For Immediate Release
Chicago, IL – August 16, 2019 – Zacks Equity Research Shares of Teledyne Technologies TDY as the Bull of the Day, Netgear NTGR asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Boston Scientific Corp. BSX, Medtronic MDT and Becton Dickinson & Co. BDX.
Here is a synopsis of all five stocks:
Bull of the Day:
During the recent market turmoil and amid fears of a looming recession as signaled by the inversion of yields on short and long term Treasury securities, there’s been renewed interest in defensive stocks that are naturally resistant to changes in the economic cycle.
The reasoning is that companies that provide the goods and services that people, companies and even governments buy in all economic situations will maintain share value even as tech companies who are much more dependent on the business cycle suffer.
Health Care and Pharmaceutical stocks are an obvious choice, as are Consumer Staples and Utilities. Sometimes overlooked, the Defense Industry also generally holds up well during tougher economic conditions.
Teledyne Technologies offers the predictability of the Defense stocks, but also offers diversification into adjacent businesses that are minimally economically sensitive. Though it was initially focused on the defense industry – especially aerospace – Teledyne now provides cutting edge technology for medical imaging, deepwater oceanographic exploration and research, manufacturing automation and air and water testing.
With annual sales north of $3B, Teledyne receives about a quarter of revenues from the US Government, with the remaining 75% spread fairly evenly among Offshore Energy and Marine Instrumentation, Electronic Testing and Measurement, Commercial Imaging and Aerospace/Industrial.
Since 2000, the company has increasingly diversified its lines of business, even as it divested operations in less profitable businesses like Aerospace Engines and Printed Circuits. The result has been a steady increase in gross margins.
Teledyne constantly seeks to reduce complexity and overhead, emphasize key customers and products and improve pricing on niche products.
For the past two decades, Teledyne has delivered consistently rising revenues, net earnings and cash flow. Over that period, the shares have risen more than 3200% - easily outpacing the S&P 500 and the Aerospace industry average.
Thanks in part to a stellar earnings history – including 20 consecutive beats of the Zacks Consensus Earnings Estimate, Teledyne shares have marched steadily higher, even shrugging off much of the recent trade and interest rate-related volatility.
While sales growing in high single-digits and earnings in the mid-teens might not sound spectacular, it’s a very comforting pattern in uncertain times. Last quarter’s 17% beat of the Zacks Consensus Earnings Estimate was a standout in an earnings season that mostly saw more modest increases.
Estimates for full-year 2019 earnings have risen from $9.35/share to $9.95/share in the past 30 days – a 12% increase over 2018. Those recent revisions earn Teledyne a Zacks Rank #1 (Strong Buy).
Teledyne’s corporate slogan “Everywhereyoulook” is a nod to the company’s industry-leading imaging equipment as well as the ubiquity of its instruments and equipment in a wide-range of modern equipment.
The company’s proven track record, consistent performance and continued opportunities for growth and margin improvement make it a sound choice to anchor a portfolio during uncertain times.
Bear of the Day:
It’s not a great time to be in the network equipment business. The US-China trade dispute threatens to increase prices for firms which are heavily dependent on Chinese manufacturing and a threatened global economic slowdown would mean significantly reduced demand for finished products.
Netgear now finds itself stuck between the proverbial rock and hard place, with planned tariffs potentially increasing the cost of its products – manufacturing of which is outsourced to several other companies, primarily in China and Vietnam – just as demand for its commercial networking equipment seems likely to wane.
The products Netgear makes for the home consumer market tend to sell consistently, regardless of economic conditions, but the businesses that purchase more expensive switches, network appliances and storage solutions tend to ramp up their spending during boom times and cut back sharply when times are tougher.
The e-commerce industry in particular tends to need additional network equipment immediately when sales are booming and is generally not price sensitive because they can make back the investment quickly by having fast and reliable networks. In lean times, however, there’s generally plenty of network capacity and delaying the purchase of upgraded equipment.
Enterprise network equipment also typically has a usable life in excess of the length of time the owner needs it. It becomes obsolete before it wears out. Unfortunately this means it’s a cash cow for equipment resellers who can repurpose pre-owned equipment from large businesses as an upgrade for smaller businesses at a much lower cost than buying new.
Netgear shares are down more than 35% so far in 2019, badly lagging the S&P 500 and the Hardware industry. A bottom line earnings beat in July breathed a bit of new life into the shares, but when you break down the report, it wasn’t really all that strong.
Quarterly net revenue of $231M was the lowest level in more than two years. Operating margin of just 4.4% was more than 50% lower than the previous three quarters and though net earnings of $0.28/share exceeded already-lowered expectations, that number was also down more than 50% than the previous quarter.
Each of Netgear’s three global regions showed a decline in revenue. The Americas were down 9.9%, Europe, Middle East and Africa were down 10.6% and Asia Pacific was down 6.3%.
Overall sales in 2019 are expected to be $1.05B - 25% lower than the previous year - and 2020 is only a bit better at $1.08B.
Negative momentum on analyst revisions earn Netgear a Zacks Rank #5 (Strong Sell).
FDA Resets PAD Guidelines: The Road Ahead for Device Makers
Following the FDA’s last-week announcement of its renewed guidance on the treatment of peripheral artery disease (PAD), medical device companies sound upbeat about the development so far.
More precisely, the updated guidance for the physicians is related to the benefit-risk profile of peripheral paclitaxel devices intended for the treatment of PAD.
The FDA Statement
Earlier in 2019, the FDA had notified health care providers about a late mortality signal in patients treated for PAD in the femoropopliteal artery with paclitaxel-coated balloons and paclitaxel-eluting stents.
In its revised guidance, the regulatory body has provided the advisory panel’s analyses and recommendations for healthcare providers. It has also laid an emphasis on taking additional steps to address this signal including coordination with manufacturers on updates to device labeling and clinical trial informed consent documents for incorporating information about the late mortality signal.
Among the recommendations, the FDA noted that health care providers should discuss the risks and benefits of all available PAD treatment options with patients. This is because for many patients, alternative treatment alternatives like paclitaxel-coated balloons and paclitaxel-eluting stents mete out a more favorable benefit-risk profile.
The FDA has also asked the clinicians to determine whether the benefits of using a paclitaxel-coated device (in patients at particularly high risk for restenosis and repeat femoropopliteal interventions) outweigh the risks of late mortality.
MedTech Makers’ Rejoinder
Medical device major Boston Scientific Corp. is pleased about the FDA’s recommendation as this will allow physicians to continue accessing the company’s Eluvia Drug-Eluting Vascular Stent (DES) System. Per Boston Scientific, Eluvia has already demonstrated an excellent safety profile and a very low revascularization rate of 12.9% at two years in the pivotal IMPERIAL trial including many complex PAD patients.
Medtronic too is optimistic about the FDA’s guidance, which it claimed has fueled the company’s growth in the PAD treatment market. According to the company, its IN.PACT Admiral drug-coated balloons (DCB) have clear benefited the clinical outcomes and improved the quality of life across multiple randomized controlled clinical trials. Per the IN.PACT SFA trial result, three of the four DCB patients remained intervention-free through five years. While those requiring a repeat procedure, the time to reintervention was more than two years.
However, as a major setback, Becton Dickinson & Co. has announced that post the FDA Advisory Committee meeting on paclitaxel, the regulatory agency has notified that it is not going to grant any PMA (Premarket Approval)to the company’s Lutonix drug-coated balloon catheter for use below the knee.
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NETGEAR, Inc. (NTGR) : Free Stock Analysis Report
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