Penumbra and Mesa Labs have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – September 22, 2023 – Zacks Equity Research shares Penumbra PEN as the Bull of the Day and Mesa Labs MLAB asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on American Eagle Outfitters, Inc. AEO, Sprouts Farmers Market, Inc. SFM and BJ's Restaurants, Inc. BJRI.
Here is a synopsis of all five stocks:
Bull of the Day:
Penumbra is the $10 billion innovator of neurovascular treatments for stroke using catheter aspiration technologies.
After a solid beat-and-raise Q2 reported in early August, upward estimate revisions by six Wall Street analysts moved PEN to a Zacks #1 Rank. And Wells Fargo raised their PT from $320 to $337.
PEN is on its way to a 980% EPS growth surge this year, topped off by a 25% jump in the topline to cross $1 billion.
Shares Tank After Earnings
But the stock suffered a perplexing drop of over 15% and Truist analysts, who lowered their PT from $370 to $345, identified the culprit right away on the evening of the August 1 report...
"PEN shares are likely to see pressure largely due to a 12-month Thunderbolt approval/launch delay (now expected late '24/'25)."
The Truist team also noted the "4Q-weighted 2H guide" as a possible selling catalyst. But overall, they think PEN is a name towards which investors will continue to gravitate to on pullbacks, especially with estimates increasing.
They believe the profit outlook is at an inflection point, and a "multi-year new product cycle story is still very much intact."
The PEN Is Mightier Than the Scalpel
For years I've profiled Penumbra for its remarkable technology that was launched in 2007. The company takes its name from the dark shadow that is created in brain tissue when a person has a stroke.
Their mission is to provide physicians with efficient emergency tools to remove the blood clot and save as much neurological function as possible.
The Penumbra story was of particular interest to me since my father was a commercial airline pilot who had a mild heart attack in 1980. He was lucky to be selected for the newish angioplasty procedure to widen a partially blocked artery.
Catheter technologies for cardiovascular issues were still experimental in the late 1970s.
But we were thankful he didn't need to have open heart surgery, which would have been certainly scary and definitely ended his flying career.
Not only was the angioplasty successful, it made him the first pilot to have the procedure and return to full aviation capabilities. He went on to perform another 20 years of duty as a United captain of 747s and 767s flying to Japan and Germany.
You can learn more about my hero, who flew to that great hangar in the sky in 2021, here...
Flight Plan for Trading: Market Lessons from My Pilot Dad
It's a fun and funny (jokes on me) piece as I describe his early exploits with flying and how his belief in me -- after he took me in as a potential foster kid -- was the #1 factor in finally getting my pilot's license at 17.
If you want to learn more about my efforts to bring aviation to those less fortunate, check out my essay series...
Curiosity Solves Everything: How the Wright Brothers Changed History
Jumping Back Into the PEN
When the stock was still hanging out near $250 in mid-August, I saw a great opportunity to add shares in my Healthcare Innovators portfolio. And we were quickly rewarded with a ride back to $300.
Here's what I told my group of investors on September 8...
Shares of Penumbra are on track for a +10% gain this week after adding 5% last week.
Things got started this week on Wednesday after Penumbra CEO Adam Elsesser gave a bullish presentation about the company's growth trajectory at the Wells Fargo Healthcare Conference.
According to a RBC Capital note by Shagun Singh released Wednesday, Penumbra management was "very bullish" about a "huge second wave of launch" and demand for their cardiovascular devices Lightning Flash and Lightning Bolt 7.
RBC added that Penumbra now sees delivering revenue growth of +20% year-over-year in 2024, "suggesting +$30M or 3% growth vs. consensus currently at 17% at the midpoint of their 2023 guidance."
RBC reiterated their outperform rating on the stock with a price target of $349.
Meanwhile, Morgan Stanley initiated coverage of the company on Wednesday with an equal weight rating and a significantly lower price target of $265.
Morgan Stanley said that while the company looked ready to expand its presence in both the vascular and neurovascular markets with some "heavily anticipated" product launches, it regarded near-term Street estimates as "sensible" and valuation "justifiable at present."
It seems clear right now the majority of investors are siding with the optimistic outlook of RBC. And so our favorable timing to scoop shares under $255 is being rewarded quickly.
(end of Healthcare Innovators commentary from 9/8)
Unfortunately, PEN has slid back down the stock market water slide this week after closing the gap above $300.
So the 20% open gain we had in Healthcare Innovators inside of 3 weeks has now evaporated.
And I think it's a big buying opportunity. While larger competitors like Medtronic may move into the neurovascular turf, I still believe that Penumbra is the primary innovator to follow and at a $10 billion market cap, it could easily be on the M&A short lists of several MedTech and BioPharma giants.
Bear of the Day:
Mesa Labs is a small-cap medical provider of quality control monitoring and validation instruments serving niche markets in healthcare, industrial, pharmaceutical, medical and food processing applications.
I have followed this small company for several years and traded the stock for profits in my Healthcare Innovators portfolio.
But the recent run back to $200 in January was met with selling as their subsequent full-year outlook fell apart.
To recap, here was my December analysis when MLAB shares were trading $165...
MLAB delivered a big 107% earnings beat in early November that compelled analysts to significantly raise estimates for this year and next, thus pushing the stock into the upper realms of the Zacks Rank.
Mesa reported EPS of $2.88 per share, beating the Zacks Consensus Estimate of $1.39. This compares to earnings of $1.87 per share a year ago. These figures are adjusted for non-recurring items.
Upward Revisions
This snap-back was a welcome sign for investors after the prior quarter, where it was expected Mesa would post earnings of $1.95 per share when it actually produced EPS of only $1.17, delivering a negative surprise of -40%.
During the most recent stock correction in October, MLAB shares fell below $120. They then rallied sharply back above $180 on the big earnings beat.
For the full fiscal year 2023 (ends in March) analysts boosted the EPS consensus for Mesa a whopping 39% from $6.57 to $9.15, representing 29% annual growth.
Even more encouraging is that the EPS consensus for fiscal 2024 (begins in April) jumped 21% from $7.62 to $9.23.
(end of December commentary on MLAB business and financials)
While it was nice to capture the run from $165 to $200, Mesa Labs began to show signs of slowing growth, with projected sales flat near $220 million.
In the past two months since that June quarter report, EPS estimates have dropped 7% from $8.37 to $7.80, representing -6% annual growth.
In the company's early August report for their Q1 FY'24 (ends in March) they delivered quarterly earnings of $1.77 per share, beating the Zacks Consensus Estimate of $1.67 per share. This compares to earnings of $1.17 per share a year ago.
This quarterly report represented an earnings surprise of 5.99%. A quarter ago, it was expected that this quality control instruments and disposable products maker would post earnings of $1.98 per share when it actually produced earnings of $1.94, delivering a surprise of -2.02%.
Over the last four quarters, the company has surpassed consensus EPS estimates three times.
Mesa Labs, which belongs to the Zacks Medical-Instruments industry, posted revenues of $50.65 million for the quarter ended June 2023, missing the Zacks Consensus Estimate by 2.32%. This compares to year-ago revenues of $50.45 million. The company has topped consensus revenue estimates just once over the last four quarters.
Bottom Line for MESA: While this small-cap has an up-hill battle against other giants in diagnostics and quality testing, it may be near a valuation level where other big MedTech and BioPharma might take an M&A interest in their proven platforms.
Additional content:
3 Retail Stocks to Buy as the Sector Continues to Grow in 2023
With the unbroken string of interest rate hikes now well and truly behind us, consumers have started spending on staples and discretionaries, and retail sales have picked up in 2023.
This has also been reflected by the retail sales numbers for August released in September. Per the Commerce Department, retail sales rose 0.6% to $697.6 billion in August from the previous month, widely surpassing the consensus estimate of 0.2%. The July number was revised down to a 0.5% gain from the previously reported 0.7%.
Inflation and purchasing power have the biggest impact on retail sales. When prices of consumer goods are in a state of continuous increase and interest rates are raised as a retaliatory measure, people have less money at their disposal to spend on non-essential goods. But even as consumer prices increased in August, it was driven almost unilaterally by fuel prices, which have been rising in recent weeks because Russia and Saudi decided not to raise production till the end of 2023. Core inflation, which excludes food and energy prices, was at an agreeable level.
Also, with further interest hikes currently deemed unlikely to be declared in the Fed meetings in September and November, a consumer's purchasing ability will be getting a boost. Per a March report from the National Retail Federation, retail sales are supposed to grow between 4% and 6% in 2023.
One would also have to factor in the upcoming holiday season when the retail sector sees its biggest spike of the calendar. During July and August, there were 17 states in the United States that had tax-free weekends for back-to-school shoppers. A vast majority of the tax-free allowance was for apparel, while some were for computers. There will be no tax relief as we approach the end of the year. However, shoppers will be well advised to shop for gifts early, while these offers are still available. This would also help sustain retail sales all through the last quarter.
Thus, as we approach the end of the year, astute investors should consider buying retail stocks. If the sector is growing now, it should be booming closer to November and December.
We have selected three stocks that we believe would be gaining ground in the ensuing months and should be looked into now. The stocks below flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
American Eagle Outfitters, Inc. is a specialty retailer that engages in the business of selling clothing, accessories and personal care products.
AEO's expected earnings growth rate for the current year is 29.9%. The Zacks Consensus Estimate for its current-year earnings has improved 24.8% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.
Sprouts Farmers Market, Inc. is a retailer of natural and organic food products in the United States.
SFM's expected earnings growth rate for the current year is 15.1%. The Zacks Consensus Estimate for its current-year earnings has improved 2.6% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
BJ's Restaurants, Inc. is a retail chain of casual dining restaurants operating in the United States.
BJRI's expected earnings growth rate for the current year is 27.4%. The Zacks Consensus Estimate for its current-year earnings has improved 447.1% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A.
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BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Mesa Laboratories, Inc. (MLAB) : Free Stock Analysis Report
Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
Penumbra, Inc. (PEN) : Free Stock Analysis Report
