NeoGenomics and SolarEdge Technologies have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – October 24, 2023 – Zacks Equity Research shares NeoGenomics NEO as the Bull of the Day and SolarEdge Technologies SEDG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Cardinal Health CAH, Baxter International BAX and Fresenius Medical Care FMS.
Here is a synopsis of all five stocks:
Bull of the Day:
NeoGenomics is a small-cap provider of cancer genetics diagnostics. They boast one of the most comprehensive oncology-focused testing menus in the world to help physicians diagnose and treat cancer.
NeoGenomics serves the needs of pathologists, oncologists, academic centers, hospital systems, pharmaceutical firms, integrated service delivery networks, and managed care organizations throughout the United States, and pharmaceutical firms in Europe and Asia.
The company is growing sales this year over 12% to $570 million. And next year's topline is projected to hit $620 million, for a 7.8% advance. With a $1.75 billion market cap, NEO trades under 3 times forward sales estimates.
While NeoGenomics is not yet profitable, EPS estimates have been moving higher, with this year set to post a 55% increase to a loss of 25-cents and next year forecast to see another 66% rise to minus 9-cents.
Small Global Player in Fast Growing Market
Headquartered in Fort Myers, FL, NeoGenomics operates CAP accredited (Certified Analytics Professional) and CLIA certified (Clinical Laboratory Improvement Amendments) laboratories in Fort Myers and Tampa, Florida; Aliso Viejo, Carlsbad and San Diego, California; Research Triangle Park, North Carolina; Houston, Texas; Atlanta, Georgia; Nashville, Tennessee; and Phoenix, Arizona; and CAP accredited laboratories in Cambridge, United Kingdom; Rolle, Switzerland; and Singapore.
In research screening for attractive long-term companies to add for my Healthcare Innovators (HI) portfolio, I found NeoGenomics to be a screaming buy near $11. In late September, I put the stock on my Top 10 List and advised HI members to buy between $10 and $11.
Part of my enthusiasm about the stock was that it had sold off so dramatically from 52-week highs above $20 in May. And the cause of that selling was largely based around a broad FDA rule change concerning Lab Developed Tests (LDT) which was impacting the entire industry.
During the market volatility of the first week of October, NEO shares dipped to $11.03 and then moved quickly higher, including a 9% surge on October 17.
But I still liked the upside so much, I decided to make it an official buy for the portfolio and issued this Healthcare Innovators Buy Alert on October 19...
NeoGenomics (NEO): Buy between $13 and $14. We almost had our chance to buy under $11 the first week of October, but after reading some recent research on the LDT space, I think we can still jump on the big bull flag that popped up on Tuesday. NEO is a high-complexity CLIA-certified clinical laboratory that specializes in cancer genetics diagnostic testing, the fastest growing segment of the laboratory industry.
The company's testing services include cytogenetics, fluorescence in-situ hybridization, flow cytometry, morphology studies, anatomic pathology and molecular genetic testing. While only growing sales at about 10% to cross $600 million next year, it trades at a discount price/sales multiple and Piper Sandler has a $23 price target on shares with projections it should trade at 5X next year's sales.
FDA Oversight of Lab Developed Tests (LDTs)
The FDA rule change that drove most diagnostic companies down since the summer concerns the idea that LDTs are increasingly risky, and may lead to inaccurate test results, or may not perform as well as FDA-cleared tests. The FDA is also concerned that these tests could lead to unnecessary treatments, or delay/forgo appropriate treatments.
According to Piper Sandler analyst David Westenberg, after months of anticipation the FDA finally issued their updated position on LDTs on Sep 29. This explains the 1-month crash in these stocks. Although FDA plans on now having direct oversight over labs, the FDA will grandfather in most existing tests and the enforcement will not come until 2028.
Westenberg thinks the late Sep announcement is largely in line with investors' expectations, though the Piper team admits the FDA's stance on regulatory intensity remains a bit ambiguous.
While they recognize there might be a few added costs for companies getting into compliance in the next five years, Westenberg's team thinks existing tests will mostly not be impacted.
Disclosure: I own NEO, GH, and NTRA shares for the Zacks Healthcare Innovators portfolio.
Bear of the Day:
SolarEdge Technologies, the $4.7 billion maker of solar equipment like inverters that transform direct current from solar panels into alternating current, fell into the cellar of the Zacks Rank last Tuesday as EPS estimates were knocked down further by Wall Street analysts.
Then on Friday, SEDG shares suffered their worst drop in history after the company announced mounting order cancellations from Europe.
SolarEdge plummeted 27% following the company's preliminary Q3 results, which were released on Thursday after the market close.
"During the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors," SolarEdge CEO Zvi Lando said.
SolarEdge now expects to post September quarter revenue of $720 to $730 million, down almost 20% from earlier forecasts of $880 to $920 million.
The move in the Zacks Rank that gave investors warning was this: in the past 60 days, full-year EPS estimates were revised downward from $9.84 to $9.35. And almost 90 days ago, the analyst consensus was up at $10.97.
As of Monday 10/23, the new consensus is at $9.01 -- down almost 27% in three months! But not all analysts figures have been updated in their models reporting to the Zacks Research System (ZRS), our institutional database.
So it's possible that number falls even further. And 2024 EPS estimates are a big unknown now too, as they have fallen 20% in the past 90 days.
The main takeaway here is that this kind of sales uncertainty for the company will create much wider uncertainty for analysts who have to estimate future growth.
One example of the drastic reactions you'll be seeing is an investment bank like BMO Capital slashing their price target on SEDG shares to $111 From $216.
Forecasts may take several months and another full reporting quarter (after December) to stabilize. The Zacks Rank will once again let you know.
Additional content:
3 Medical Device Stocks with Solid Dividend Yields
The Zacks Medical sector is facing headwinds in the form of raging inflation, higher interest rates, supply-chain disruptions and high operating costs. These factors are likely to hurt the industry players' margin.
Amid these ongoing headwinds, the sector has lost 8.6% until Oct 18, underperforming the S&P 500 Index's 13.8% gain.
Owing to the rising market volatility, it would be a wise decision to invest in some dividend-paying companies like Cardinal Health, Baxter International and Fresenius Medical Care from the medical device industries to create a steady income source. These companies have consistently announced dividend hikes, thereby highlighting their pro-shareholder stance.
Stocks with a strong history of dividend growth belong to mature companies and are less susceptible to large swings in the market. They act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, they also offer downside protection with a consistent rise in payouts.
Additionally, these companies have superior fundamentals like a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics.
3 Medical Products Stocks to Embrace Now
In order to choose some of the best dividend stocks from the industry, we have run the Zacks Stock Screener to identify those with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%.
Cardinal Health: Headquartered in Dublin, OH, Cardinal Health is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company pays out a quarterly dividend of 50 cents ($2.00 annualized) per share, which gives it a 2.13% yield at the current stock price. This company's payout ratio is 34%, with a five-year dividend growth rate of 1.02%. (Check Cardinal's dividend history here.)
The company is also active on the buyback front. During fiscal 2023 that ended in June 2023, CAH deployed $2 billion for share repurchase. As of June-end, it had $4.3 billion available for repurchase under the share repurchase program, authorized by the board of directors in the previous years.
Baxter International: Headquartered in Deerfield, IL, Baxter engages in the development, manufacture and sale of a broad range of products, digital health solutions and therapies used by hospitals and other care-giving organizations, including at-home physicians.
Baxter pays annualized dividends of $1.16 per share, resulting in a 3.62% yield at the current stock price. This company's payout ratio is 41%, with a five-year dividend growth rate of 9.65%. (Check Baxter's dividend history here.)
The company also has buyback plans. Although it did not repurchase shares during the first half of 2023, it had $1.3 billion under its share repurchase authorization as of June 2023. BAX had repurchased 500,000 shares in 2022.
Fresenius Medical Care: Headquartered in Germany, Fresenius Medical is one of the largest integrated providers of products and services for individuals undergoing dialysis following chronic kidney failure. FMS pays out an annual dividend of 42 cents per share, which gives it a 2.42% yield at the current stock price. This company's payout ratio is 29%, with a five-year dividend growth rate of 1.89%. (Check Fresenius Medical's dividend history here.)
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Baxter International Inc. (BAX) : Free Stock Analysis Report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
Fresenius Medical Care AG & Co. KGaA (FMS) : Free Stock Analysis Report
NeoGenomics, Inc. (NEO) : Free Stock Analysis Report
SolarEdge Technologies, Inc. (SEDG) : Free Stock Analysis Report
