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LYFT, SIX, VIR, RDHL and KMDA as Zacks Bull and Bear of the Day

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For Immediate Release        

Chicago, IL – March 13, 2020 – Zacks Equity Research highlights Lyft (LYFT - Free Report) as the Bull of the Day and Six Flags (SIX - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Vir Biotechnology (VIR - Free Report) , RedHill Biopharma (RDHL - Free Report) and Kamada (KMDA - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:                                              

Lyft has lost 55% since its Q4 earnings on February 11th. The initial drop-off was an over-exaggeration by the markets, and the coronavirus continues to pull these shares down to their lowest levels since the stock went public last year. I think LYFT has been unjustly sold-off well below its intrinsic value. Analysts remain optimistic about Lyft in the face of the coronavirus panic, pushing this stock up to a Zacks Rank #1 (Strong Buy).

Coronavirus Impact 

The coronavirus has caused indiscriminate selling across all industries, with unprofitable holdings getting hit the hardest. This panic-driven market has hammered Lyft and its profitless operations. Investors are dumping LYFT under the notion that the populous will stop using ridesharing services in the wake of this virus.

Ridesharing volume has been up in the beginning stages of this virus’s spread, and both Uber & Lyft have reiterated their 2020 guidance. Individuals are using Lyft and Uber increasingly to avoid public transportation, where the spread of this new pathogen seems more likely.

This temporary boost in ridesharing will likely fade if the virus’s transmission proliferates in the US, which many specialists are anticipating. People have already been increasingly working from home, and this trend will likely continue. I don’t expect that ridesharing will diminish all together as it is perceived safer than public transit with this virus on the loose. I suspect that temporary short-term headwinds in this segment will only remain until the coronavirus is under control.

The amount that LYFT shares have been punished is far from justified, and I think this stock is ripening as an excellent buy for your long-term portfolio.

Recent Earnings

Lyft reported excellent financials in its Q4 earnings, not only breaking through the $1 billion quarterly revenue mark but destroying EPS estimates by 28%, narrowing its losses. The company beat on every metric and management raised its guidance for 2020. This seemingly good news wasn’t good enough for investors, and LYFT fell almost 10% following these strong results.

For these unprofitable ridesharing companies, forward guidance is much more important than past quarter results. Uber and Lyft have been pushing growth no matter what the cost since their inception, now investors want to see this growth turn a profit. These firms can’t continuously burn cash as they have in the past. It’s time for these ridesharing giants to show their savvy management ability and demonstrate profitable growth.

Lyft’s earnings disappointed investors because of the high they were riding following Uber’s profitable growth story it depicted in its Q4 earnings call. Investors wanted more from Lyft’s earning, specifically its timeline to profitability, which now sits behind Uber’s.

Conservatism is what Lyft does best with a big top and bottom-line beat on its last 3 earnings reports. I don’t think that the shares’ massive drop off is warranted, and this could be a buying opportunity. I see Lyft and Uber hitting profitability at similar times based on how these firms have progressed and Uber’s lack of conservatism.

Ridesharing Duopoly

Uber and Lyft are in a competitive duopoly where predatory pricing is used to secure customers. I can attest to this here in Chicago where most people I know check both Uber and Lyft for the best pricing before deciding on which service to use. This is causing these firms to undercut each other into losses.

Uber has a much more diversified portfolio of services, which you would think would give them a competitive edge over Lyft, but I am starting to think it’s going to be the company’s downfall. Uber’s other bets, such as Uber Eats and Uber Freight, are both competing in increasingly competitive spaces. These segments are driving down margins as they lose an increasing amount every quarter.

Uber is still liquid enough to have no concern about bankruptcy quite yet, but its lack of a profitability timeline worries me. Cash is being hemorrhaged from Uber at an increasing rate, and I don’t think they have as many years as they believe in figuring out how they are going to turn a profit.

Lyft’s (nearly) pure-play ridesharing strategy is looking like a competitive edge as its losses continue to narrow every quarter.

Take Away

LYFT is a falling knife right now, and I would not suggest putting any position on the company quite yet. The stock has a high beta, so its risk in these volatile times is high. This is an investment that has fallen to a substantial discount of what it had once traded at, and I would consider buying it once the markets turn. 

Bear of the Day:

 

Six Flags has lost over 65% of its value in the past month of trading, and it seems like there is no end to its shareholder devastation. The coronavirus has infected the theme parks’ public perception and sent these already weakening shares into a downward free fall. Yesterday alone, the stock plummeted 22%, with the past 5-days of trading pulling this stock down north of 33%. Analysts are increasingly pessimistic about the long-term potential of these shares and have pushed this stock into a Zacks Rank #5 (Strong Sell).

Systemic Issues

SIX was downgraded across the board following its most recent earnings report on February 20th. The theme park conglomerate missed big on EPS estimates, lowered its 2020 EBITDA guidance, and cut its dividend by 70%. These are all massive red flags for any corporation. This was even just before the coronavirus global transmission explosion. The firm is facing stalled to declining organic growth as well as sizable operating cost headwinds associated with higher wages and park upgrades.

A dividend cut is another massive red flag for any corporation, as it illustrates that the firm’s quarterly cash-flows are drying up. The firm also has an unsustainable amount of debt of the books with an outrageous debt-to-equity of 3.58, which is tremendously concerning considering the falling cash-flows.

All these systemic issues were present before the coronavirus took center stage in the market. This new pandemic may have put the nails in the coffin for Six Flags, potentially sending it into a second bankruptcy.

Bankruptcy Déjà Vu

Six Flags was forced to file for chapter 11 bankruptcy in 2009 because of its excessive leverage going into the financial crisis. The parks weren’t able to sustain demand, and cash-flows were unable to match debt obligations. The company was handed over to bondholders who recapitalized the company and brought them out of the ashes.

Today the theme park giant has amassed almost as much debt as its pre-bankruptcy levels. Six Flags is operating quarter to quarter, just hoping that they will have enough income to cover the massive interest expense, which made up 63% of last year’s interest expense. The coronavirus scare could be the catalyst of a second bankruptcy, and this time it could be a complete liquidation of assets (chapter 7 bankruptcy).

Coronavirus Impact

The coronavirus has unquestionably hampered admissions at Six Flag’s parks with people wanting to avoid large crowds and seedy environments. The further this disease spreads, the lower Six Flag’s attendance levels will be until they are inevitably forced to close some of their parks.

The coronavirus could be the catalyst that sends this over-leveraged company right back into bankruptcy.

Take Away

If you have not already dumped your shares of this stock, I suggest you do so. This is a toxic asset that may find its share price falling to zero if the coronavirus is not controlled efficiently. A fiscal stimulus plan to subsidize losses from tourist attractions like Six Flags could be the companies saving grace, but based on current information available, I would not touch these shares.

Additional content:

3 Small Biotechs Provide Coronavirus Drug Development Updates

With World Health Organization (WHO) declaring COVID-19 a pandemic, faster development of medicines/vaccines is the need of the hour. We note that COVID-19 has already infected more than 118,000 people and the death toll has crossed 4,200, globally. In the United States, the virus has infected more than 1,000 people and claimed 28 lives.

To prevent and treat COVID-19, biotech companies have accelerated their efforts to develop vaccines and treatments. Three small biotechs came up with updates on their coronavirus efforts on Wednesday.

Vir Biotechnology

Vir Biotechnology announced a joint research project with the National Institutes of Health and the National Institute of Allergy and Infectious Diseases (NIAID), Vaccine Research Center (VRC). The entities will work jointly to identify combinations of antibodies against coronaviruses, including SARS-CoV-2 (the virus that causes COVID-19 disease), SARS and MERS. Vir Biotechnology’s stock was up 13% on Wednesday in response to the news. Earlier this month, Vir Biotechnology announced a collaboration with Alnylam Pharmaceuticals to develop RNAi therapeutics targeting SARS-CoV-2. Earlier, Vir Biotechnology had claimed that it has identified two antibodies that bind to the spike protein of SARS-CoV-2

RedHill Biopharma

RedHill said it is pursuing an “exploratory program” to evaluate its proprietary new chemical entities (NCE), opaganib and RHB-107, individually and in combination with hydroxychloroquine (a DMARD) and other compounds for treating COVID-19. The decision was based on pre-clinical data and literature indicating potential anti-viral activity of the NCEs.

Kamada

Kamada announced plans to use its proven hyper-immunoglobulin (IgG) platform technology to develop an Anti-Corona (COVID-19) immunoglobulin as a potential therapy for severely ill coronavirus patients.

While RedHill carries a Zacks Rank #2 (Buy), Vir Biotechnology and Kamada are #3 Ranked stocks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biotechs Race to Make Treatments/Vaccines

Several other small biotechs are also working to make new antibodies, drugs, and vaccines to prevent and treat COVID-19.

Last week, President Donald Trump asked pharmaceutical companies working on making vaccines or treatments for coronavirus to accelerate development. However, none of these vaccines/treatments are expected to be available before a year’s time.

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