For Immediate Release
Chicago, IL – January 2, 2019 – Zacks Equity Research Keysight Technologies (KEYS - Free Report) as the Bull of the Day, Analog Devices (ADI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alexion Pharmaceuticals, Inc. (ALXN - Free Report) , Amarin Corporation plc. (AMRN - Free Report) and Cellectis (CLLS - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Keysight Technologiesis a $19 billion provider of electronic design, measurement and test instrumentation systems. Keysight emerged as a public company from the 2014 move by Agilent Technologies to split apart divisions.
KEYS provides specialized electronics solutions to dozens of industries including aerospace and defense, automotive and energy, telecommunications, government and education, and, of course, semiconductors.
Keysight calls the top 25 technology enterprises in the world customers, and 78 of the Fortune 100, including Alphabet, Amazon, AT&T, Broadcom, Boeing, Cisco, Microsoft, NVIDIA, Samsung, Tesla and Toyota.
In fiscal 2019 (ended October), the company generated revenues of $4.312 billion, up 10% over the 2018 tally. In its Q4 reported on November 26, KEYS delivered sales of $1.122 billion, up 7% year over year.
Keysight generated 40.5% of non-GAAP revenues from Americas in fourth-quarter fiscal 2019. Meanwhile, revenues from Europe and Asia Pacific came in at 15.4% and 44.1%, respectively.
Evolving for the Hyper-Speed IoT/5G/AI World
As Keysight has prepared itself for advanced capabilities in wireless and mobile data environments, management sees a transformation from a hardware-centric product company to a software-centric solutions one.
In the company's most recent investor presentation in May, they outlined the evolution of their new "go-to-market" strategy thus...
Old model of scattered selling across separate channels to multiple divisions:
· Individual Products with hardware bias
· Slower, complex decision-making due to multiple owners interfacing with customers
· Incentivized and compensated on “parts” of a solution
New model of total system designs:
· Complete Solutions: Hardware + Software + Services
· Faster customer commitments and solution development; one decision owner
· Incentivized and compensated on total customer solutions by industry organization
Keysight management also announced their goal to be a top 5G solutions provider and have several first-to-market 5G design wins.
And this strategic focus on "complete solutions" also keeps them at the heart of other bleeding edge innovations in machine learning and artificial intelligence where the requirements for hardware to be embedded with specialized software stacks is only increasing.
Keysight reports under three operating segments namely Communications Solutions Group or CSG, Electronic Industrial Solutions Group or EISG and Ixia Solutions Group (a 2017 acquisition) or ISG. In a bid to remove ambiguity in the reporting processes, Keysight removed Services Solutions Group or SSG as a discrete reportable segment, from first-quarter fiscal 2019.
Under CSG segment (62.9% of the non-GAAP revenues in fourth-quarter fiscal 2019), the company offers radio frequency (RF) and microwave test instruments and allied software, and electronic design automation (EDA) software instruments, laser source products, optical amplifiers, and other software solutions.
EIS Group (25.3%) accounts for design verification devices; general purpose test and measurement equipments; end-to-end manufacturing systems, and material analysis devices.
ISG (11.8%) was formed after conclusion of Ixia buyout in Apr 18, 2017. Under the segment, Keysight offers test and visibility solutions, and software maintenance services.
Quiet, Steady Growth that Investors Favor
Keysight's fortunes and stock price certainly benefited from the tailwinds for the semiconductor industries that were able to shake off supply chain disruptions from the tariff battles.
Even before the hype over 5G, smart technology investors were tuning out the trade war and focusing on the major trends as I described in my 2018 report and video The Technology Super Cycle.
But you may be surprised to learn that the 70% advance of KEYS shares in 2019 -- to trade at 4.5X sales and 20X EPS -- is about to be challenged by revenue growth rates for the current fiscal year and next that are expected to slow to around 6.5%, with EPS growth down to just under 10%.
Yet this growth has been enough for Wall Street because its exceeding the plan that KEYS management laid out in 2015 where they expected 4-5% CAGR.
And management is also delivering on its promise to turn 17-18% operating margins into 20%-plus. They certainly keep giving positive surprises with the past 4 quarters averaging a +19% EPS beat.
With global leadership positions in their key markets, the company currently maintains 24% market share in a $16-17 billion addressable market.
That market will keep expanding as new technologies in 5G, datacenters, aerospace and autos evolve. Keysight's strategic "complete solutions" approach to serving the world's biggest tech, hardware, communications and transportation companies will keep them growing at a steady 4-5% right along with those markets -- especially as their customers seek more specialized and custom electronics solutions that KEYS has the platform and vision for.
Bear of the Day:
Analog Devicesis the $44 billion manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits, and other semiconductor devices found in cars, planes, factories and home appliances around the globe.
ADI moved to the cellar of the Zacks Rank after reporting a disappointing Q4 fiscal 2019 (ended October) and outlook that caused analysts to take down estimates for their FY20. Adjusted earnings of $1.19 per share missed the Zacks Consensus Estimate of $1.21, as the bottom line decreased 19.6% year over year and 12.5% sequentially.
Revenues of $1.44 billion in the quarter also missed the Zacks Consensus Estimate by 0.6%. And the top line declined 6% year over year and 5.5% from the fiscal third quarter.
This downside can be attributed to weak performance of the company in all end-markets served. Moreover, macroeconomic headwinds negatively impacted the topline.
Analysts responded to the company outlook by dropping full-year 2020 revenue projections to $5.66 billion, representing a 5.46% decline from FY19.
And the 2020 EPS consensus fell 10.3% to $4.78 from $5.33, for a projected 7.2% drop on the bottom line.
Revenues by End Markets
Industrial generated revenue of $744.1 million (accounting for 52% of total revenues), which was flat year over year.
Communications revenue came in at $260.1 million (18% of revenues), decreasing 19% year over year.
Automotive revenue fell to $226.1 million (16% of revenues), down 8% from the year-ago quarter.
Consumer generated revenue of $212.8 million (15% of revenues), reflecting a 7% decline on a year-over-year basis.
For the first quarter of fiscal 2020, Analog Devices expects revenues to be $1.30 billion (+/- $50 million), representing a 15.6% decline from the year ago quarter. Prior to this disappointing guidance, the Zacks Consensus Estimate for Q1 was pegged at $1.41 billion.
Non-GAAP earnings are expected to be $1 (+/- $0.07) per share, reflecting a 24% y-o-y drop. The consensus mark for the same was $1.16 per share.
The company anticipates non-GAAP operating margins to be approximately 36.7% (+/- 100 bps).
Clearly ADI is not going out of business despite being a leader of analog solutions in a digital world.
But until the estimates stop going down and start heading back up, it may be best to stand aside. The Zacks Rank will let you know.
3 Biotechs Likely to Maintain Solid Momentum in 2020
It has been a roller-coaster ride for the volatile biotech sector in 2019 after a disappointing run in 2018. The year started with a bang for this sector, with the announcement of the mega-merger of majors Bristol-Myers and Celgene. This significantly perked up the prices of quite a few stocks. However, these were partially offset by the overall weakness in the global market. Nevertheless, the sector has again picked up in the past couple of months, primarily owing to the recent spree of mergers and acquisitions, and positive pipeline readouts.
Overall, the Nasdaq Biotechnology Index has seen 23.2% growth in the past year.
Relatively, the biotech sector continued being riskier than the more stable large cap pharmaceuticals industry or the overall medical sector, as investors are mostly banking on companies with very few approved drugs in the portfolios.
A slowdown in mature products due to increasing competition and the rise of biosimilars forced most pharma/biotech behemoths to target lucrative buyouts in the biotech space to bolster their portfolios. In particular, biotechs (both small and big), which have a dominant position in the lesser competitive arena of rare diseases, gene therapy and NASH, and are well-equipped with path-breaking technologies, are significant acquisition targets.
A slew of licensing and buyout deals was struck by most companies eyeing smaller entities with impressive pipelines. Novartis recently announced that it will acquire The Medicines Company and add a potentially transformational investigational cholesterol-lowering therapy to its portfolio.
Roche is finally set to acquire Spark Therapeutics after a prolonged delay, while Japanese company Astellas Pharma is taking over gene therapy company Audentes Therapeutics, Inc and has already acquired privately-held, development-stage biotechnology company Xyphos Biosciences, Inc to boost its immuno-oncology pipeline.
Meanwhile, new drug approvals and label expansions of blockbuster drugs boosted investor sentiment. Key approvals include Vyondys 53, Oxbryta, Givlaari, Reblozyl, Trikafta, Inrebic, Vyleesi and Evenity, among others.
Choosing a biotech stock for investment can be tricky as smaller biotechs carry a risk with their product pipelines being several years away from commercialization. Nevertheless, here we zero in a few biotech companies, which have a market capitalization of more than $500 million.
With a favorable Zacks Rank #2 (Buy), these companies are likely to perform well in 2020. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Moreover, the Zacks Biomedical and Genetics industry is placed within the top 22% of the 252 Zacks-ranked industries.
Alexion Pharmaceuticals, Inc. is a biopharmaceutical company, focused on developing and commercializing life-transforming drugs for the treatment of patients with ultra-rare disorders. Its blockbuster drug Soliris — approved for paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS) — continues to perform well.
The drug’s label expansion for the generalized myasthenia gravis indication has boosted sales further. The company received a significant boost with the FDA approval of its long-acting C5 complement inhibitor Ultomiris for the treatment of adult patients with PNH.
The approval has strengthened Alexion's PNH franchise and reduced its dependence on Soliris for growth. The company is working on the label expansion of Ultomiris and taking steps to further diversify its pipeline, which should reap returns in the long run.
Shares of Alexion have gained 10.2% in the past year.
Amarin Corporation plc. focuses on developing and commercializing therapeutics to cost-effectively improve cardiovascular health. The company recently obtained FDA approval for the label expansion of its key drug Vascepa. The drug is now approved as an adjunct to maximally tolerated statin therapy to reduce the risk of myocardial infarction, stroke, coronary revascularization and unstable angina requiring hospitalization in adult patients with elevated triglyceride (TG) levels (≥150 mg/dL) and established cardiovascular disease or diabetes mellitus and two or more additional risk factors for cardiovascular disease.
The label expansion should significantly boost Vascepa sales as, per estimates, millions of high-risk patients in the United States could benefit from this one-of-a-kind prescription therapy. We expect the initial uptake of the drug to be strong and boost the top line, given the market potential.
Amarin’s shares have surged 54.5% in the past year.
Cellectisis a clinical-stage biopharmaceutical company, focused on developing immunotherapies based on gene-edited allogeneic CAR T-cells (UCART). The company is developing life-changing product candidates utilizing TALEN, its proprietary gene-editing technology, and PulseAgile, its pioneering electroporation system, to harness the power of the immune system to target and eradicate cancer cells. The company is striving hard to develop life-saving UCART product candidates to address unmet needs for multiple cancers, including acute myeloid leukemia (AML), B-cell acute lymphoblastic leukemia (B-ALL), multiple myeloma (MM), Hodgkin lymphoma (HL) and non-Hodgkin lymphoma (NHL).
Gene therapy is set to become one of the most vital spaces with high prospects within the volatile biotech sector.
Cellectis’ shares have gained 3.7% in a year.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
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