For Immediate Release
Chicago, IL – April 4, 2022 – Zacks Equity Research shares Advanced Micro Devices
AMD
as the Bull of the Day and Biogen
BIIB
asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Range Resources Corp.
RRC
, Southwestern Energy Co.
SWN
, and EQT Corp.
EQT
Here is a synopsis of all five stocks:
Bull of the Day
:
I’ve written about
Advanced Micro Devices
as the Bull of the Day several times this year.
That’s because it continues to maintain its status as a Zacks #1 Rank Strong Buy after analysts keep raising estimates.
But there’s always a bull-bear battle somewhere in Semis and last week brought us this naysayer warning about the PC and gaming markets…
Barclays downgrades AMD to Equal Weight from Overweight
Analyst Blayne Curtis slashed the firm’s price target from $148 to $115, saying that “the company’s growth story needs a pause” with cyclical risks looming in 2023.
“AMD remains positioned to gain market share this year in both the client and server markets, but cyclical risk across several of its end markets, including PC, gaming and broad-based, will come in 2023,” said the analyst. He believes all three segments are running at elevated levels, which poses risk to AMD’s growth trajectory.
Well, that’s one view in a diverse sea of bull-bear perspectives. Here was the rebuttal on the same day, March 31..
AMD weakness on competitor downgrade a buying opportunity
Rosenblatt analyst Hans Mosesmann said AMD share weakness today is being driven by a competitor downgrade on 2023 cyclical issues, “angst on potential consumer weakness in PCs and mobile” even though he says AMD does not sell into this market, and a potential price war with Intel.
However, Mosesmann contends that AMD is “not in any jeopardy” of missing its 30% year-over-year sales growth target for 2022 as he views AMD being set to gain significant data center market share, which “is the thrust of the investment thesis, not a PC market that is up or down 5%.”
And here was a broader view of the Semi market from BofA on March 25…
BofA tactically most constructive on “MANGO” stocks in U.S. Semiconductors
The PHLX Semiconductor Sector Index is down 11% year-to-date versus the S&P 500’s decline of 5%, noted BofA analyst Vivek Arya, and his recent discussions with investors about the US Semiconductors sector “have overwhelmingly been focused more on cycle worries like peaking demand and rising capex than on company fundamentals,” the analyst wrote.
However, as long as global GDP remains above trend, semi stocks are attractive and the “structural importance of semis to the rapidly digitizing global economy cannot be overstated,” Arya contends. In that context, Arya made a “crude attempt at constructing a fang equivalent in semis” and came up with “MANGO,” an acronym that stands for Marvell, Broadcom, AMD, Analog Devices, NVIDIA, GlobalFoundries and ON Semiconductor.
Arya identifies these Semi stocks as those which he is tactically most constructive about. He has “high conviction” that these names are “levered to the right end-markets with solid demand visibility and consistent execution,” Arya added.
Here’s how I view the unique position of AMD, from my recent articles…
The Rise of a Duopoly in HPC and AI
AMD has strengthened its position in the semiconductor market on the back of its evolution as an enterprise-focused company from a pure-bred consumer PC and gaming chip provider.
And after another beat-and-raise quarter — where the Lisa Su starship offered guidance for Q1 EPS that was 30% above consensus Street estimates — the stock is on its way back to the old highs.
AMD has emerged as a strong challenger to NVIDIA’s dominance in the GPU (graphic processing unit) market based on its Radeon technology. Launch of 7 nanometer (nm)-based AMD Radeon RX 5700-series gaming graphics card family featuring RDNA architecture, high-speed GDDR6 (Graphics Double Data Rate type 6) memory and support for the PCIe 4.0 interface, has helped the company increase presence among gamers.
Since the technology of GPU chips for gaming has driven the R&D for high-performance computing (HPC) and artificial intelligence (AI), AMD has joined NVDA in the “category of two” where enterprises and scientific research institutions must have their technologies to crunch large amounts of data at hyper-speed.
In fact, many use both companies’ chipsets to foster “dissimilar redundancy” in platform architecture, performance, reliability and sourcing.
Bottom line on AMD: I still believe shares are a bargain near $100 and would continue to recommend them to investors.
Disclosure: I own AMD and NVDA shares for the Zacks TAZR Trader Portfolio.
Bear of the Day
:
In early February,
Biogen
reported Q4 2021 earnings per share of $3.39, which slightly beat the Zacks Consensus Estimate of $3.32. In the year-ago quarter Biogen had recorded a loss of $1.05 per share.
Sales came in at $2.73 billion, down 4% from the year-ago quarter, hurt by lower sales of Tecfidera and Spinraza. Sales, however, beat the Zacks Consensus Estimate of $2.62 billion.
Product sales in the quarter were $2.19 billion, down almost 5% year over year. Royalties on sales of Roche’s Ocrevus were $261.2 million in the quarter, down 29% year over year. Biogen receives royalties on U.S. sales of Roche’s MS drug, Ocrevus.
Revenues from Biogen’s share of Roche’s drugs, Rituxan and Gazyva declined 29.4% from the year-ago period to $152.9 million due to biosimilar competition. Other revenues declined 4.4% in the quarter to $126.2 million.
Outlook and Estimate Revisions
The company also offered subdued guidance due to generic sales hitting its key MS franchise Tecfidera, whose sales declined almost 20% to $486.5 million in the quarter as multiple generic products have been launched in the United States.
Since this report, Wall Street analysts have been busy taking down earnings estimates for the $30 billion drug maker. The Zacks EPS consensus for this year has dropped over 17% from $18.78 to $15.52.
And next year’s estimates were slashed 20% from $20.32 to $16.17.
The Big Uncertainties
Biogen’s MS revenues were $1.79 billion in the reported quarter, including Ocrevus royalties, which declined 1% (both actual and constant currency basis) year over year.
Biogen is having a tough time as multiple generic versions of blockbuster drug, Tecfidera have been launched, which are significantly eroding the drug’s sales. Spinraza’s sales are being hurt by the negative impact of COVID-19 and a lower rate of new patient starts due to increased competition.
And while hopes have been high for the only drug approved to treat Alzheimer’s Disease, the launch of Aducanumab, sold under the brand name Aduhelm, has been underwhelming. It is an amyloid beta-directed monoclonal antibody that targets aggregated forms of amyloid beta found in the brains of people with Alzheimer’s disease to reduce its buildup.
Though Biogen believes in Aduhelm’s long-term potential, its launch has been slow due to limited patient access amid a lack of clarity on Aduhelm reimbursement. Biogen expects minimal Aduhelm revenues in 2022 due to the uncertainty around reimbursement.
Rest of the Commercial Arsenal
New drug Vumerity recorded $124.9 million in sales, higher than $120.9 million in the previous quarter.
Tysabri sales rose 7.9% year over year to $512.7 million.
Combined interferon revenues (Avonex and Plegridy) in the quarter were $377.7 million, down 17.2% year over year.
Sales of spinal muscular atrophy (SMA) drug Spinraza declined 12% (10% on a constant currency basis) year over year to $441 million.
In the quarter, biosimilars revenues rose 12% year over year (13% in constant currency) to $221 million.
Biogen markets three anti-TNF biosimilars in Europe — Flixabi (a biosimilar referencing Remicade), Benepali (a biosimilar referencing Enbrel) and Imraldi (a biosimilar referencing Humira) through Samsung Bioepis, the joint venture with its South Korean partner, Samsung Biologics. Last month, Biogen announced an agreement with Samsung Biologics to sell its equity stake in Samsung Bioepis for a payment of up to $2.3 billion. With the acquisition of Biogen’s 49.9% stake in Samsung Bioepis, Samsung Biologics will have full ownership of the joint venture.
New Alzheimer’s drug, Aduhelm, approved in June 2021, recorded sales of $1.0 million in the fourth quarter, compared to $0.3 million in the previous quarter. The launch of the drug has been slow as patient access is limited and Biogen generated only $3 million in sales in 2021.
In January 2022, the Centers for Medicare & Medicaid Services (CMS) released a proposed National Coverage Determination (NCD) decision for the class of anti-amyloid antibodies like Aduhelm. Per the NDC, Medicare proposes covering FDA-approved drugs like Aduhelm only for patients enrolled in qualifying clinical studies. The final decision is expected in April. If the draft decision is approved finally in April, it will restrict patient access to Aduhelm and hurt sales of the drug in 2022 as well. However, the final decision could vary from the draft ruling.
In December 2021, Biogen lowered the wholesale acquisition cost (WAC) of Aduhelm by approximately 50% effective Jan 1, 2022, expecting the demand to improve as a result.
Research and development (R&D) expenses were $700 million, down 59% year over year. Selling, general and administrative (SG&A) expenses declined 2.2% year over year to $785 million.
Recent Analyst Moves
Biogen price target lowered to $225 from $230 at BofA.
Last week, Bank of America analyst Geoff Meacham lowered the firm’s price target on Biogen to $225 from $230, and kept a Neutral rating on the shares following Eisai’s recent decision to amend the companies’ Alzheimer’s collaboration, which he said “was a surprise to the market” before CMS’ final NCD decision due on April 11.
After revising his model to reflect the update and Eisai willing to forgo its share of Aduhelm’s profits in exchange for decommitting from further investments, and also using a decision-tree analysis, he derives a present value of $170M for Aduhelm, but notes that assuming the final NCD resembles the draft his model of the value of Aduhelm would fall to negative $67M. Meacham’s updated model also adds lecanemab with a 40% estimate for its odds of success.
Bottom line on BIIB:
This key innovator is a must-own for large-cap Biotech portfolios. And it is probably fairly valued near $200. So buying on dips isn’t a bad strategy. But it’s best to wait until the EPS stops going down and stabilizes. The Zacks Rank will let you know.
Additional content:
Russia-Ukraine War Puts Spotlight on 3 Nat-Gas Explorers
It is now time for investors to keep an eye on energy names since the pricing environment of natural gas is healthy. Natural gas companies are specially in the spotlight amid the war in Europe since the United States has aimed to ship 50 billion cubic meters of liquefied natural gas (LNG) every year to the continent through at least 2030.
Surge in Natural Gas Price
The price of natural gas is trading at more than $5 per million British thermal units, marking an improvement of more than 50% year to date. The recent rise in the commodity price is owing to the escalation of Russian attacks on Ukraine.
There has been massive demand for U.S. natural gas owing to the war as Russia is responsible for supplying as much as 40% of natural gas to the European Union. For supplanting the Russian supply, the United States is exporting record volumes of liquefied natural gas to the allies across the Atlantic, bumping up the commodity price in spring.
Apart from the war, natural gas price is being backed by the expectation for higher consumption of the commodity in the United States this year as compared to last year. According to the U.S. Energy Information Administration (EIA), the consumption of the commodity in the domestic market will increase 2% year over year in 2022. Improving demand in the industrial sector, thanks to higher manufacturing activities, residential sector and commercial sector is also driving the natural gas price.
Stocks in Focus
Explorers and producers of natural gas are adding rigs in prolific domestic plays to capitalize on the healthy commodity pricing scenario. In the United States, the count of rigs exploring the commodity for the week ended Mar 25 was 137, higher than the tally of 107 for the week ended Jan 7, per the weekly rig count data of Baker Hughes. The rotary rig count usually gets published in major newspapers and trade publications.
Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry. The number of active rigs and its comparison with the prior-week figure indicates the demand trajectory for Baker Hughes’ oilfield services from exploration and production companies.
Given the healthy commodity price and rising rig count backdrop, it would be ideal for energy investors to keep an eye on three natural gas explorers. All the stocks carry a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Being a leading independent natural gas and NGL producer in the United States,
Range Resources Corp.
, with its strong footprint in the prolific Appalachian Basin, is well-positioned to capitalize on the gas price rally. Range Resources’ production outlook is bright, given its decades of low-risk drilling inventory.
Range Resources is also focused on returning capital to shareholders. RRC has authorized a $500-million share repurchase program.
Southwestern Energy Co.
is also a well-known name in the United States for being a leading producer of natural gas and natural gas liquids. Southwestern Energy’s operations spread across prolific shale plays like Marcellus and Utica, thereby capitalizing on healthy gas prices.
In order to strengthen its balance sheet, Southwestern Energy is committed in allocating its free cashflows for lowering debt loads.
Another energy name that should be on investors’ radar is
EQT Corp.
. With operations in the Marcellus and Utica Shales in the Appalachian Basin, EQT Corporation is capitalizing on the gas price rally.
Recently, EQT Corporation announced the achievement of investment-grade credit ratings from two credit rating agencies. This reflects EQT’s strong balance sheet and the company’s ability to become a better sustainable energy player.
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