The U.S. market remains in a Confirmed Uptrend. The S&P 500 made another new all-time high Thursday, moving back above its upper channel line and more than 5% above its 50-DMA before pulling back from extended levels Friday. The Nasdaq briefly touched a new all-time intraday high Thursday, before also pulling back on Friday. We continue to view short-term support at the rising 21-DMA for both indices. The distribution day count stands at four and three, respectively, with no expiration for two full weeks.
Author: Raj Gupta
Raj Gupta is Director, Research Analyst.
After joining the firm in 2002 as a research analyst, Raj was appointed senior equity analyst in 2006, and lead senior equity analyst in 2014—largely because of his ability to select outperforming stocks. He acts as an expert in the O’Neil Methodology and contributes to the direction of product and service line development. He recommends securities for addition to or removal from the U.S. Focus List, or USFL, and the associated alerts to clients. During his tenure, he was part of the leadership that developed the Global Focus List, which marked the firm’s successful expansion into international equity recommendations. He is also a lead on the IPO Rewind report and contributes to weekly summaries on the performance of the U.S. market. Much of his expertise is delivered as highly customized service to clients.
RAj earned his Bachelor’s degree in Economics from the University of California, Santa Barbara. He began working at the firm directly out of college, driven by his passion for investing and stocks. An avid soccer player, he built and managed an adult league in the Los Angeles area, in which he still plays. He also enjoys international travel; he and his wife commit to at least one major adventure a year.
O’Neil Health Care Weekly
Over the last five sessions, Commercial Services ( HCSG ), Systems/Equipment ( SWAV ), and Drug Suppliers
( PETQ ) led, while Generic Drugs ( TEVA ), Services ( IRTC ), and Long-term Care ( ENSG ) lagged.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq closed relatively flat for the week
after each held support along short-term moving averages. The S&P 500 rallied off its 10-DMA Friday to close
back at its upper channel line, while the Nasdaq held its 21-DMA before moving back toward all-time high re-
sistance at 14,175. The distribution day count stands at four each with one expiring on the S&P 500 and two on
the Nasdaq next week.
Danaher
Key points from this report:
- Buy Danaher. The stock broke out from a six-month consolidation in heavy volume into new-all-time highs following beat-and-raise Q1 results.
- Beat-and-raise Q1: Revenue grew 58% y/y, 1% better than last week’s preannouncement and 9% above consensus. EPS increased 140% y/y to $2.52, 43% better than consensus of $1.76. The company is now looking for 2021 core revenue growth in the “high teens,” up from previously expecting “low double-digit” growth.
- Bioprocessing business – Cytiva: Through the acquisition of Cytiva, Danaher has become the global market leader for bioprocessing, with 30%+ share. In 2020, Cytiva generated 25%+ core revenue growth and $4B+ in revenue. In Q1, Cytiva accounted for 10% core revenue growth. Before COVID-19, the biotherapeutics industry was expected to grow by double digits through 2025.
- Base business recovering: Danaher’s base business is now recovering following a 10% y/y decline in Q2 2020. In Q1, core revenue growth accelerated 10% y/y from 3–4% y/y in Q3 2020 and Q4 2020. This business is expected to grow by a high-single-digit percentage in 2021. We believe revenue from diagnostic testing will begin to decline due to global vaccination initiatives, however, tools related to COVID vaccine production will likely remain strong given recurring vaccinations may be necessary for years to come.
O’Neil Health Care Weekly
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 continues to make new all-time highs, now
gaining 1% or more for four straight weeks. The index is trading above its upper channel line and ~6% above its
50-DMA, the biggest extension since August 2020. Though extended, there are no signs of technical weakness
as the index remains above all major moving averages with low distribution. The Nasdaq is testing all-time high
resistance between current prices and 14,175. Look for the 10- and 21-DMA to act as near-term support should
indices pullback next week. The distribution day count stands at three and four, respectively, with no expiration
next week.
O’Neil Health Care Weekly
- XLV’s RS line (vs S&P 500) remains at seven-year lows. XLV is the worst performing sector ETF over the last
8- and 13-weeks, and the third worst performer over the last six months. - Over the last five sessions, Outpatient Care (AMED), Systems/Equipment (WAT), Research
Equipment/Services (AVTR), and Products (STAA) led, while Commercial Services (VCRA), Generic Drugs
(AMRX), and Biotech (BGNE) lagged.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied strongly this week, building
on last week’s gains and now approaching levels of potential resistance. The S&P 500 is now sitting just below
its upper channel line, a level the index has respected since breaking out last November. The Nasdaq, after re-
gaining its 50-DMA late last week, is now on the right side of an eight-week consolidation and approaching re-
Carl Zeiss Meditec
Key points from this report:
- Buy Carl Zeiss Meditec. The stock is on the right side of a new base with a pivot of €140.5. We recommend accumulating shares in anticipation of a breakout.
- Business approaching pre-COVID levels. This is a reopening play. The APAC region is leading the way in the recovery with China and South Korea being key growth markets. Given the mass vaccinations expected this year, elective surgery volume is expected to improve.
- Leader in refractive laser surgery. Carl Zeiss has 25%+ market share in the refractive laser eye surgery market. The global market for refractive surgery is estimated to be $1B with a 6-7% CAGR. The company is growing by low-double digits, driven by its superior procedure SMILE.
- Total addressable market worth $12B. The company provides the most comprehensive diagnostic and surgical portfolio in eye care, ranging from routine diagnostic, retinal imaging, biometry to refractive laser surgery, surgical microscopy, and intraocular lenses. Surgical ophthalmology is the largest market at $8.5B, growing by mid-single digits.
Straumann Holding
Key points from this report:
- Buy Straumann. The stock is breaking out of a five-week flat base into new highs.
- Reopening play; favorable comps. The company reported 8% organic growth in H2 2020, recovering sharply from the pandemic. The company now expects double-digit growth across all regions in Q1. With easy comps in Q2, it is on track to report 30%+ revenue growth in H1.
- Initial 2021 guidance looks conservative. Based on positive business progress and performance in H2 2020, management guided for high-single-digit organic revenue growth in 2021 and expects improvement in profitability over 2020. This looks conservative given the company and peer’s commentary regarding the rebound in 2021.
- Leadership in the $4B dental implant market. Straumann is the leader in the segment with 27% share, up from 26% in 2019, and ahead of its peers Envista (NVST) and Dentsply Sirona (XRAY) at 17% and 11%, respectively. The company also announced geographic expansion in China to focus on the fast growing non-premium segment.
- Next Catalyst: The company will host its AGM on April 9 and will announce Q1 results on April 29.
