OPKO Health, Inc. OPK continues to benefit from lucrative RAYALDEE and BioReference platforms, solid focus on research and development (R&D), and optimistic outlook for third-quarter 2019. However, operating losses remain a concern.
Shares of OPKO Health have lost 47.8% against the industry’s growth of 22.5% on a year-to-date basis. Meanwhile, the S&P 500 Index rallied 27.2% in the same timeframe.
The company, with a market capitalization of $1.07 billion, engages in the diagnostics and pharmaceuticals business in the United States, Ireland, Chile, Spain, Israel and Mexico. It anticipates earnings to improve 12% in the next five years.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
OPKO Health has an infamous record of incurring huge operating losses. To date, the company has generated limited revenues from pharmaceutical operations in the United States, Chile, Mexico, Israel, Spain and Ireland.
In third-quarter 2019, OPKO Health incurred an operating loss of $39 million. For the fourth quarter, the company projects operating loss between $42 million and $69 million (including $25 million of non-cash, depreciation and amortization).
What’s Favoring the Stock?
Lucrative prospects in RAYALDEE and BioReference platforms have been providing a competitive edge to OPKO Health in the MedTech Industry. RAYALDEE has been witnessing decent momentum, courtesy of successful efforts from the sales team.
The company expects the BioReference R&D pipeline to increase throughout 2019, backed by improving cash flows from Bio-Reference and RAYALDEE.
OPKO Health’s focus on R&D is a positive factor. The company’s strong commitment toward innovation led to product introductions, improvement in existing products, and product-line expansion. Moreover, the commitment resulted in the enhancement of R&D facilities and procurement of new equipment for the same.
Per management, the company will continue to make solid investments in R&D programs throughout 2019. OPKO Health projects R&D expenses of $28-$31 million for the fourth quarter.
Strong outlook for fourth-quarter 2019 instills optimism in the stock. Management anticipates fourth-quarter revenues from Services between $165 million and $175 million (excluding revenues from 4kscore from Medicare beneficiaries). The company expects Product revenues of $25-$29 million, including $8-$9 million revenues from RAYALDEE.
Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $894.4 million, indicating a decline of 9.7% from the year-ago quarter’s reported figure. The same for earnings stands at a loss of 43 cents per share.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Conmed Corporation CNMD, West Pharmaceutical Services, Inc. WST and DexCom, Inc. DXCM, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conmed has an expected long-term earnings growth rate of 17%.
West Pharmaceutical has an estimated long-term earnings growth rate of 14%.
DexCom has a projected earnings growth rate of 260% for the next quarter.
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