For Immediate Release
Chicago, IL – February 21, 2019 – Zacks Equity Research Tandem Diabetes Care TNDM as the Bull of the Day, MGM Resorts International MGM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Meritage Homes Corp. MTH, KB Home KBH and Lennar Corp. LEN.
Here is a synopsis of all five stocks:
Bull of the Day:
Tandem Diabetes Careis a $2.7 billion medical device company that designs, develops, and commercializes products for people with insulin-dependent diabetes. The San Diego-based company is expected to have grown 2018 sales by over 60% to $164 million, while this year's forecast is for 37% growth to $225 million.
Tandem products include the t:slim Insulin Delivery System, which just got a big technology upgrade and an FDA approval last week. On Valentines Day, Tandem announced that the FDA classified the t:slim X2 insulin pump as the first in a new device category called Alternate Controller Enabled Infusion Pumps, or ACE pumps.
The approved indication for the t:slim X2 pump states that the pump is able to reliably and securely communicate with compatible, digitally connected devices, including automated insulin dosing software, to receive, execute, and confirm commands from these devices.
This new type of insulin pump is described as having "interoperable" technology for delivering insulin under the skin for children and adults with diabetes, meaning it can be used with different components that make up diabetes therapy systems, allowing patients to tailor their diabetes management to their individual device preferences.
Profits on the Horizon, After Shares Fall from $300 to $3
TNDM shares were already in the upper realms of the Zacks Rank before the expected announcement because the current sales ramp had analysts raising their earnings estimates with the 2019 consensus rising over 75% to a loss of just 77 cents.
This follows full-year 2018 EPS expected to come in near a loss of $3.22 (Tandem reports for Q4 on 2/26), which would also be 75% growth from 2017's loss of $12.87.
This acceleration in net income is a welcome event for TNDM investors, many of whom may have endured an uncomfortable ride in the past few years.
Five years ago, TNDM shares were trading over $300 after their November 2013 IPO. The company was also getting ready to post 3 consecutive years between 2015 and 2017 of average EPS losses near $25.
In that time, shares fell steadily all the way to under $3 in late 2017. You can imagine the pain for investors who were buying (and holding) all the way down based on analyst projections about future sales for the company's new insulin pumps.
But patient investors finally found some relief when the Zacks Rank spotted TNDM shares as having the potential of reversing the cash hemorrhaging.
As analysts re-worked their models, their estimates started rising in 2017 and forecasting a trough of losses. So TNDM became a Zacks #2 Rank Buy several times in the period from Q4 2017 through Q3 2018. And the stock rose from $2 to $52 by September.
Another weight on TNDM shares during the recovery was its battle against a Goliath of med-tech competition in diabetes, Medtronic. At one point, an equally-giant insurer's updated insulin pump policy, which expanded Medtronic's preferential agreement to patients age 7 and older, was seen as an enormous obstacle for our little David.
But some analysts believed the impact on Tandem's growing revenues would be temporary, as the prevailing cry from patients and physicians for more options, not less, would win the day. Those views are being validated now.
Investor and Analyst Reaction Since the FDA Approval
So far, the price action in the stock since February 14 has been solid, with strong buying volume pushing shares to within 50 cents of last September's 52-week high at $52.55. But actually, shares rallied all last week as some players obviously knew what was coming, with Feb 12 seeing 3.5 million shares trade on the move from $44 to $49.
Meanwhile, the analyst reaction has been light too. We should look forward to more investment banks starting coverage of TNDM this year. Here's what we've heard thus far, courtesy of TheFly.com...
Piper Jaffray analyst JP McKim kept his Overweight rating and $60 price target on Tandem Diabetes, calling the FDA announcement authorizing the first t:slim X2 interoperable insulin pump is a "nice win" for the company. The analyst says the decision allows the company to "go market as the world's first interoperable pump," adding that the feedback on Tandem also continues to be "very strong."
Robert Baird analyst Jeff Johnson raised his price target on Tandem Diabetes to $55 from $46 after the company received FDA approval of its t:slim X2 pump as an "alternate controller enabled," or ACE, infusion pump. Although the analyst did not raise his estimates, he believes the designation should further differentiate Tandem and de-risk the 2020 development timeline for t:sport, which he believes can help sustain the company's recent momentum.
There has always been the risk that the insulin pump makers are made obsolete by a new oral diabetes medicine. Until those clinical trials are underway, we'll stick with good old-fashioned medical technology -- and its latest innovations -- to provide precision care and flexibility for diabetes patients.
Disclosure: I own TNDM shares for the Zacks Healthcare Innovators portfolio.
Bear of the Day:
MGM Resorts International(MGM), formerly known as MGM MIRAGE, is a $15 billion global hospitality company, operating a portfolio of destination resort brands, including Bellagio, MGM Grand, Mandalay Bay and The Mirage.
The resorts offer gaming, hotel, dining, entertainment, retail, and other resort amenities including golf courses. The company operates through two segments, Domestic Resorts and MGM China, with 14 resorts in the United States and multiple Macau properties.
Last week, MGM delivered a solid earnings report for Q4 but the outlook for this year saw analysts take down estimates sharply. Full-year 2019 EPS projections dropped over 10% from $1.31 to $1.17 and the 2020 profit outlook fell 11% as well.
The $1.17 for this year still represents 18% growth over last year, but that's over a disappointing and flat 2018 which saw profit estimates crater throughout the year from projections over $1.50 to just $0.99 at the final tally.
As we learned from the Las Vegas Sands LVS report in late January, the economic slowdown and equity bear market in China is having a big impact on gaming in Macau. Many industry analysts expect the southern Chinese territory, which is currently the world’s largest gambling region, to see revenues fall slightly in 2019 after two years of double-digit growth.
My colleague Ben Rains recently wrote of the LVS outlook and noted "Even the smallest downturn in Macau could hurt casino operators since the region pulled in $37 billion in 2018 against $6.6 billion in Las Vegas. In particular, the region’s high-rollers, which account for nearly half of global gambling revenues, might decrease their spending."
Three highlights from the MGM report...
1) Total revenues of $3.05 billion outpaced the consensus mark of $2.95 billion and increased 17.5% year over year. The improvement was backed by higher revenues at both gaming and non-gaming facilities.
2) MGM China’s net revenues increased 33% year over year to $687 million, courtesy of net revenue contribution of $287 million from MGM Cotai.
3) The company also increased its dividend yield, by 8%, on in-line China revenues and its Las Vegas segment which beat relatively easy year-over-year comps.
Zacks Rank Warned Even After Favorable Supreme Court Ruling on Sports Betting
Last May, my colleague Dave Bartosiak wrote about MGM as the Bear of the Day when shares were trading near $32...
If you’re looking for a big winner on the gaming news yesterday, you’re going to have to look at stocks like Penn National PENN and Boyd Gaming BYD. These regional players most certainly will benefit from the Supreme Court opening the door for states to legalize sports gambling. Today’s Bear of the Day will also benefit from the ruling, but I want you to know what the earnings picture was like ahead of the recent event. It’s not as rosy as you’d like to believe.
I certainly agree that gaming across the country could help MGM. But until analysts start changing their EPS estimates based on the ruling, MGM is likely to remain a Zacks Rank #5 (Strong Sell). Over the last thirty days, four analysts have dropped their earning estimates for the current quarter while six have dropped their numbers for the current year. The bearish sentiment has dropped the Zacks Consensus Estimate from 38 cents to 27 cents for the current quarter while current year numbers have gone from $1.45 to $1.34.
(end of Bartosiak notes from May 15, 2018)
As described earlier, those falling 2018 EPS estimates imploded further throughout the remainder of the year. And investors who heeded Dave's warning avoided a 30% drop in shares into the Q4 stock market rout, with the October lows near $24 finally getting taken out in December with a $22 print.
While shares have recovered during the recent big rally, the earnings outlook has only gotten worse. For investors willing to gamble here, the risk-reward doesn't look promising. The best bet is to wait until the EPS estimates stop going down and stabilize. The Zacks Rank will let you know.
Builders’ Sentiment Rises in February as Rates Decline
A high confidence level was seen among the nation's homebuilders in the month of February for newly built, single-family homes. Per the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment increased to a four-month high in February, given the ongoing reduction in mortgage rates over the past few weeks along with continued strength in the job market.
Moreover, homebuilders remain confident about the upcoming spring season as the housing market slowdown of 2018 is taking a pause or rather expected to rebound. Consequently, shares of notable homebuilding companies like Meritage Homes Corp., KB Home and Lennar Corp. grew 1.9%, 1.2% and 1%, respectively, on Tuesday.
Notably, NAHB’s monthly builders’ sentiment index increased four points to 62 and all three indices, namely present sales, future sales and buyer traffic, registered growth from January. The index measuring current single-family home sales increased three points to 67. Home sales prospects for the next six months grew five points to 68 and buyer traffic surged four points to 48.
In the words of NAHB Chief Economist Robert Dietz, “Builder confidence levels moved up in tandem with growing consumer confidence and falling interest rates.”
The regional HMI reading was bright for Midwest and South, increasing six and five points to 55 and 66, respectively. However, Northeast and West ended on a negative note, declining two and three points to 45 and 67, respectively.
Builders’ Confidence High on Declining Mortgage Rates
Mortgage rates have been declining since November 2018. Per the Freddie Mac’s Primary Mortgage Market Survey, in the week ending Jan 14, 2019, the 30-year, fixed-rate mortgage average declined to 4.37% from the previous week’s 4.41%. Notably, the said rate was the lowest in the past 12 months.
Also, mortgage purchase applications for the month of January remained flat on a year-over-year basis, while gained 43% from the prior month in response to the 30% increase in the new home sales figure for the month, as per the Mortgage Bankers Association (MBA) Builder Application Survey. Market pundits are of the opinion that a healthy job market, faster wage growth, moderating price gains and lower mortgage rates are helping to generate more sales.
This positive momentum that the housing industry is currently experiencing can be substantiated by its share price performance. The Zacks Building Products - Home Builders industry has outperformed the broader S&P 500 in the past three months gaining 10.7% compared with the S&P 500 index’s rally of 5%.
Meanwhile, per the Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics data on Feb 14, construction material prices fell 0.7% in January from the prior month, yet remains 1.6% higher on a year-over-year basis. Steel, aluminum and softwood lumber tariffs remain a headwind for homebuilders, making it difficult for them to offer affordable homes.
Robust Job Market Raises Hope
The buoyant employment report from the Labor Department on Feb 12, has also lifted builders’ sentiment. Per the U.S. Bureau of Labor Statistics, the number of job openings reached a record high of 7.3 million at the end of December 2018. This lifted the job openings rate to 4.7% in December from 4.6% in November, underscoring robust demand for labor. The upside stemmed mainly from strengthening payrolls and wage gains.
Zacks' Top 10 Stocks for 2019
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Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
MGM Resorts International (MGM) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
Meritage Corporation (MTH) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
Tandem Diabetes Care, Inc. (TNDM) : Free Stock Analysis Report
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