Last month we highlighted several turnarounds in Europe and Asia. This month we look north to our friendly neighbors in Canada. While its public equity market as measured by the respected Toronto Stock Exchange (total market capitalization of about $2.2 trillion and 1,500 listed companies) is considerably smaller than that of the United States, fascinating turnaround opportunities can be found there.
For many large pharmaceutical companies, the past few years have been a struggle. Despite increases in overall healthcare spending and a wave of innovative treatments, more drugs are facing revenue-draining generic competition, regulators are tightening their scrutiny on pricing, and the pool of ailments yet to be conquered is shrinking. Some firms have navigated the changes reasonably well. Below we highlight six turnaround candidates in the pharmaceutical sector.
The turnaround for electronic health records firm Allscripts (Nasdaq: MDRX) continues along under CEO Paul Black, but progress is a bit slower than we like, somewhat lumpy, and distorted by the company's complex revenue and profit accounting.
We're sharing this complimentary copy of our full Research Report for Bioverativ (NYSE: BIVV)—20+ pages of financial analysis, investment philosophy and straightforward explanation. BIVV, our most recent closed out purchase recommendation, brought Turnaround Letter readers 95% stock profit in seven short months.
Pharmaceutical specialist Bioverativ (NYSE: BIVV) has agreed to be acquired by Sanofi for $105/share in an all-cash deal. The transaction is highly likely to be completed, so we are moving our rating to a HOLD. There is an outside chance that a higher, competing bid is made; otherwise we would move our rating to a Sell.
This mid-cap has many of the key traits of a successful spin-off--including healthy revenue, profit margins and cash flow, and its former parent bestowed it with a solid capital base. The pharma’s leadership team is impressive and the stock pick comes with strong R&D, marketing and regulatory capabilities. While valuation is not cheap on an absolute basis at 20x 2017 earnings and 12.7x 2017 EBITDA, the stock trades at a considerable discount to its peers and to what we believe is a reasonable price given its attractive positioning.
It’s that time of the year again--bargain hunting season. Holiday shoppers flock to the malls and their favorite websites, and savvy investors search the stock market for year-end discounts. While our approach at The Turnaround Letter is heavily focused on long-term business fundamentals and underlying valuations, even we can be tempted by unusual short-term opportunities at year-end created by artificial selling pressure as investors toss their losers.
For more intrepid investors, it can be profitable to take advantage of other investors’ emotions. If shares of good companies are aggressively sold off because of political fears, they could make for a smart contrarian investment. One such group is the pharmaceutical/biotech industry.
Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached.
EV/EBITDA: What Is It & Why Are We Using It More?
In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple. We thought it might be useful to describe this measure and why we like it.
This Forbeswrite-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.
George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."