For Immediate Release
Chicago, IL – September 22, 2016 – Zacks Equity Research highlights Edwards Lifesciences (NYSE:EW) (EW) as the Bull of the Day and DaVita HealthCare Partners (DVA) as the Bear of the Day. In addition, Zacks Equity Research provides analysisCorcept Therapeutics Inc (CORT) and CryoLife Inc (CRY).
Here is a synopsis of all four stocks:
The growth of Edwards Lifesciences (EW) into a $25 billion provider of cutting-edge heart surgery alternatives is an amazing success story of American ingenuity and medical business innovation.
I last wrote about the company as a Zacks #1 Rank stock in April when I owned it and shares leapt from $90 to new all-time highs above $105 on the company's latest data proving superiority, or at least equivalency, of its Sapien 3 valve replacement procedure to open heart surgery.
Pump Engineer Designs Cardiac Replacement Parts
It all began with the vision of the founder-inventor, a hydraulic engineer named Miles "Lowell" Edwards, who in 1958 set out to build the first artificial heart. By dialing down his dream a bit, was able to create an important life-saving industry. Here's the official story from the company website...
Edwards was a 60-year-old, recently retired engineer holding 63 patents in an array of industries, with an entrepreneurial spirit and a dream of helping patients with heart disease. His fascination with healing the heart was sparked in his teens, when he suffered two bouts of rheumatic fever, which can scar heart valves and eventually cause the heart to fail.
With a background in hydraulics and fuel pump operations, Edwards believed the human heart could be mechanized. He presented the concept to Dr. Albert Starr, a young surgeon at the University of Oregon Medical School, who thought the idea was too complex. Instead, Starr encouraged Edwards to focus first on developing an artificial heart valve, for which there was an immediate need.
After just two years, the first Starr-Edwards mitral valve was designed, developed, tested, and successfully placed in a patient. Newspapers around the world reported on what they termed a “miraculous” heart surgery.
From there, the company built an impressive pedigree for R&D in heart devices and minimally-invasive cardiovascular procedures. In 1966, Edwards Laboratories was purchased by American Hospital Supply Corporation and became American Edwards Laboratories. Then, in 1985, American Edwards was acquired by Baxter International (NYSE:BAX). In early 2000, the company was spun-off as an independent, publicly-held corporation and began trading on the NYSE under the symbol EW.
I last wrote about DaVita HealthCare Partners (DVA) as the Bear of the Day in mid-August when shares were trading above $68.
I wanted to revisit this story now because while we don't have any upward EPS estimate revisions to get the stock out of the Zacks Rank cellar, we did get a ratings upgrade from a respected firm that may soon mark the beginning of a turnaround for this important business.
Before I share details of that upgrade news, let's recap what has happened. DVA became a Zacks #4 Rank Sell in mid-July as analysts began lowering estimates before the company's Q2 report.
On August 8 the company delivered a 3% EPS beat but disappointed with lowered guidance for the year due to difficulties with a recent acquisition.
Since the earnings report, shares tumbled 13% up to August 16, the date of my first article, as most analysts have moved their estimates down again. Then from August 17 on, DVA dropped further but found support near $63, just above the 52-week lows of February at $61.36.
The Business of Dialysis
DaVita HealthCare Partners is the second-largest US provider of dialysis services to patients with chronic kidney failure and end stage renal disease. They serve roughly 180,000 patients through a network of 2,179 owned and managed dialysis facilities.
The company offers outpatient, home-based, and hospital inpatient hemodialysis services, ESRD laboratory services and provides management and administrative services to outpatient dialysis centers.
DaVita had revenues of $13.78 billion in 2015 and trailing 12-month (TTM) sales are at $14.36 billion as of June 30. DaVita HealthCare Partners Inc., formerly known as DaVita Inc., is headquartered in Denver, Colorado. With the acquisition of HealthCare Partners (HCP), the company became the largest operator of medical groups and physician networks in the US.
The Quarter Analysts Saw Coming... Mostly
Total revenue increased 8.8% year over year to approximately $3.72 billion and narrowly surpassed the Zacks Consensus Estimate by 1.2%. The year-over-year improvement was mainly attributable to a rise in patient service revenues.
Analysts knew that the HealthCare Partners acquisition was not going according to management's plans. That's why they were lowering estimates in July. But they weren't expecting a $70 million drop in segment guidance.
Here's how analysts at Raymond James broke down the news...
Drivers behind HCP’s lowered 2016 guidance include: 1) fee for service revenue growth of 3% vs. management 6% target, 2) an overestimation of Medicare Advantage reconciliation payments; 3) Medicare Advantage mentorship growth lower than expected and; 4) an acceleration in the re-branding of HCP to the DaVita Medical Group - $5/$10 million more than expected.
And here was the fallout for EPS estimates...
In the last 30 days, the 2016 full-year consensus fell from $3.95 to $3.77, representing negative annual growth of -1.7%.
2017 consensus profit projections dropped from $4.42 to $4.18, for 11% growth if all goes well.
The Upgrade from RJ
On September 20, analysts at Raymond James talked again about concerns in the market over DaVita's exposure to the ACA exchanges, noting that as the dust settled the risks appeared to be lower than they initially estimated in August.
And finding shares attractively valued after the sell-off, they felt compelled to move their rating on DVA shares from Market Perform to Outperform. They also issued a new $75 price target.
DaVita is a strong business and clear leader in its industry. But until the estimates picture turns around, it's probably best to stay on the sidelines. If the move by this investment bank becomes a new trend, and estimates head back up, then the turnaround could be in motion.
The Zacks Rank warned you in July before the drop and it will let you know when it's safe again.
Additional content:
2 Momentous Healthcare Stocks to Buy Now
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Corcept Therapeutics Inc-(CORT)
Corcept Therapeutics is focused on developing and commercializing drugs which treat severe metabolic, psychiatric, and oncologic disorders. CORT is build around treating conditions that are associated with the steroid hormone known as cortisol. CORT is a Zacks Rank #1 (Strong Buy) and it has a market cap of $659 million.
Corcept has multiple drugs which are progressing through trial phases so that they can receive FDA approval. The company has one approved drug on the market known as Korlym. Korlym was made for treating hyperglycemia associated with Cushing’s syndrome, a rare but debilitating endocrine disorder.
The company reported results from its second quarter in early August. Over the quarter, revenues came in at $19.7 million, picking up by 65% compared to Q2 of 2015. The company is bullish on seeing further growth in sales from Korlym, and it has reiterated its 2016 sales guidance of $76-$81 million.
Over the last 12 weeks, Corcept’s share price has grown by about 12%, and over the last week alone, the stock has picked up about 5%. CORT has an “A” for Growth in our Style Scores. For this fiscal year, EPS and sales are forecasted to grow by 267% and 59% respectively. The pharmaceutical company has done well to surpass our earnings expectations over each of the last four quarters, and it is expected to yield a positive EPS of $0.05 this year, according to our consensus estimate.
CORCEPT THERAPT Revenue (Quarterly) | CORCEPT THERAPT Quote
CryoLife Inc-(CRY)
CryoLife develops and sells implantable living human tissues for use in cardiovascular, vascular, and orthopedic surgeries across the US, Canada, and Europe. The firm has multiple products which are approved for marketing in the US and abroad. CryoLife is a Zacks Rank #1 (Strong Buy) and it has a market cap of $609 million.
CryoLife has a range of products which include surgical adhesives, heart valves, grafts, and more. The company’s adhesive products (BioGlue and BioFoam) accounted for about two thirds of quarterly sales. Sales from these two products have increased, but their dominating presence in CryoLife’s portfolio has decreased, thanks to the company’s acquisition of On-X Technologies. On-X’s artificial heart valve helped in boosting the company’s overall quarterly revenue by $9.5 million. In the company’s Q2 quarterly earnings release, sales grew by about 33% compared to the same quarter last year. Sales came in at $47.1 million for the quarter.
CryoLife’s stock has been very momentous over the last three months. Shares have climbed 48% higher since CRY released its Q2 earnings results on the 25 th of July. In the last week alone, shares have been trending upwards as well, pushing up 4% higher. Two months ago, our current year EPS consensus estimate forecasted earnings of $0.21 per share. Now, our consensus for this year estimates EPS of $0.34.
CRYOLIFE INC Revenue (Quarterly) | CRYOLIFE INC Quote
Bottom Line
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EDWARDS LIFESCI (EW): Free Stock Analysis Report
DAVITA HEALTHCR (DVA): Free Stock Analysis Report
CORCEPT THERAPT (CORT): Free Stock Analysis Report
CRYOLIFE INC (CRY): Free Stock Analysis Report
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