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GW Pharmaceuticals, NetApp, KB Home, PulteGroup, M/I Homes, Lennar and Toll Brothers highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – August 15, 2019 – Zacks Equity Research GW Pharmaceuticals GWPH as the Bull of the Day, NetApp NTAP as the Bear of the Day. In addition, Zacks Equity Research provides analysis on KB Home KBH, PulteGroup PHM, M/I Homes, Inc. MHO, Lennar Corp. LEN and Toll Brothers Inc. TOL.

Here is a synopsis of all seven stocks:

Bull of the Day:

I last wrote of GW Pharmaceuticals as the Bull of the Day in late July before their Q2 earnings report last week. Now that those numbers have "wowed the crowd," it's definitely time to update one of the most exciting growth stories in medicine right now.

Also since that report, which describes the company's 20-year history of cannabis-derived medicine R&D, I bought the stock for my TAZR Trader portfolio. Here was the trade alert I gave my members on August 1...

Portfolio is buying GW Pharmaceuticals between $155 and $160 with an X% allocation. ***See both my Fundamental and Technical notes below first.***

Fundamental View: I told you I had this one on my radar and I think now is the time to start a position ahead of earnings next Tuesday. And on Monday, the Piper Jaffray analyst Danielle Brill raised her Q2 sales projections for Epidiolex from $43M to $50M based on their scripts tracking data. Average analyst price targets are now over $200 based on the blockbuster sales growth potential ($1-2 billion) of the only FDA-approved cannabis-derived drug maker, who also happens to have a 20-year track record of innovation and a burgeoning pipeline.

Technical View: In April, the stock filled the Feb earnings gap in the low $150s and that's when we bought in HCare Innovators and rode to new highs on the May earnings rally above $185. The stock has risk now to test the low $150s again so you can be patient here and let it come to you. And we've got the 200-day down at $153ish, just above the April low of $151. I think the stock drifting lower now is just sifting out weaker hands (maybe in sympathy with a crushing of the marijuana stocks) and setting up for a potential sling-shot move on earnings once the growth trajectory is confirmed.

Well, on Aug 6, GW Pharma delivered a bigger sales beat for Epidiolex, the first FDA-approved cannabis-derived drug, than even the most optimistic analysts were projecting.

GWPH crushed the sales number for the treatment of two rare forms of pediatric epilepsy with $68 million vs. consensus of $45M. 

And the stock was actually up over 10% in after hours that night to nearly $170.

With a morning dip under $160 on Aug 7, I told my people it was another prime opportunity to add shares. The next day, the stock went to $175.

Here was the update I gave that night...

GW Pharma Wows 'Em Again with Epidiolex Launch Momentum

Analysts are busy raising estimates and price targets (PT) after this big sales beat. Here's a sample...

Morgan Stanley: Analyst David Lebowitz raised his 2019 Epidiolex sales estimate to $291M from $165M after GW Pharmaceuticals report sales that "easily exceeded consensus" in the drug's second full quarter on the U.S. market. The analyst, who noted that significant adoption from adult patients continues and management continues to anticipate dose to increase as physicians become more comfortable administering, raised his price target on GW Pharmaceuticals shares to $238 and keeps an Overweight rating on the stock.

Oppenheimer: Analyst Esther Rajavelu raised her price target for GW Pharmaceuticals to $239 from $234 after the company reported Epidiolex revenues higher than estimates, representing 104% sequential growth, driven by new patients, favorable reimbursement, and increasing use among adult epilepsy patient in the quarter. The analyst reiterates an Outperform rating on the shares.

Stifel Nicolaus analysts raised their price target in a nominal gesture to $228 from $227. The team led by Paul Matteis was not that surprised by the sales beat given their extensive physician survey work that I shared with you last week. Here is a summary of their call...

They reiterate their Buy rating on impressive 2Q19 Epidiolex sales of $68MM, which were ~50% better than consensus of $44MM. Looking ahead they raise their 3Q/4Q Epidiolex estimates, and remain optimistic that the launch can continue to beat expectations into the latter half of the year as they believe management's guidance is conservative. 

Bottom line: With a $5 billion market cap and sales quickly accelerating to over $500 million in the next year -- representing triple-digit growth -- GW Pharma and Epidiolex are on their way to blockbuster status. I don't think the stock trades for under $5 billion for very long so look for your entries during this selloff.

Disclosure: I own GWPH shares for the Zacks TAZR Trader.

Bear of the Day:

NetApp is an $11 billion provider of a full range of hybrid cloud data services that simplify management of applications and data across cloud and on-premises environments.

On August 2nd NetApp provided something investors did not like: soft preliminary results for Q1 FY 2020 as well weaker guidance for the year.

In the conference call, management noted that broader weakness in macroeconomic environment compelled the company’s enterprise customers to trim capital expenditure. This negatively impacted NetApp’s storage business.

Markedly, adoption of hybrid multi-cloud offerings, Cloud Data Services and Private Cloud increased year over year in the first quarter, but couldn’t mitigate the decline in storage business.

For Q1, NetApp anticipates revenues in the range of $1.22 billion to $1.23 billion, indicating a year-over-year decline of approximately 17%. Earlier, management had anticipated net revenues for first quarter to be in the range of $1.315-$1.465 billion. The preliminary results reflect decline of approximately 11.9% from the mid-point.

Following the bleak preliminary first-quarter results and trimmed outlook for fiscal 2020, NetApp shares were down 20%.

Here's what I told my TAZR Trader members that night, as we own a few software analytics players like Alteryx (AYX) that thrive in the cloud/big-data ecosystems...

Gunfight at the Big-Data Corral

Posted on 8/2/19

My title theme tonight concerns the big earnings blow-ups in Arista Networks ANET, down 10% on heavy volume, and Network Appliance NTAP down 20% on massive volume. 

These are both hardware-focused companies providing cloud infrastructure and services.

So what happened to Arista that could read-through to the cloud/data-center/analytics space?

William Blair analysts summed up the ANET bomb by framing Arista’s Q2 EPS beat as buoyed by the announcement that the specific "cloud titan" that hit the pause button on spending in the second quarter (which they believe to be Microsoft) will be resuming ordering in the second half of 2019.

While this resumption suggests that the pullback in cloud spending was a blip, not a trend, and Arista is abound in positive developments (e.g., continued strength in the enterprise vertical, momentum in new logo adds, excitement around the pending entry into the Campus market, sustained non-GAAP operating margins in the mid to high-30% range), management continues to strike a more conservative tone around cloud titan spending.

Exactly my point of why the cloud/data-center build-out could be as cyclical as Semis.

And this is why I focus on the software/big-data analytics plays now, like Alteryx.

So what happened to NetApp that took their shares down 20% out of nowhere?

KeyBanc analysts had one of the best notes here...

Major Reset on Demand Outlook

NetApp issued preliminary F1Q20 guidance that was materially below consensus, missing revenue by $165M and outlining a major retreat in storage demand, especially in the U.S. On the call, NetApp suggested that the installed base is still working through capacity adds from CY18, as well as internal sales executions issues.

The KeyBanc team, shaking their heads, are now projecting product growth at -13% y/y in FY20 and +4% in FY21.

This outlook from a $15 billion player in hybrid cloud data services that serve APM (application performance management) across cloud and on-premises environments is NOT GOOD for many also-ran data-focused players.

Thankfully, AYX is one of the emerging top-dog players, even though most companies and investors don't know their name or their expertise yet.

All that mystery bodes well for us.

(end of Aug 2 TAZR commentary excerpt)

NTAP became a Zacks #5 Rank (Strong Sell) a few days later, as estimates plummeted. For the full-year FY 2020 (Q1 ended July), EPS projections dropped over 20% from $4.97 to $3.92. And next year's EPS was also taken down 20% from $5.61 to $4.44.  

On Aug 14, NTAP delivered official results for the quarter with $0.65 vs the new consensus of $0.57 (which fell from $0.83).

Also last night, cloud monster Cisco CSCO delivered mixed results and guidance with mentions of macro growth concerns and trouble bidding on contracts in China. Go figure.

So by the time you are reading this on Thursday morning, the Tech sector could be under even more pressure.

Bottom line for NTAP: Great company but until these estimates stop going down and start heading back up, stay away from the shares. The Zacks Rank will let you know.

Disclosure: I own AYX shares for the Zacks TAZR Trader portfolio.

Additional content:

Are the Homebuilder Stocks the Deal of the Year?

Welcome to Episode #189 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

This week she’s going solo to discuss the developments in the US housing market and the homebuilder stocks in 2019.

Goldilocks Conditions for the Homebuilders?

With the 10-year treasury falling to levels last seen in 2016, that means that mortgage rates have also fallen under 4% again to multi-year lows.

Additionally, the job market remains strong with unemployment under 4%. The consumer feels confident and that usually means that they will look to make big purchases, like homes.

Could low mortgage rates and a strong job market be the perfect combination for a boom for the homebuilders?

And if so, where should investors be looking?

The Homebuilder Stocks are Cheap

Despite the industry seeing a 30% gain on the year, thanks to the stocks being hit hard in the December 2018, they are still cheap.

Of the five homebuilders highlighted on the podcast, all of them are trading under 10x earnings. Other than retail and energy, it’s hard to find another industry as cheap.

But Are They Buys?

1.       KB Home trades with a forward P/E of just 9.8 yet earnings are expected to rise 56% this year. In the second quarter, a weak coastal California market was countered by stronger orders in Denver and Houston. Will lower mortgage rates help to turn California around?

2.       PulteGroup trades with a forward P/E of just 9.2. Orders were up 7% in the second quarter as first-time home buyer orders surged 30%. However, active-adult concepts declined 7% as those buyers were more cautious coming out of the housing and stock market weakness of 2018.

3.       M/I Homes, Inc. is even cheaper, with a forward P/E of just 8.3. It also doesn’t have California exposure but is still fighting the industry-wide issue of higher incentives and discounting. However, in the second quarter, the company said those incentives have not gotten worse.

4.       Lennar Corp. saw elevated selling incentives and higher land and labor costs which ate into margins. The higher end coastal communities in California were sluggish. It too is cheap with a forward P/E of 9.3 but earnings are expected to fall 16% in fiscal 2019.

5.       Toll Brothers Inc. is about to report its third quarter results on Aug 20. In the second quarter, it saw higher selling incentives and also had west coast issues. Orders dropped 45% in California in Q2 but mortgage rates have fallen significantly since the spring. Shares are trading at just 9.1x forward earnings.

Are these stocks hidden gems?

Find out about the outlook for the homebuilders on this week’s podcast.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

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Zacks Investment Research

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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
NetApp, Inc. (NTAP) : Free Stock Analysis Report
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report
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