For Immediate Release
Chicago, IL – May 20, 2020 – Zacks Equity Research Shares of AbbVie (ABBV - Free Report) as the Bull of the Day, Interactive Corp asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Inphi Corporation (IPHI - Free Report) , Chegg (CHGG - Free Report) and ServiceNow (NOW - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
For obvious reasons, the HealthCare sector has been extremely resilient during the Covid-19 shutdown, having given up just a bit over 3% over the past three months versus losses of 10-30% in many other segments of the broad equity markets.
Although it seems like a distant memory now, HealthCare stocks also got a boost when former Vice President Joe Biden became the presumptive Democratic nominee for President and Senators Bernie Sanders (D, VT) and Elizabeth Warren (D, MA) dropped out of the race. Sanders and Warren had been promising sweeping changes to the US Healthcare systems that were likely to significantly impair profits in the industry. A Biden Presidency would instead likely be very close to the status quo.
After a recent acquisition, AbbVie has become a true powerhouse in the pharmaceutical industry with a stable of therapeutics spanning a wide variety of illnesses as well as a strong R&D pipeline. The recent closure of a $63 billion deal to purchase Allergan means AbbVie now owns the popular Botox brand – the world’s best-known cosmetic treatment.
(Botox also has non-cosmetic applications such as relief from migraine headaches, but it’s most commonly thought of as a facial wrinkle treatment.)
Many pharmaceutical companies are currently performing research into vaccines and therapeutics aimed at Covid-19. Other than donation of pharmaceutical supplies to health officials around the globe for use in clinical trials, AbbVie is not directly involved in Covid-19 vaccine research.
That’s not necessarily a bad thing. Because of the severity of the outbreak and the enormous effect it has had on public health and the economy, Covid-19 has been getting virtually all of the available media coverage, but a vaccine isn’t likely to be a huge moneymaker for the companies who are able to develop one.
That research is closer to a public service than an attempt to develop a traditional blockbuster drug. We’re all hoping for swift and immediate success and applaud those who are tirelessly performing the research, but it may not turn out to be an investable opportunity.
In the meantime, many other common conditions continue to threaten the health of tens of millions of people, even if they aren’t currenty getting much attention. Cancer, Alzheimer’s, Parkinson’s, Auto-immune disorders like Rheumatoid Arthritis and Psoriasis, Hepatitis C and on and on.
AbbVie has approved treatments or drugs in the pipeline for all of these afflictions and many more.
The company is particularly well-known for their development of oncology treatments. A look at the “Pipeline” segment on the company's website shows that they have a total of 36 cancer medications that are either available for sale or in clinical trials.
Many biotech and pharmaceutical companies have a small number of products (as few as one) that represent a hit or miss proposition for potential investors. They have no current earnings, burn cash and their futures product are either going to work or they’re not, but with no scenarios in between. Many of them never end up making any money.
AbbVie earns $11/share and pays investors a 5% dividend yield, while still providing the growth potential of new treatments in development.
In addition to developing life-changing treatments, AbbVie also happens to be a very well-managed company. For instance, the blockbuster drug Humira will lose US patent protection in three years, threatening the $20 billion in annual revenues it has produced for AbbVie if generics become available.
AbbVie has developed a replacement treatment called Skyrizi that offers significant benefits to Psoriasis patients that provides superior relief with less frequent injections. Management of the patent and replacement cycle is a hallmark of the most successful biotech companies.
You don’t want to own a “one-trick pony,” you want to see the deepest possible bench of current and future products.
Allergan and Botox
We’ve certainly all heard of Botox. Despite the benefits for some patients mentioned earlier, it’s most well known as a cosmetic treatment, used to reduce the appearance facial wrinkles. It also needs to be injected by a licensed physician and the effects are not permanent. Patients need to return every few months for follow up treatments to maintain the smooth facial appearance they desire.
That makes it a beautiful product from a sales perspective. It’s inaccurate to refer to Botox as “addictive” because it doesn’t the potential to produce any sort of physical or psychological dependence, but the patients who like the results they get from it tend to come back over and over for more.
The $63 billion price tag for Allergan raised a lot of eyebrows in the analyst community and added significant debt to the balance sheet. The deal also unfortunately closed this month – during a period of time when many of the facilities that perform cosmetic procedure aren’t even open.
Allergan did extensive data research on their customers and found it likely that they would be minimally affected by recent shutdowns. More than 50% of patients come from households with incomes over $150k, the vast majority work for large businesses rather than the small operations that have been disproportionately affected and 80% of those surveyed said their demand for cosmetic procedures wouldn't be meaningfully affected.
In fact, it seems possible that millions of people who have been mostly confined to home are going to contribute to sharply increased demand for cosmetic products once they are set loose.
With the 2020 Zacks Consensus Earnings Estimate rising from $9.38/share to $11.01/share in the past 30 days, AbbVie earns a Zacks Rank #1 (Strong Buy).
There’s a lot of uncertainty right now across a broad swath of industries, but a well-managed Pharmaceutical company with a great product mix and pipeline is especially well-suited to weather the storm.
Bear of the Day:
Sometimes the Zacks “Bear of the Day” is a company that’s on the wrong end of business trends, positioned poorly, managed badly or otherwise in some sort of obvious trouble.
This is not one of those times.
Interactive Corp, the media and internet company run by Barry Diller and Joey Levin is a great organization. They hold a diverse set of valuable assets and are the type of conglomerate that can usually be expected to perform well even during difficult economic times.
Furthermore, because their businesses operate primarily online rather than relying on in-person transactions, theoretically, they shouldn’t see nearly the negative impact on business that’s currently being experienced by more traditionally structured companies.
So what’s the issue that lands IAC on the “Bear” side of the page?
Simply a share price that has come too far, too fast - as well as full-year estimates have been falling.
As the markets began to recognize that the impact of Covid-19 was going to be enormous, almost all stocks sold off sharply. Only a handful of truly defensive stocks were spared the carnage. The S&P 500 fell by more than 33% between February 20th and March 23rd.
As Covid-19 cases appear to be leveling off, pharmaceutical companies race to develop vaccines and therapeutics and states and municipalities consider how they can begin reopening, stocks have mostly recovered and the S&P currently sits at 2923 – still off more than 10% in 2020 – but also well above those March lows.
Shares of Interactive Corp got hit pretty hard as well, bottoming at a closing low of $130.75/share on March 20th. Like the broad markets, they’ve recovered dramatically, closing Tuesday at $259.13 – a nearly 100% gain from those lows just two months prior and nearly unchanged on the year.
That’s a truly remarkable recovery, but it also means IAC has become a very expensive asset, trading at a 12 month forward P/E ratio of 166X.
Seven downward revisions in the past 60 days have taken the Zacks Consensus Estimate for full-year earnings from a net profit of $4.07/share to a loss of ($1.20).
IAC’s net profits in 2019 were $4.53/share.
To be fair, analysts do expect the 2021 net to rebound back to a profit of $5.77/share, though that’s a long time for investors to wait in an environment as uncertain as we’re currently experiencing. Plus, even that estimate has come down from $7.89/share over that same 60-day period.
Those downward revisions earn IAC a Zacks Rank #5 (Strong Sell).
Here’s the bottom line:
A lot of stocks got severely – and unfairly - punished during those dark days in March when it seemed like no one was ever going to want to own equity shares again. Unprecedented fiscal and monetary stimuli and a little bit more perspective on just how bad the outbreak is actually likely to be have breathed new life back into most of those stocks.
Additionally, IAC is a juggernaut. Personally, I wouldn’t bet against Levin and Diller and their proven strategy of creating and/or purchasing the platforms that customers demand. So I'd be careful with any potential short position (though the deterioration in the financials did land IAC on the algorithmic-based Zacks Short List this week.)
This is also probably not the right environment to own a high-dollar stock that’s basically priced for perfection during a time when we don’t exactly know what “perfection” might be.
3 Soaring Tech Stocks to Buy Now for Coronavirus and Beyond
All three major U.S. indexes surged to start the week on the back of positive coronavirus vaccine news, which came as economies around the world slowly begin to reopen from their coronavirus-induced lockdowns. Plus, Fed Chairman Jay Powell’s 60 Minutes interview on Sunday highlighted why investors are likely set to remain in ‘don’t fight the Fed’ mode.
Wall Street has been looking ahead to the coronavirus recovery for the better part of two months. And investors haven’t seemed deterred by some rough quarterly earnings results, which are expected to get far worse in Q2—when we will hopefully see the full impact of the coronavirus shutdown.
Despite the uncertainty, tech stocks from Facebook to Zoom have proved resilient. And some stocks within the broader tech industry have hit new highs on the back of impressive growth during the coronavirus pandemic. Let’s dive into three of these growth-focused tech stocks that investors might want to buy right now…
Inphi makes semiconductor components and optical subsystems and is a leader in data movement interconnects between and inside data centers. Inphi’s Q1 results wowed Wall Street on May 7, with revenue up 70%. Higher demand for cloud and telecom products helped drive sales, as did the inclusion of eSilicon, which it officially purchased in January.
Inphi’s record top-line growth came on top of the year-ago period’s 37% expansion. The firm was already benefiting from a data center boom, the transition to 5G, and more. And CEO Ford Tamer expects the “significant paradigm shifts” caused by the coronavirus, from remote work to e-commerce, might encourage “further acceleration of bandwidth upgrades.” IPHI shares surged after its release, with the stock now up over 50% in 2020 and 235% in the past two years.
IPHI is currently trading right near new highs, which is no easy task amid the uncertainty. And its strong earnings revision activity helps it earn a Zacks Rank #2 (Buy) at the moment. Our Zacks estimates call for Inphi’s adjusted FY20 earnings to surge 66%, on 66% higher revenue.
The compnay, which helps “move big data fast, around the globe" is projected to follow up this growth with double-digit sales and earnings growth in FY21. Inphi is also part of a highly-ranked Zacks industry and sports an “A” grade for Growth and a “B” for Momentum in our Style Scores system.
Chegg began as an online textbook hub geared toward college students. This remains a solid niche within an Amazon-dominated e-commerce market. Today, Chegg refers to itself as a “direct-to student learning platform,” having expanded its portfolio to include online tutors, test prep, and more.
Digital learning was already growing in popularity prior to the pandemic. "Our belief is that, in every industry, a crisis often accelerates the inevitable and that is what we see happening in higher education,” CEO Dan Rosensweig said in prepared Q1 remarks.
Chegg’s Q1 sales jumped 35%, with its services revenue up 33%. CHGG projects that its Q2 subscriber growth will “be greater than 45%.” Looking ahead, CHGG’s full-year sales are expected to jump roughly 35% to hit $552.65 million, which would top FY19’s 28% expansion. Meanwhile, Chegg’s adjusted fiscal year EPS figures are projected to jump 33% and 22%, respectively in the next two years.
Shares of Chegg have soared over 120% in the last two months and over 50% since its Q1 release on May 4. This growth is also part of a longer positive trend that has seen CHGG stock skyrocket over 675% in the last five years. And Chegg’s bottom-line revision strength helps it hold a Zacks Rank #1 (Strong Buy), within an industry that sits in the top 11% of our more than 250 Zacks industries.
Some investors might want to wait for a pullback, but Wall Street could continue to scoop up stocks that can expand during these times. And longer-term investors might want to view Chegg as a bet on the future of education becoming more digitally focused, especially as costs and student debt grow out of control.
ServiceNow provides cloud-based services and solutions to its over 6,200 enterprise customers. The digital workflow firm was added to the S&P 500 index in November 2019 and has expanded its partnership with Microsoft to help it sell to highly regulated industries and house its full SaaS offerings on Microsoft’s popular Azure cloud. Now topped our Q1 earnings and sales estimates at the end of April, with subscription revenue up 34%.
The firm also closed the quarter with 933 customers with over $1 million in annual contract value, which marked 30% expansion from the year-ago period. “This pandemic has allowed us to engage our customers in new ways, enabling them to focus on their most critical workflows,” ServiceNow CEO Bill McDermott said in prepared remarks. “Businesses are splitting apart old value chains and reassembling them in end-to-end, mobile-first experiences on the Now Platform.”
ServiceNow shares are up nearly 40% in 2020 to rest near new highs. This run is part of a larger 280% surge over the last three years. Peeking ahead, our Zacks estimates call for NOW’s revenue to climb over 25% in both fiscal 2020 and 2021 to reach $5.44 billion.
Meanwhile, NOW’s adjusted fiscal year earnings are projected to jump 28% and 26.5%, respectively. ServiceNow currently holds a Zacks Rank #2 (Buy), alongside an “A” grade for Growth and a “B” for Momentum. And NOW executives remain confident about the firm’s “path to $10 billion in revenue and beyond.”
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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