancer that affects the white blood cells that help fight infection. Erwinaze is used in patients who have had an allergic reaction to a different type of asparaginase treatment.
Erwinaze is an alternate form of asparaginase. It is thought to help prevent leukemia cells from surviving and works in a similar way as other asparaginase treatments.
And Erwinaze is part of the oncology pipeline that JAZZ is expanding rapidly and holds the most promise as JAZZ brings new drugs to market and reduces dependence on Xyrem for growth.
Reaction to Q2 Report Overwhelmed by New FDA Approval
Wells Fargo analyst Ike Bucherow reiterated his Outperform rating on shares of JAZZ and trimmed his price target just a half-percent, to $177 from $178, after the company reported Q2 EPS of $2.56, missing the consensus of $2.75, and missing on the top line too by about $10 million.
The analyst stated "revenues were lighter than what we expected, spending in line with our expectations, resulting in EPS lower than we forecast, but nothing seems to be significantly astray. Jazz reaffirmed its full year revenue guidance of $1.625 billion to $1.7 billion."
But it was the news of August 3 that most large biopharma investors were focused on.
That day, the U.S. Food and Drug Administration (FDA) approved the Jazz Pharmaceuticals drug Vyxeos for the treatment of adults with two types of acute myeloid leukemia (AML), a rapidly progressing and life-threatening blood cancer. Vyxeos is a fixed-combination of chemotherapy drugs daunorubicin and cytarabine.
Designed with Jazz's CombiPlex proprietary technology, Vyxeos is a unique liposomal formulation that delivers a fixed-ratio of daunorubicin and cytarabine to the bone marrow that has been shown to have synergistic effects at killing leukemia cells in vitro and in animal models. Vyxeos is the first product developed with the company's proprietary CombiPlex platform, which enables the design and rapid evaluation of various combinations of therapies.
"Vyxeos is the first new chemotherapy advance in more than 40 years for adults with newly-diagnosed therapy-related AML or AML with myelodysplasia-related changes," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "The FDA approval of Vyxeos reflects our commitment to addressing unmet needs within the hematology oncology community."
O'Reilly Automotive (NASDAQ: (ORLY - Free Report) – Free Report)is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the US, serving both professional service providers and do-it-yourself customers.
Since I'm a Chicago boy who grew up with NAPA auto parts stores, I've still never set foot in an O'Reilly shop and was surprised to find they now operate 4,935 stores in 47 states. And, as further testament to my ignorance of this great business story, they started in Springfield, MO in 1957, going public in 1993.
History of a Great American Immigrant Success
While ORLY is a Zacks #5 Rank Strong Sell because estimates dropped sharply after weak sales comps in July, I want to share a little about this amazing growth story in case you were as ignorant as I was. We'll come back to the company and stock outlook in a moment.
I borrow this little bit of history from the company website...
Michael Byrne O'Reilly immigrated to America in 1849, escaping from the hard times of the potato famine, which struck Ireland in 1845-46. Settling in St. Louis, he worked his way through school to earn a law degree, and then pursued a career as a title examiner. His son, Charles Francis O'Reilly, attended college in St. Louis and went to work in 1914 as a traveling salesman for Fred Campbell Auto Supply in St. Louis.
By 1924, Charles had become familiar with the Springfield area, having traveled by train to sell auto parts throughout the territory. He recognized the region as an area of growth and opportunity and asked to be transferred there. By 1932, he had become manager of Link Motor Supply in Springfield. One of his sons, Charles H. (Chub) O'Reilly, had also joined the company. Together they provided the leadership and management that made Link the predominant auto parts store in the area.
In 1957, Link planned a reorganization, which would have included the retirement of 72-year-old Charles F. O'Reilly, and the transfer of C. H. O'Reilly to Kansas City. Since neither agreed with these plans, they made the decision to form their own company, O'Reilly Automotive, Inc.
(end of history excerpt from O'Reilly website)
From those humble beginnings, father and son created a business legacy that an any immigrant patriarch would be proud of.
Now, let's get back to why this company, whose shares have soared from $80 to $290 in four years (summer 2012 to summer 2016), are down 29% YTD. My colleague Neena Mishra wrote about ORLY as the Bull of the Day back in July after their sales comps report and before their Q2 earnings report. Here's what she said then...
Shares Plunge After Weak Sales Results
On July 5, the company reported its Q2 comparable store sales results, which were much weaker-than-expected. The stock fell almost 20% and is down about 34% year-to-date (actually trading down to $170 after that report).
“After exiting the first quarter and entering April on an improved sales trend, we faced a more challenging sales environment than we expected for the remainder of the quarter. Our second quarter comparable store sales results of 1.7% represent an improvement over our first quarter, but fell below our guidance of 3% to 5%, due to what we believe were continued headwinds from a second consecutive mild winter and overall weak consumer demand,” said the CEO.
Falling Estimates
Analysts have slashed their estimates for the company after weak guidance. Zacks Consensus Estimates for the current and next fiscal year have fallen to $11.83 per share and $13.10 per share from $12.26 and $13.73 respectively, 30 days back.
The company has missed in three out of past four quarters. The average negative quarterly surprise for the past four quarters is 2.3%.
Additional content:
Tesla Hit with Labor Board Complaint
The Oakland regional office of the National Labor Relations Board filed a complaint against electric car giant Tesla Inc. (NASDAQ: (TSLA - Free Report) – Free Report) on Thursday, claiming the automaker interfered with its employees’ union activities at Tesla’s Fremont, California manufacturing factory.
The NLRB complaint reaches back to claims made in April, when the United Automobile Workers union filed four separate charges with the board claiming that Tesla had “illegally surveilled and coerced factory workers attempting to distribute information about the union drive,” according to Buzzfeed News.
The complaint filed yesterday by the NLRB provides more details on what happened earlier this year, noting things like security guards asking employees distributing pamphlets to show employee ID cards, then proceeding to tell them to leave factory premises, to naming three individual Tesla managers who questioned employees about union activities or tries to prevent employees from talking about union activities.
NLRB’s complaint also cites Tesla’s restrictive confidentiality agreement, a document that prohibited employees from organizing or discussing their work condition, notes Inc. While Tesla argues that this document is typical of any tech company, California lawmakers warned the company back in February that the agreement was overreaching.
Based on these findings, NLRB regional director Valerie Hardy-Mahoney wrote that the automaker “has been interfering with, restraining and coercing employees in the exercise of their rights.”
Tesla has stood firm in its dismissal of the UAW’s allegations, saying “For seven years, the UAW has used every tool in its playbook: misleading and outright false communications, unsolicited and unwelcomed visits to the homes of our employees, attempts to discredit Tesla publicly in the media, and now another tactic that has been used in every union campaign since the beginning of time…”.
“These allegations, which have been filed by the same contingent of union organizers who have been so outspoken with media, are entirely without merit. We will obviously be responding as part of the NLRB process,” Tesla continued.
The NLRB’s complaint is likely the last thing Tesla wants, especially as production on its highly-anticipated Model 3 begins to ramp up. CEO Elon Musk already warned investors, however, that the electric car maker may face some manufacturing challenges in the coming months.
The board’s complaint is set to be reviewed by an administrative law judge at a hearing next week.
One Simple Trading Idea
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
This proven stock-picking system is grounded on a single big idea that can be fortune shaping and life changing. You can apply it to your portfolio starting today. Learn more >>
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Jazz Pharmaceuticals, O'Reilly Automotive and Tesla highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – September 5, 2017 – Zacks Equity Research Jazz Pharmaceuticals (NASDAQ: (JAZZ - Free Report) – Free Report)as the Bull of the Day, O'Reilly Automotive (NASDAQ: (ORLY - Free Report) – Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onTesla Inc. (NASDAQ: (TSLA - Free Report) – Free Report).
Here is a synopsis of all three stocks:
Bull of the Day:
Jazz Pharmaceuticals (NASDAQ: (JAZZ - Free Report) – Free Report)is a $9 billion drug company focused on developing and commercializing innovative products to meet unmet medical needs in neurology, psychiatry, and oncology.
On August 8, Jazz reported a weaker-than-expected quarter and guidance which knocked the shares down from $155 to $140. But I was licking my chops at the opportunity to buy this key franchise trading at just 11X next year's projected EPS of $13. This article will explain why.
First, you have to understand where JAZZ has been successful. Their top commercially-successful drug is Xyrem for the treatment of narcolepsy. Xyrem will comprise nearly 75% of JAZZ's total projected sales this year of $1.64 billion.
JAZZ's second most-important revenue generator is Erwinaze, part of a chemotherapy program to treat patients who have acute lymphoblastic leukemia, or ALL, a type of blood cancer that affects the white blood cells that help fight infection. Erwinaze is used in patients who have had an allergic reaction to a different type of asparaginase treatment.
Erwinaze is an alternate form of asparaginase. It is thought to help prevent leukemia cells from surviving and works in a similar way as other asparaginase treatments.
And Erwinaze is part of the oncology pipeline that JAZZ is expanding rapidly and holds the most promise as JAZZ brings new drugs to market and reduces dependence on Xyrem for growth.
Reaction to Q2 Report Overwhelmed by New FDA Approval
Wells Fargo analyst Ike Bucherow reiterated his Outperform rating on shares of JAZZ and trimmed his price target just a half-percent, to $177 from $178, after the company reported Q2 EPS of $2.56, missing the consensus of $2.75, and missing on the top line too by about $10 million.
The analyst stated "revenues were lighter than what we expected, spending in line with our expectations, resulting in EPS lower than we forecast, but nothing seems to be significantly astray. Jazz reaffirmed its full year revenue guidance of $1.625 billion to $1.7 billion."
But it was the news of August 3 that most large biopharma investors were focused on.
That day, the U.S. Food and Drug Administration (FDA) approved the Jazz Pharmaceuticals drug Vyxeos for the treatment of adults with two types of acute myeloid leukemia (AML), a rapidly progressing and life-threatening blood cancer. Vyxeos is a fixed-combination of chemotherapy drugs daunorubicin and cytarabine.
Designed with Jazz's CombiPlex proprietary technology, Vyxeos is a unique liposomal formulation that delivers a fixed-ratio of daunorubicin and cytarabine to the bone marrow that has been shown to have synergistic effects at killing leukemia cells in vitro and in animal models. Vyxeos is the first product developed with the company's proprietary CombiPlex platform, which enables the design and rapid evaluation of various combinations of therapies.
"Vyxeos is the first new chemotherapy advance in more than 40 years for adults with newly-diagnosed therapy-related AML or AML with myelodysplasia-related changes," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "The FDA approval of Vyxeos reflects our commitment to addressing unmet needs within the hematology oncology community."
Bear of the Day:
O'Reilly Automotive (NASDAQ: (ORLY - Free Report) – Free Report)is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the US, serving both professional service providers and do-it-yourself customers.
Since I'm a Chicago boy who grew up with NAPA auto parts stores, I've still never set foot in an O'Reilly shop and was surprised to find they now operate 4,935 stores in 47 states. And, as further testament to my ignorance of this great business story, they started in Springfield, MO in 1957, going public in 1993.
History of a Great American Immigrant Success
While ORLY is a Zacks #5 Rank Strong Sell because estimates dropped sharply after weak sales comps in July, I want to share a little about this amazing growth story in case you were as ignorant as I was. We'll come back to the company and stock outlook in a moment.
I borrow this little bit of history from the company website...
Michael Byrne O'Reilly immigrated to America in 1849, escaping from the hard times of the potato famine, which struck Ireland in 1845-46. Settling in St. Louis, he worked his way through school to earn a law degree, and then pursued a career as a title examiner. His son, Charles Francis O'Reilly, attended college in St. Louis and went to work in 1914 as a traveling salesman for Fred Campbell Auto Supply in St. Louis.
By 1924, Charles had become familiar with the Springfield area, having traveled by train to sell auto parts throughout the territory. He recognized the region as an area of growth and opportunity and asked to be transferred there. By 1932, he had become manager of Link Motor Supply in Springfield. One of his sons, Charles H. (Chub) O'Reilly, had also joined the company. Together they provided the leadership and management that made Link the predominant auto parts store in the area.
In 1957, Link planned a reorganization, which would have included the retirement of 72-year-old Charles F. O'Reilly, and the transfer of C. H. O'Reilly to Kansas City. Since neither agreed with these plans, they made the decision to form their own company, O'Reilly Automotive, Inc.
(end of history excerpt from O'Reilly website)
From those humble beginnings, father and son created a business legacy that an any immigrant patriarch would be proud of.
Now, let's get back to why this company, whose shares have soared from $80 to $290 in four years (summer 2012 to summer 2016), are down 29% YTD. My colleague Neena Mishra wrote about ORLY as the Bull of the Day back in July after their sales comps report and before their Q2 earnings report. Here's what she said then...
Shares Plunge After Weak Sales Results
On July 5, the company reported its Q2 comparable store sales results, which were much weaker-than-expected. The stock fell almost 20% and is down about 34% year-to-date (actually trading down to $170 after that report).
“After exiting the first quarter and entering April on an improved sales trend, we faced a more challenging sales environment than we expected for the remainder of the quarter. Our second quarter comparable store sales results of 1.7% represent an improvement over our first quarter, but fell below our guidance of 3% to 5%, due to what we believe were continued headwinds from a second consecutive mild winter and overall weak consumer demand,” said the CEO.
Falling Estimates
Analysts have slashed their estimates for the company after weak guidance. Zacks Consensus Estimates for the current and next fiscal year have fallen to $11.83 per share and $13.10 per share from $12.26 and $13.73 respectively, 30 days back.
The company has missed in three out of past four quarters. The average negative quarterly surprise for the past four quarters is 2.3%.
Additional content:
Tesla Hit with Labor Board Complaint
The Oakland regional office of the National Labor Relations Board filed a complaint against electric car giant Tesla Inc. (NASDAQ: (TSLA - Free Report) – Free Report) on Thursday, claiming the automaker interfered with its employees’ union activities at Tesla’s Fremont, California manufacturing factory.
The NLRB complaint reaches back to claims made in April, when the United Automobile Workers union filed four separate charges with the board claiming that Tesla had “illegally surveilled and coerced factory workers attempting to distribute information about the union drive,” according to Buzzfeed News.
The complaint filed yesterday by the NLRB provides more details on what happened earlier this year, noting things like security guards asking employees distributing pamphlets to show employee ID cards, then proceeding to tell them to leave factory premises, to naming three individual Tesla managers who questioned employees about union activities or tries to prevent employees from talking about union activities.
NLRB’s complaint also cites Tesla’s restrictive confidentiality agreement, a document that prohibited employees from organizing or discussing their work condition, notes Inc. While Tesla argues that this document is typical of any tech company, California lawmakers warned the company back in February that the agreement was overreaching.
Based on these findings, NLRB regional director Valerie Hardy-Mahoney wrote that the automaker “has been interfering with, restraining and coercing employees in the exercise of their rights.”
Tesla has stood firm in its dismissal of the UAW’s allegations, saying “For seven years, the UAW has used every tool in its playbook: misleading and outright false communications, unsolicited and unwelcomed visits to the homes of our employees, attempts to discredit Tesla publicly in the media, and now another tactic that has been used in every union campaign since the beginning of time…”.
“These allegations, which have been filed by the same contingent of union organizers who have been so outspoken with media, are entirely without merit. We will obviously be responding as part of the NLRB process,” Tesla continued.
The NLRB’s complaint is likely the last thing Tesla wants, especially as production on its highly-anticipated Model 3 begins to ramp up. CEO Elon Musk already warned investors, however, that the electric car maker may face some manufacturing challenges in the coming months.
The board’s complaint is set to be reviewed by an administrative law judge at a hearing next week.
One Simple Trading Idea
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
This proven stock-picking system is grounded on a single big idea that can be fortune shaping and life changing. You can apply it to your portfolio starting today. Learn more >>
Get today’s Zacks #1 Stock of the Day with your free subscription to Profit from the Pros newsletter:
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.