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Tabula Rasa, Tesla, Roku and Netflix as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release       

Chicago, IL – May 3, 2019 – Zacks Equity Research highlights Tabula Rasa HealthCare TRHC as the Bull of the Day and Tesla TSLA as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Roku ROKU and Netflix NFLX.

Here is a synopsis of all four stocks:

Bull of the Day:                                              

Tabula Rasa HealthCareis a $1.2 billion medical IT firm focused on patient-specific, data-driven technology and solutions which enable healthcare organizations to optimize medication regimens to improve patient outcomes, reduce hospitalizations, lower healthcare costs and manage risk.

The company's cloud-based software applications, including platforms EireneRx and MedWise Advisor, deliver control and certainty to payers, providers and other healthcare organizations. And their innovative use of artificial intelligence technologies and cross-provider integrations for doctors and pharmacies to cross-reference prescription complications is becoming more important in an aging population taking more medicines.

Tabula Rasa is expected to grow sales 40% this year to $285 million. Below is a snapshot I took last month when I bought TRHC shares for the Zacks Healthcare Innovators portfolio. This view highlights projected sales growth in the face of the recent valuation haircut.

What you are seeing is 12-month forward sales estimates (the green line) rising from $210 million at the start of Q3 2018 to over $325 million projected into 2020, while price has dropped from $90 to $55...

Part of the pessimism is that while the company became profitable last year, it is expected to show no EPS growth this year and deliver a repeat of $0.77, giving it a P/E multiple of over 70X. And this after analysts held loftier expectations about 2019 growth as recently as last October when the consensus was for EPS of over $1.10. 

But the reason the stock became a Zacks #1 Rank again is due to upward EPS revisions that came in after the company's Q4 report on Feb 28 where management raised revenue guidance. Full-year 2019 consensus moved back up 10% from $0.70 to $0.77 and next year moved from $1.07 to $1.19.

New Partnerships, Acquisitions, and Innovations

One of the most exciting innovations for Tabula Rasa is their development of a complete medical records and IT solutions suite that integrates with other providers. In September, the company announced the creation of TRHC 2.0 for "Innovative Integrations, Interoperability and Advanced Healthcare Analytics." From the 9/7/18 press release...

Through accretive acquisitions and continued research and development, TRHC’s technology innovations and growing data lake provide a data continuum for clients enhancing the care of patients across the U.S. and abroad. 

MOORESTOWN, N.J., Sept. 07, 2018 (GLOBE NEWSWIRE) -- Tabula Rasa HealthCare, Inc. (“TRHC”) (NASDAQ:TRHC), a healthcare technology company advancing the field of medication safety, today announced its strategy to integrate and open its various technologies, facilitating seamless interoperability and access to vast data resources for its clients.

This technology strategy, referred to as TRHC 2.0, is designed to harness the power of TRHC’s core technologies, MedWise™ and EireneRx®, and to leverage other technologies brought into the company through acquisition, like SinfoniaRx’s RxCompanion®, and the recent Mediture and eClusive technologies for electronic health records and health plan management.

(end of TRHC press release excerpt)

The company also recently announced an important API integration with fellow healthcare IT company AthenaHealth, formerly public under the symbol ATHN and taken private in February by Elliot Management and Veritas Capital who teamed up to buy ATHN for over $5.5 billion in cash, or $135 per share. 

Athenahealth serves over 100 million patients through provider networks and will embed Tabula Rasa platforms in care and pharmacy settings. The integration is expected to be complete by Q4'19 and create a recurring revenue SaaS fee as well as a consulting fee for Tabula Rasa.

In December, Tabula Rasa announced an agreement to acquire Brisbane, Australia-based DoseMe. DoseMe is the developer of DoseMeRx, an advanced precision dosing tool to help physicians and pharmacists accurately dose patients’ high-risk parenteral medications based on individual needs, resulting in significant improvements to mortality, risk, and patient outcomes.

Already available in over 100 hospitals and infusion providers worldwide, DoseMeRx’s precision dosing capabilities will now be combined with TRHC’s proprietary Medication Risk Mitigation (MRM) technologies in order to enhance and accelerate medication safety solutions available in the hospital setting.

Adding Another Prescription for Wellness

In early March, Oppenheimer analysts reworked their estimates model to account for a recent $285 million convertible share offering and, you guessed it, another key acquisition.

Oppenheimer analyst Mohan Naidu lowered his price target for Tabula Rasa HealthCare to $88 from $97, while reiterating an Outperform rating on the shares after the company announced the acquisition of PrescribeWellness for $150 million in cash. The analyst believes the acquisition should provide leverage to Tabula Rasa HealthCare in pushing its solutions into the pharmacies by expanding on PrescribeWellness relationships to promote the combined company's proprietary technologies. This synergy should add high margin service revenues to the numbers, with Naidu expecting growth in about 20% range.

The Oppenheimer analyst team increased their 2019 and 2020 estimates to incorporate the higher growth implied in company guidance and also the contribution from the acquisitions. Their 2020 revenue estimate went up to $322 million from $310M.

In early April, investment bank Piper Jaffray reiterated their bull case for TRHC...

Tabula Rasa HealthCare Strengthened by SinfoniaRx

Piper Jaffray analyst Sean Wieland kept his Overweight rating and $73 price target on Tabula Rasa HealthCare after its SinfoniaRx unit put out its annual report, saying the company's key metrics demonstrate its ability to "help health plans meet CMS requirements and help pharmacists generate revenue." Wieland noted that the unit strengthens the value proposition of the combined Tabula Rasa HealthCare platforms and he remains positive on its revenue growth potential of over 20% for years to come.

Since reporting earnings in late Feb, here is where other analysts stand on their forward valuation (i.e., price targets)...

Cantor Fitz 3/1: $99

Benchmark 3/15: $90

Stifel Nicolaus 3/5: $70

Wells Fargo 3/6: $55 (obviously the Neutral view here)

And here was commentary from the Cantor analyst in late January when shares were trading $68...

Tabula Rasa shares attractive with 50% upside potential

Analyst Steven Halper reiterated an Overweight rating on Tabula Rasa HealthCare with a $99 price target. After meeting with management the analyst says the company remains upbeat regarding adoption of its Medication Risk Mitigation platform. Halper continues to believe Tabula Rasa is poised for sustained long term growth amid "favorable" policy and market tailwinds.

Halper viewed the stock as attractive up near $70, and he recently reiterated his $99 target, implying over 80% upside from between $50 and $55.

CMS’ New Value-Based Payment Program is a Catalyst for TRHC

Finally, as healthcare stocks recover from the fallout of last month's "single-payer panic" and "Medicare for All" scares, Tabula Rasa has found opportunity in the chaos. On April 25 commended a new initiative from the U.S. Department of Health and Human Services (HHS) and Centers for Medicare & Medicaid Services (CMS) to introduce new payment models for primary care that will require payment for health and outcomes rather than fee-for-service.

According to HHS Secretary Alex Azar, these models represent the biggest step ever taken toward building an American healthcare system that pays for value. The CMS projects that the new voluntary programs will shift at least a quarter of people in traditional Medicare out of fee-for-service, which will motivate providers to compete for these beneficiaries and be rewarded for their ability to keep patients healthy and out of the hospital, among other quality measures.

Bear of the Day:

On April 1, I chose Tesla as the Bear of the Day and it was no joke. Earnings estimates had started to soften again and with the company facing big challenges for production, sales, and profitability, all eyes were on Elon Musk battling with the SEC and the stock price struggling to get back above $290.

Here's one paragraph I wrote that captures the beginning of cracks in the dam...

You can see above that in the past 60 days (the key window for the Zacks Rank calculation), the majority of 8 covering analysts for who we have EPS revisions have all lowered their profit estimates to drive the consensus down from $6.42 to $6.14 for the current year. Now that's only a 4.4% drop, so the magnitude wasn't big. But the agreement among analysts definitely was significant.

Fast forward one month -- and after the innovator's Q1 report on April 24 where they delivered less cars and a giant EPS miss -- and estimates have plummeted from a projected profit of $6.14 to a loss of $0.98!

Even next year's EPS consensus was slashed 33% to $6.80 from $10.13.

Wall Street Analyst Reaction

BofA Merrill Lynch analyst John Murphy said Tesla's "uglier than expected" Q1 operating results were largely due to weaker deliveries, lower pricing, and lighter gross margins. The analyst revised his estimates downward to be relatively consistent with the company's outlook and commentary, but keeps an Underperform rating and $225 price target on the stock.

Murphy also said he sees an earnings/cash inflection in the second half as "somewhat questionable." He believes that Elon Musk now "appears amenable" to a capital raise, quoting the CEO as having said "At this point, I do think there is some merit to raising capital." Murphy does not expect Tesla to turn the corner on free cash flow until after 2020.

Morgan Stanley analyst Adam Jonas increased his FY19 delivery forecast for Tesla by 4,000 units to 348,000 to account for the recent announcement of significantly refreshed S and X models, but noted this is still below the low end of Tesla's 360K-400K unit guidance. He also notched down his price target on Tesla shares to $230 from $240, maintaining a $185 per share value for the company's core auto business but lowering his view of the value of Tesla's autonomous assets, or its Mobility unit, to $45 from $55 per share.

While the company recently showed off autonomous technology that was "extremely impressive," Jonas thinks full-self-driving technology will undergo a far slower adoption ramp than the company anticipates and he also doesn't believe fully automated cars will be operated in a private-ownership model as Tesla has envisioned. 

Finally, writing for TheFly.com on April 25, Jessica de Sa-Mota put together an excellent summary of the view of one big TSLA bull who was giving up...

Long-term bull cuts Tesla rating as profitability will not 'magically return'

Calling himself a "long-term bull on the Tesla story," Wedbush's Ives said he was "throwing in the white towel" and downgrading the stock to Neutral from Outperform as the demand story is quickly changing and the company has "unfortunately not adjusted to an evolving EV landscape." The analyst told investors that he views this quarter as "one of the top debacles" he has ever seen, while "Musk & Co. -- in an episode out of the Twilight Zone -- act as if demand and profitability will magically return to the Tesla story."

Ultimately, Ives believes the company's guidance is aggressive and management and the board are not taking aggressive enough cost cutting actions and shutting down future endeavors to preserve capital and give a sustained path to profitability for the Street.

Further, the analyst continues to feel robotaxis, insurance products, and other endeavors are "distractions from the growing demand woes" that are not being addressed. At this point "the writing is on the wall" that Tesla will likely have to raise $3B-plus of capital in the near-term to sustain its capex and debt needs given its current profitability path, he contended. The analyst lowered his price target on the shares to $275 from $365 to reflect his reduced numbers for the coming years and his loss of confidence in the story.

(end of excerpt from TheFly.com)

Energy Innovator, or Debt Hog?

Tesla may still fulfill the lofty visions of its founder and devoted investors as soon as next year. I certainly wouldn't bet too heavily against Musk with TSLA shares at $250. But until we have more visibility about the business, we may do well to take it a quarter at a time.

And since the company and the analysts got this past quarter so wrong, investors should stay cautious. The Zacks Rank gave us the early stages of a warning in March when shares were trading just below $290. It's telling us to remain on the sidelines now.

As I explained in last month's piece...

The battle lines over the future of Tesla are fought daily among traders, institutional investors, and investment bank analysts.

The spectrum of views run from "the most revolutionary energy company ever" to an unsustainable dream built on cheap, and soon to be crushing, debt loads.

I'm not here to take a side in this war of words and wealth today, but to share the single metric that has recently made TSLA a Zacks #5 Rank Strong Sell.

That metric is the momentum of earnings estimate revisions by Wall Street analysts. Every day, Zacks collects the latest changes up or down in analyst profit projections and funnels them into an algorithm that weights the magnitude and agreement of the revisions.

So we not only produce a consensus EPS estimate (that is also weighted by the most accurate analysts and most recent revisions), but we also pit over 4,000 stocks against each other to determine the relative strength and direction of those revisions.

Traders can have any fundamental or technical view they wish about TSLA shares, but they will always do better by adding a consistent and unemotional quantitative metric used by institutional investors around the globe. The ranking of stocks by earnings estimate revisions produces a key relative strength metric -- the Zacks Rank -- that gets you on the right side of short-term EPS momentum, up or down.

Additional content:

Buy Roku (ROKU) Stock Ahead of Q1 2019

Roku shares have soared 108% this year to destroy the S&P 500’s 16% climb, the media market’s 25% surge, and Netflix’s 42% comeback. With the streaming TV company’s impressive 2019 in mind, let’s take a look to see if investors should think about buying ROKU stock before it reports its first-quarter fiscal 2019 financial results on Wednesday, May 8.

Overview

Roku sells devices that allow customers to watch streaming services such as Netflix, Hulu, Amazon Prime, HBO and others all in one place. The Los Gatos, California-based company currently boasts a larger market share than rivals like Apple TV, Amazon Fire TV, and Google’s Chromecast, according to eMarketer. Investors should also note that Roku claims that more than one in four smart TVs sold in the U.S. in 2018 were Roku TVs—it has partnership with Sharp, RCA, JVC, and more.  

More recently, the firm rolled out its Roku Channel. The offering allows users to watch free streaming movies and TV shows and could become more popular as more people ditch cable. The company sells advertising on the Roku Channel and has a marketplace that allows marketers to buy targeted ads. Roku is also likely to benefit from the entry of Disney, AT&T, Apple, and NBCUniversal into the streaming TV market over the next year.

Roku is also in the early stages of its international expansion. The company said last quarter that it expects to see its investments start to pay off in 2020. Global expansion is key because Roku has said that active account growth will be one of the most significant long-term drivers of profit and loss.

Before we see what to expect from Roku’s first-quarter earnings, it is worth noting that the stock has been on a roller coaster ride since going public in September 2017. Despite some of the up and down movement, shares of Roku have soared over 170% and currently sit at roughly $64 per share, down 18% off their 52-week intraday high of $77.57. This gives the stock more room to run heading into earnings.

Q1 Outlook

Our current Zacks Consensus Estimate calls for Roku’s Q1 2019 revenue to surge 38.4% to hit $189.06 million. This would fall short of Q4’s 46% top-line expansion, but it is worth pointing out that the company topped our revenue estimate by 6% last quarter.

Furthermore, Roku’s active account total is projected to climb over 36% from 20.8 million in the prior-year quarter to 28.39 million, based on our NFM estimates. Last quarter, this key figure popped 40%. Overall, Roku’s fiscal 2019 revenue is projected to jump 37.2% to reach $1.02 billion, with 2020’s sales expected to come in 32% higher than our current-year estimate.

At the bottom end of the income statement, things look a lot worse for the streaming TV firm. The company’s first-quarter earnings are projected to plummet 242% from a loss of $0.07 per share to a loss or $0.24 a share. However, Wall Street might not care much about Roku’s earnings just yet as it spends more heavily on expansion.

Plus, the company has surpassed our quarterly earnings estimate by an average of 84% over the trailing four periods. And Roku’s earnings are projected to climb 19% over the next three to five years on an annualized basis.

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