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Diamondback Energy, Ryman Hospitality Properties, Eli Lilly, Biogen and Roche highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·12 min read
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For Immediate Release

Chicago, IL – January 13, 2021 – Zacks Equity Research Shares of Diamondback Energy, Inc. FANG as the Bull of the Day, Ryman Hospitality Properties, Inc. RHP as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Eli Lilly and Company LLY, Biogen Inc. BIIB and Roche Holding AG RHHBY.

Here is a synopsis of all five stocks:

Bull of the Day:

Diamondback Energy is ready for the economy to re-open after COVID. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by 59% in 2021.

Diamondback is an independent oil and natural gas company headquartered in Midland, Texas. It explores for oil, onshore, and natural gas in the Permian Basin in West Texas.

Diamondback to Buy QEP Resources

With the coronavirus pandemic hitting the energy industry hard, it has meant that some companies have been able to make timely acquisitions.

On Dec 21, Diamondback announced it would acquire QEP in an all-stock transaction valued at about $2.2 billion.

It would acquire QEP's debt of $1.6 billion as of Sep 30, 2020 in addition to its other assets.

The deal will add material Tier-1 Midland Basin inventory and will be accretive in 2021 on cash flow per share, free cash flow per share and leverage.

QEP's Williston assets will be considered non-core and will be used to harvest cash flow or it will be divested, with potential proceeds being used towards debt reduction.

Earnings Estimates on the Rise

First first time in a long time, Diamondback Energy is a Zacks Rank #1 (Strong Buy) stock. How did Diamondback get the #1 Rank back?

The analysts have started raising earnings estimates again.

5 were raised in the last 30 days for 2021 but 1 was already raised in the last week, while another analyst also lowered in the last week.

But this has pushed the 2021 Zacks Consensus Estimate up to $4.85 from $4.20.

Diamondback is expected to make $3.04 in 2020 so that's earnings growth of 59%.

While some can be attributed to the recent acquisitions, not all of the gains are due to that.

It's still well below 2019, or pre-pandemic, when Diamondback made $6.93. But it looks like 2020 will be the bottom in earnings in the energy sector.

Shares Soar on Recovery Hopes

Energy was one of the hardest hit sectors by the pandemic. And it was one of the few where the stocks didn't immediately bounce back in a "V" recovery off the March lows.

Diamondback shares are still down 31% over the last year.

But, over the past 3 months, the shares have soared 104% on recovery hopes for the global economy.

Yet, Diamondback is still cheap with a forward P/E of 12.

Because of the increase in earnings, it also has a PEG ratio of just 0.5. A PEG under 1.0 usually indicates a company has both value and growth.

Do You Still Get a Dividend?

Diamondback has one of the strongest balance sheets in the Permian.

As of Sep 30, 2020, it had net cash of $68 million with no borrowings on its credit facility. Its stand-alone liquidity was $2.068 billion.

Additionally, it rewards shareholders by paying a dividend. Yes, even during the pandemic. It is currently yielding 2.6%.

Diamondback will report fourth quarter 2020 results on Feb 23, 2021.

For investors looking to dive into the energy trade, Diamondback is certainly one to keep on your short list.

Bear of the Day:

Ryman Hospitality Properties is hoping for a big turnaround in travel in 2021. This Zacks Rank #5 (Strong Sell) is still expected to see negative earnings for the year, however.

Ryman Hospitality Properties is a lodging and hospitality REIT that specializes in upscale convention center resorts and country music entertainment experiences, mostly in Nashville.

It's core holdings include 5 of the top 10 largest non-gaming convention center hotels in the United States which operate under the Gaylord Hotels brand and are managed by Marriott International.

Those hotels include the Gaylord Opryland Resort & Convention Center, Gaylord Palms Resort & Convention Center, Gaylord Texan Resort & Convention Center and the Gaylord National Resort & Convention Center.

It also is the majority owner and managing member of the joint venture that owns Gaylord Rockies Resort & Convention Center.

It has a total of 10,110 rooms and more than 2.7 million square feet of total indoor and outdoor meeting space.

The entertainment segment includes the Grand Ole Opry, Ryman Auditorium, WSM 650 AM and Ole Red and Circle, a country lifestyle media network it owns in a joint venture with Gray Television.

Extension of the Credit Facility Waiver

On Dec 22, 2020, Ryman announced that it had completed a second amendment to the credit agreement obtained from a consortium of banks led by Wells Fargo Bank, regarding its $700 million revolving credit facility, $300 million Term Loan A facility and its Term Loan B facility, of which about $382.5 million is outstanding.

The second amendment provides for an extended temporary waiver of all financial covenants in the credit facility through April 1, 2022 (unless terminated early by the Company at its option) confirms the continued availability of the undrawn amounts under the revolving credit facility.

"The successful extension of our covenant waiver period, along with the additional financial and operational flexibility provided by the second amendment, will assist us in our efforts to recover from the COVID-19 pandemic and to quickly begin serving our group customers once the COVID-19 vaccine becomes widely available and groups are once again able to travel," said Colin Reed, Chairman and Chief Executive Officer of the Company.

Third Quarter Continued to See Improvement

On Nov 3, 2020, Ryman reported their third quarter results which continued to show improvement as travel increased.

Ryman saw year-to-date through Sep 30, 2020 rebooked room nights of approximately 1.01 million room nights, or over 53% of total room nights canceled as a result of COVID-19.

Their entertainment segment and Ole Red venues also saw improvement in the quarter.

Average monthly cash burn improved in the third quarter, falling to $22.7 million from $31.6 million in the second quarter.

The company said it had about 30 months of liquidity including Gaylord Palms expansion.

2021 Estimates Cut Again

Ryman will report fourth quarter results on Feb 26.

But even with the possibility of more improvement in Q4, the winter COVID-19 outbreak has been hitting travel again.

One analyst has cut his estimate for 2021 in just the last week, pushing the Zacks Consensus down to a loss of $0.22 from a loss of $0.14.

Ryman is expected to lose $3.13 in 2020 so a significant earnings recovery was expected in 2021 as the economy reopened thanks to the roll-out of the vaccine, but estimates are now going the wrong way.

Shares Soar on Recovery Hopes

The hotel REIT stocks, including Ryman, were struggling until November 2020 when Pfizer announced it had a vaccine that worked.

Ryman shares have soared 62% over the last 3 months on the belief that the worst was over for the travel stocks.

But is it?

Ryman is still burning through cash and there is no dividend.

The recovery may not be as quick as everyone believes in travel.

Until there is more clarity, investors might want to stay on the sidelines.

Additional content:

Lilly's Alzheimer's Drug Shows Promise in Mid-Stage Trial

Eli Lilly announced promising data from a phase II study — TRAILBLAZER-ALZ — evaluating its antibody candidate, donanemab, in patients with early symptomatic Alzheimer's disease ("AD"). Data showed that treatment with the candidate slowed disease progression compared to placebo.

Donanemab significantly slowed down decline in a composite measure of cognition and daily function in patients over a treatment period of 76 weeks. Detailed data from the study will be presented at a future medical congress and submitted for publication in a peer-reviewed clinical journal.

Lilly's shares climbed 11.7% on Jan 11, following encouraging data readout from the AD study as currently no treatments that slow cognitive decline in Alzheimer's disease patients have been approved by the FDA. The company's shares have gained 33.4% in the past year compared with the industry's increase of 4%.

The study met its primary endpoint of change in the Integrated Alzheimer's Disease Rating Scale (iADRS) from baseline. Treatment with donanemab slowed decline in the iADRS score by 32% relative to placebo. Please note that iADRS is a clinical composite tool, which combines the cognitive measure ADAS-Cog13 and functional measure ADCS-iADL, two commonly used measures in Alzheimer's disease.

The study also achieved consistent improvements in all prespecified secondary endpoints measuring cognition and function. However, nominal statistical significance was not reached for every secondary endpoint.

Donanemab targets a modified form of beta amyloid called N3pG and treatment with the candidate led to high levels of amyloid plaque clearance rapidly. The candidate achieved a negative amyloid scan or reduction in amyloid plaques to levels seen in scans of healthy individuals in some AD patients. Amyloid plaques are believed to be one of the factors that lead to cognitive decline in AD patients.

The company plans to discuss the TRAILBLAZER-ALZ study data with global regulators and assess the next step of development for donanemab. It is also evaluating the candidate in another ongoing pivotal study — TRAILBLAZER-ALZ 2.

Lilly is one of the old players in the field of AD drug development. The company is also developing solanezumab for preclinical AD patients in a late-stage study. However, the candidate failed to meet the primary endpoint of a phase III study in March 2020, evaluating it in patients with dominantly inherited AD.

The AD market has attracted a lot of attention from several biggies in the pharma/biotech space, given its market potential. One of the leading contenders in the AD segment is Biogen's controversial investigational treatment for Alzheimer's disease — aducanumab.

The company has completed several late-studies on the candidate. However, an FDA advisory committee voted against approving aducanumab last year in November. An FDA decision is expected in March 2021.

Biogen has another AD candidate, BAN2401, which is being evaluated in a phase III study for preclinical (asymptomatic) AD. Swiss pharma giant Roche has two late-stage pipeline candidates, namely crenezumab and gantenerumab. Both are currently being evaluated for Alzheimer's.

However, AD is one of the toughest diseases to be treated. While there is no cure for the disease yet, there are a few drugs approved by the FDA that can help control the symptoms of AD. Successful development of therapies for treating Alzheimer's disease is challenging due to the risk of adverse events. Several other companies have terminated their AD programs following years of failure.

In a separate press release, Lilly announced that the FDA has accepted its supplemental New Drug Application seeking label expansion for its type II diabetes drug, Jardiance. The sBLA is seeking approval of the drug as a treatment to reduce the risk of cardiovascular death and hospitalization for heart failure as well as to slow kidney function decline in adults with chronic heart failure with reduced ejection fraction.

The label expansion will include patients with and without type II diabetes. The sBLA was based on data from the phase III EMPEROR-Reduced study, which showed that Jardiance is associated with a significant 25% relative risk reduction in time to cardiovascular death or hospitalization due to heart failure.

Zacks Rank

Lilly currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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