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For Immediate Release
Chicago, IL – February 1, 2021 – Zacks Equity Research Shares of Vericel Corporation VCEL as the Bull of the Day, Intuit Inc. INTU as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Mosaic Company MOS, Ally Financial Inc. ALLY and D.R. Horton, Inc. DHI.
Here is a synopsis of all five stocks:
Bull of the Day:
I chose Vericel as the Bull of the Day on November 2 when it was trading $19. I had owned this small-cap provider of revolutionary advanced cell therapies for the sports medicine and severe burn care markets in my Healthcare Innovators portfolio since July from under $15.
Here's what I wrote in my last report...
The goal of Vericel therapies is to repair or restore a patient’s damaged tissues or organs using their own cells. The company markets two autologous cell therapy products in the United States: Carticel for the treatment of cartilage defects in the knee, and Epicel for the treatment of severe burns.
It is also developing MACI (TM) for the treatment of cartilage defects in the knee, and ixmyelocel-T for the treatment of advanced heart failure due to ischemic dilated cardiomyopathy.
Sales for this small-cap are projected to launch 40% to over $170 million next year and profits are expected to vault more than 400% after a rough 2020 due to the massive hold on elective medical procedures during the COVID-19 shutdown.
And in September, Vericel announced the FDA accepted the company's filing for the recently submitted Biologics License Application (BLA) for NexoBrid® (concentrate of proteolytic enzymes enriched in bromelain) for eschar removal (debridement) in adults with deep partial-thickness and/or full-thickness thermal burns.
NexoBrid is a bromelain-based biological product containing a sterile mixture of proteolytic enzyme that selectively removes burn eschar within four hours without harming surrounding viable tissue.
(end of excerpt from Nov article)
Since then, Vericel reported a strong quarter and pipeline advancements, which sent shares on a steady surge for the past three months until they hit new all-time highs near $44 last week. Obviously, the little company got discovered by a bigger investor, or three, besides me.
But I, in my less-than-infinite wisdom took profits of 110% around $31 on Dec 30. What did I miss? We'll cover that story after we learn a little more about the company and its approach tissue restoration...
What is Cell Therapy?
Cell therapy is the infusion, injection or transplantation of whole cells back into a patient for treatment of a condition. In autologous therapy the patient is the source (donor) of their own tissue cells. With the patient acting as their own donor, the risk of rejection and the use of immunosuppressive therapy is minimized.
How does autologous cell therapy work?
The goal of cell therapy is to repair or restore damaged tissues using cells. For Vericel therapies, tissue from the patient is collected by a qualified and trained surgeon, and then processed and expanded by Vericel into a specific cell type or multicellular therapy. The patient’s own cells are then returned to the surgeon for implantation.
The Vericel Process
Vericel uses a proprietary cell-processing technology to expand naturally occurring populations of cells derived from the patient’s own tissue. Specific to the type of therapy needed, a small sample of tissue is taken from the patient. The sample is then sent to their laboratory in Cambridge Massachusetts for cellular expansion. Rigorous testing ensures the quality and viability of cells before they are delivered back to health care professionals. These cells, in conjunction with rehabilitation regimes, have demonstrated the ability to restore function to patients with serious medical conditions.
To learn more about the Vericel experience, check out their website with a great testimonial from 5-time Olympic swimmer and mom Dara Torres who has benefited greatly from the company's approach to knee cartilage restoration.
Why Did VCEL Launch Another 40% in January?
Here's what I wrote my group on Dec 30...
VCEL: Taking the Gain
Posted on 12/30/20
Portfolio is taking the big gain on Vericel as the stock exceeds all analyst targets ahead of potential approval for NexoBrid.
Here was a recent call on Dec 17...
Vericel initiated with an Overweight at Stephens: Analyst Chris Cooley initiated coverage of Vericel with an Overweight rating and $31 price target. The company is accelerating growth and expanding margins with clinically differentiated products to address the domestic regenerative sports and burn medicine markets, while the expected FDA approval of NexoBrid in 2021 can further enhance its rate of organic growth.
(end of 12/30 Trade Alert excerpt)
I also saw NexoBrid as a very small part of the company's business. Apparently I wasn't looking deep enough.
The launch party really got going in early last month when on January 5 BTIG analyst Ryan Zimmerman raised the firm's price target on Vericel to $37 from $30 citing his increased conviction in the strength of the company's MACI business and its durability in FY21. Zimmerman also explained that while the stock has risen 26% on the absolute basis over the past month, Vericel's 9.5-times enterprise value to expected next-12-month sales multiple still lags the high-growth peers valuation of 14-times.
And then the big news hit on Jan 7...
Vericel announces expansion of MACI coverage by UnitedHealthcare
Vericel Corporation announced that UnitedHealthcare has expanded its medical policy for MACI to include coverage for patients with symptomatic full-thickness cartilage defects in the patella and multiple cartilage defects in the knee. UnitedHealthcare is the largest commercial payer in the United States, covering more than 26 million lives, and more patients treated with MACI are covered by UnitedHealthcare than any other plan in the United States. The revised policy is effective February 1, 2021.
This news took VCEL shares to new highs above $36. And you only got one more chance to get back in near $30 as Monday Jan 11 saw a big morning of profit-taking that quickly reversed (of course I missed it). The selling was sparked by the company pre-announcing full-year revenues that were in-line with consensus.
Vericel projected 2020 FY revenue in the range of $123.9-$124.4 million vs. consensus of $123.67M. By product they project MACI net revenue in the range of $94.1-$94.6 million, Epicel net revenue of approximately $27.5 million, and NexoBrid revenue of approximately $2.2 million related to the BARDA procurement.
That little tidbit at the end may not prove to be so small after all. BARDA is the U.S. Biomedical Advanced Research and Development Authority and their procurement is for NexoBrid in emergency response preparedness. In other words, the US gov wants this next-gen severe burn technology supported and on-hand for any potential national emergencies. And BARDA is the agency that's been funding all kinds of COVID-19 vaccine development and testing kits. That's big.
By the end of that week, VCEL closed above $39.
Analysts Scramble to Catch Up to VCEL Shares
Surprisingly, the biggest bull on Wall Street who got me more interested in Vericel last summer, Oppenheimer's Kevin DeGeeter, downgraded Vericel to Perform from Outperform based on valuation with the stock above his prior $32 price target. DeGeeter also cited the company's "mixed" preliminary Q4 results, but saying he would get more constructive if the stock retraces back below $30 per share or if there is evidence that his current expectations for the second half of 2021 look too conservative.
Guy sounds like me.
And the next day, Jan 12, an analyst from H.C. Wainwright said "hold my enzymes." HCW analyst Swayampakula Ramakanth raised the firm's price target on Vericel to $44 from $26 -- the new high target -- affirming that the company's Q4 preliminary results indicate a continued recovery that will support a higher valuation.
A week later, Ladenburg analyst Jeffrey Cohen also raised his price target on Vericel to $44 from $27.50, citing the company's strong Q4 preannouncement. Cohen said the company continues to drive strong revenues through the COVID-19 pandemic and its current commercial products represent "best-in-class" offerings in the markets for burns and sports medicine.
And a week after that on Jan 25, BTIG analyst Ryan Zimmerman couldn't just sit back and watch everyone else get the credit for this call. So he raised his price target on Vericel to $45 from $37. The analyst rolled forward his 12-24 month revenue estimates and pointed to "meaningful upside" in Vericel's burn franchise with the launch of NexoBrid.
Bottom line on VCEL: As with all biotech small-caps, it's good to get in early. But this one could grow faster than I originally imagined. I would be a scale-in buyer from $38 down to $34 if we are so fortunate.
Bear of the Day:
Intuit keeps showing up in the cellar of the Zacks Rank in the past few months because overly-optimistic analyst EPS estimates keep getting nudged back down.
In late December, my colleague Jeremy Mullin wrote about the downward revision trend thus...
"The guide forced analysts to take estimates down. While the current quarter looks fine, next quarter has seen estimates fall 11%. Over the last month, estimates went from $6.71 to $5.97, and for the current year (FY21 ends July) they have dropped from $8.68 to $8.48.
"Since then, FY21 has slipped to $8.35. Clearly INTU makes most of its bank in the first half tax filing season, as that $6 EPS number for their FY21 Q3 (ends April) shows.
"But maybe there are competitors afoot and after a big rally in the past year, shares may be over-their-skis at current valuation metrics."
Now I'll share Jeremy's closing remarks from late December since he is an excellent technical trader and had some solid views...
"It has been a great run, but the stock looks overextended. If the 21-day MA were to break the 50-day at $350 would likely offer some support. However, if that level fails the next stop is all the way down at $304, where the 200-day MA resides. The stock hasn’t seen this level since May and would be a better entry than current prices.
"This is not a stock I would look to short, but buying at current levels seems to have a high-risk, low reward scenario. Investors should be patient and wait for a better entry to jump into Intuits long-term growth story."
(end of excerpt from Jeremy Mullin)
My take is that lots of Big Tech market leadership could be due to roll over soon. I've been raising cash for just such an occasion. And with INTU pressing on its $360 support level, lower levels could be in store as shares trade 10X sales.
3 Top VGM Buys
Sometimes you just get too much of a good thing!
Take the Zacks Rank, for example. You know it’s one of the most successful stock rating systems out there, but at any given time there are hundreds of stocks with a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy).
You can’t buy them all.
That’s where the Zacks Style Scores come in. These indicators help to fine tune that long list of stocks to increase your odds of outperformance, and they’re split into Value, Growth and Momentum scores depending on what kind of investor you are.
But if you want everything in one place, then there’s the VGM, which combines all three styles into one score.
It’s also the focus of the Top VGM Buys screen.
In addition to the Zacks Rank and VGM, the screen also looks for stocks in the top 50% of the Zacks Industry Rank as well as several other criteria.
Below are three names that passed this rigorous test.
The past several years have been pretty rough for the agriculture industry and farmers. Fortunately, this is a resilient and sturdy group that doesn’t shrink in the face of hardships… and it looks like their patience is finally paying off. Wall Street is beginning to turn its attention back to the space amid rising crop production and commodity prices.
It goes without saying (though we’re going to say it) that the companies catering to this space need to be as resilient and sturdy as their customers in order to take advantage of a more virtuous cycle.
Mosaic is one such company that has been through some lean times lately, but seems ready to sprout. Take a look at the graph below. After several quarters of steep losses, it has beaten the Zacks Consensus Estimate the last couple of times. And shares are up more than 50% since its last quarterly report in early November.
By the way, that third-quarter release included earnings per share of 23 cents, which topped our expectations by nearly 4.6%. Net sales of $2.38 billion were down year-over-year and missed the forecast, but it showed a continuation of strengthening fundamental trends that began in 2020 and will continue into 2021. There’s a lot of ground to recover as fertilizer inventories remain below average in many of the largest global markets.
In a nutshell, MOS is all about fertilizer. More specifically, it’s a leading producer and marketer of concentrated phosphate and potash crop nutrients. In addition to an improving environment, the company is also benefiting from its cost-reduction initiatives, which includes streamlining, centralizing its mining operations and automation.
Analysts are taking notice of MOS and its space again, which has led to some big upward revisions. The Zacks Consensus Estimate for 2020 has jumped 31.7% in 60 days to 54 cents. But 2021 is shaping up to be even better.
The Zacks Consensus Estimate is currently calling for $1.48 this year, which would mark a year-over-year surge of more than 170%. Earnings estimates for 2021 are up about 41% in two months.
MOS will report again on February 17.
Though still one of the country’s leading automobile finance companies, Ally Financial has dreams that go well beyond its original incarnation as General Motors Acceptance Corp. The company made diversification a major goal for its future, which helped it to weather this pandemic while positioning it for further prosperity down the road.
ALLY is now a diversified financial services company. Automobile financing still makes up the bulk of its business (68.7% of total net revenues in 2019), but it has three other business segments: insurance (20.8%), corporate finance (4.4%) and mortgage finance (3%).
As part of the financial – consumer loans space, ALLY is in the Top 23% of the Zacks Industry Rank.
Earnings estimates have really taken off over the past week after the company posted solid fourth-quarter results.
ALLY reported earnings per share of $1.60, which was more than 68% better than last year and 52.4% on top of the Zacks Consensus Estimate at $1.05. That makes three straight quarters of positive surprises.
Total net revenues of $1.98 billion was 20.6% better than the year-ago quarter and more than 19% over the Zacks Consensus Estimate. Lower provisions and a healthy balance sheet helped the quarter’s strong results.
Analysts must have really liked what they saw, because earnings estimates hit another gear in the past week. The Zacks Consensus Estimate for this year is up 9.5% in seven days to $4.40, while expectations for next year climbed 7.8% to $5.42. In other words, analysts are expecting 23.2% earnings growth in 2022 over 2021.
But this is really nothing new. Estimates have been on the rise for weeks. Analysts revised their 2021 estimates by nearly 20% over the past two months, while 2022 expectations have advanced about 15.3% in that time.
If you had invested in the home builders a few months ago, you’d be making money already! But that’s all right. It’s probably not too late, as the fiscal first quarter report of D.R. Horton showed that housing market conditions continue to be strong.
And don’t forget that the building products – home builders space is in the Top 13% of the Zacks Industry Rank.
DHI is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets. It has operations in 90 markets across 29 states and closed more than 71,100 homes in 2020.
And even more is expected this year. In its fiscal first quarter report, the company expects to close 80K to 82K homes in 2021 and generate consolidated revenues of between $25.2 billion and $25.8 billion.
Analysts liked what they saw in the quarter, which kept earnings estimates moving higher for DHI. The Zacks Consensus Estimate for this year (ending September 2021) is up 5.5% in the past 60 days to $8.36. Most of that advance has come in just the past seven days.
The Zacks Consensus Estimate for next year (ending September 2022) is up 5.3% in two months to $9.51, suggesting year-over-year improvement of 13.8%.
By the way, the company’s fiscal first quarter report from earlier this month included its seventh straight positive surprise. Earnings per share of $2.14 beat our expectations by more than 24% and brought the four-quarter average surprise to more than 25%. Total revenues of $5.9 billion were 6% better than the Zacks Consensus Estimate and a more than 47% improvement on last year.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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