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.

Market View

Posted on by Raj Gupta

U.S. Market

The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq are trading at all-time highs after clearing above multiple levels of resistance throughout the week. On Friday, the S&P 500 cleared above longer-term
resistance along its weekly upper channel line. Going forward, we will be looking for indices to consolidate
gains constructively, avoiding any big pick up in distribution, while support along the 21- and 50-DMA catches
up to current prices.
Seven of 11 O’Neil sectors are now trading 2% or move above their respective 50-DMA, led by Health Care,
Technology, and Capital Equipment. Defensive sectors, Utility and Consumer Staple, as well as Energy, continue
to lag all, trading flat to down over the last week. Industry groups under significant accumulation this week include Biotech, Medical Products/Equipment, Semiconductors, and Electronic Products. 71% of S&P 500 stocks
are trading above their respective 50-DMA, up from 68% last week.

Haemonetics

Posted on by Raj Gupta

Key points:

 

  • Add to Positions as Stock Clears Above its 50-DMA: The stock is now forming the right side of a new base, regaining its 50-DMA in heavy volume following another big earnings beat. Add to positions here. We continue to like HAE going forward for four main reasons: 1) 80% market share within the automated plasma collection market; 2) the newest and best machine on the market, which remains in an ongoing upgrade cycle; 3) two of their largest customers have yet to upgrade leaving upside to revenue guidance; and 4) significant demand for source plasma. We believe this supports a premium multiple of 35–40x and we believe, given 13 straight quarterly EPS beats (last two beats by more than 20%), there is likely upside to FY21 EPS of $3.78.
  • Beat-and-Raise Q2 FY20 Results: Adjusted EPS increased 55% y/y to $0.87, well ahead of consensus of $0.70. The company reported Q2 FY20 revenue of $252.6M (+5% y/y), slightly ahead of consensus of $249.8M. Adjusted EPS guidance was raised to $3.10–3.20 (+31.7% y/y at the midpoint) from $2.95–3.15 (+27.5% y/y at the midpoint), ahead of consensus of $3.07.
  • Still Room to Go: The company launched their NexSys PCS system, an automated platform used to collect plasma, in H2 2018. This new system enhances plasma yield by 3% and, thus far, has reduced customer costs by 10%. NexSys PCS is 20% penetrated in the replacement cycle of the company’s older PCS 300 system installed base of 20K.
  • Growing Addressable Market:Haemonetics estimates the global plasma collection market will reach $6B by 2024, an 8% CAGR. It is the global leader in the plasma collection market, with an 80% share, and will benefit from ongoing demand from biotech companies to collect source plasma to treat rare diseases.
  • Next Catalyst: Haemonetics will release Q3 FY20 results in early February.

Wuxi Apptec

Posted on by Raj Gupta

Key points:

 

  • Hong Kong Health Care continues to outperform: Following up on our October 21 report, multiple Focus List ideas have made new highs including Jinxin Fertility ( JIFG.HK; 1951 HK ), Shandong Weigao Group ( SDW.HK; 1066 HK ), Wuxi Apptec ( WUXA.HK; 2359 HK ), Yichang Hec Changjiang ( YHEC.HK; 1558 HK ), and new add Wuxi Biologics ( WXBO.HK; 2269 HK ).
  • Wuxi Apptec reported better-than-expected Q3 results:Wuxi reported better-than-expected Q3 revenue and net profit. The stock broke into new highs on 4.5x average daily volume. Hold positions and look to add on pullbacks to the rising 21-DMA.
  • Poised to outgrow China’s attractive outsourcing industry:China’s CRO market is expected to grow more than 20% per year to reach $23.3B by 2022. Among China-based R&D outsourcing service providers, Wuxi has the largest market share at 8.3%, ahead of its closest competitors at 2.4% and 1.8%. After adding 1,400+ customers in 2018, Wuxi added 900 new customers during the nine months ended September 2019, taking its active customer count to more than 3,700.
  • Ongoing projects leading to higher milestone and royalty fees:As of September 2019, the company had 900 CDMO/CMO small molecule projects, of which 40 are in phase 3 clinical trials and 17 are commercialized. Wuxi has success-based agreements with more than 30 Chinese customers for providing integrated drug discovery and R&D services for a milestone and/or royalty fee.
  • Next catalyst: The company will announce 2019 results in late March 2020.

Shandong Weigao

Posted on by Raj Gupta

Key points:

 

  • Stock is breaking out ahead of China’s centralized procurement announcement: In July, China’s State Council announced a pilot program for the centralized purchasing of high-value medical consumables. Weigao’s spine orthopedic implants won the bid in Anhui province, and given that the company is China’s largest manufacturer of single-use consumables, we believe they could be chosen for additional purchases later this year. The stock is breaking out of a base-on-base pattern on more than double the average daily volume. Buy shares here.
  • Margin expansion: The contribution of high-value-add products of total revenue increased to 59.9% in 2018 from 52.8% in 2014. Gross profit margin expanded 340bps to 62.2% during the same period. High-value-added products contributed 63.4% of total revenue in H1 2019, resulting in a gross profit margin of 63.4%.
  • Volume growth: In 2018, the medical device industry in China reached $79B (+22% y/y). More than 70% of the growth comes from hospital procurement. Weigao has an extensive distribution network, covering 48% of grade III hospitals in China in H1 2019, up from 44% in 2017.
  • U.S.-based Argon acquisition to accelerate earnings growth: In January 2018, Weigao completed the acquisition of U.S.-based privately-held Argon Medical Devices for $850M. Thus far, 17 Argon products have been registered in China.
  • Next catalyst: The company will announce 2019 results in late March 2020. Management guided for 15-17% y/y revenue growth in 2019.

Elekta AB

Posted on by Raj Gupta

Key points:

 

  • Positive read-through from competing company: Elekta gapped up nearly 8% turning actionable following better-than-expected results from competitor Varian Medical Systems ( VAR ).
  • Favorable industry backdrop: ~25% of cancer patients are treated using radiation therapy, however, research shows that the treatment will be beneficial for 50%+ of all cancer patients globally. Emerging markets, such as Asia, Africa, and Latin America, have 1–2 radiotherapy units per 1M people, versus developed markets with about 6 per 1M people. This shortage supports at least a doubling of the number of units over the next several years.
  • Superior product: Unity is the first system that combines a 1.5T MRI scanner, providing real-time imaging, and a linac to deliver radiation therapy. Management expects 75 Unity orders during the ramp up period through FY20, with 7–9 orders per quarter. Thus far, Elekta received 60 Unity orders. On July 30, Elekta received nine new Unity orders from Australia-based Genesis Care, one of the largest providers of radiation therapy in the world. The first deliveries are scheduled for mid-2020.
  • Strong order intake: In Q1 FY20, Elekta’s gross order intake increased 38% y/y to SEK 4.39B, ahead of consensus of SEK 3.94B, driven by EMEA and APAC. Management guided for FY20 constant currency revenue growth of 8–10% y/y and EBITA margin of 19%.
  • Next catalyst: The company will release Q2 FY20 results on November 22.

Edwards Lifesciences

Posted on by Raj Gupta

Key points:

 

  • Low risk approval leads to TAVR acceleration: Given an expanding TAM following FDA approval to treat low-risk AS patients in August combined with TAVR acceleration and opportunity in Mitral going forward, we believe Edwards’ multiple will continue to expand to 45x 2020 adjusted EPS, which likely has upside given yesterday’s 16% beat. We recommend holding positions here while looking to add on constructive pullbacks to the 21- or 50-DMA. Watch this video for a detailed breakdown of EW’s Datagraph.
  • Highest TAVR growth in last 10 quarters: Edwards reported Q3 TAVR revenue of $700M (+26% y/y), beating consensus by ~8%. This marks the highest TAVR growth and consensus beat in the last 10 quarters.
  • Strong Q3 numbers with conservative guidance: Q3 2019 revenue came in at $1.094B (+21% y/y) with adjusted EPS of $1.41 (+32% y/y). For 2019, revenue is expected to reach the high end of prior company guidance of $4.0B-4.3B (+7.5-15.5% y/y) and above consensus of $4.23B. 2019 adjusted EPS was raised to $5.50-5.65 (+19% y/y at the midpoint) from $5.20-5.40, above consensus of $5.34.
  • Growing global TAVR opportunity:EW expects global TAVR procedure growth of low-double digits in 2020, which is likely very conservative. Overall, the company estimates that 650K patients in the U.S. are suffering from severe AS with THVT penetration of ~18%, expected to rise to 30% in 2021.
  • Global mitral and tricuspid opportunity to reach $3B by 2024: For 2020, TMTT sales is expected to double (~$70-80M), mainly because of an increase in the number of sites and awareness aided by good feedback and data.
  • Next catalyst: The company will host its investor conference on December 5.

Hong Kong Health Care

Posted on by Raj Gupta

Key Points:

  • Recommend overweighting Hong Kong Health Care.
  • Hong Kong Health Care sector outperforming over long term (six months) and improving over short term (one month).
  • Industry backdrop remains favorable.
  • Focus List is overweight Health Care: Six of 14 Focus List stocks (four recent IPOs).
  • Hong Kong Health Care Focus List stocks have RS Ratings between 87 and 99.
  • Focus List ideas: Hansoh Pharmaceutical ( HANP.HK; 3692 HK ), Jinxin Fertility ( JIFG.HK; 1951 HK ), Shandong Weigao Group ( SDW.HK; 1066 HK ), Viva Biotech ( VIVB.HK; 1873 HK ), Wuxi Apptec ( WUXA.HK; 2359 HK ), Yichang Hec Changjiang ( YHEC.HK; 1558 HK ).
  • Stocks of interest: Wuxi Biologics ( WXBO.HK; 2269 HK ), 3sbio ( SBIL.HK; 1530 HK ), Sino Biophm. ( SBIO.HK; 1177 HK ), Ping An Healthcare ( PINH.HK; 1833 HK ), Ak Medical ( AKME.HK; 1789 HK ).

Grupo NotreDame Intermedica

Posted on by Raj Gupta

Key Points:

 

  • Late-stage breakout; Hold positions, trim into strength:The stock is up 145% since our addition in September 2018. Given this is a late-stage breakout without a meaningful correction over the last year, we would hold off on buying and look to trim offensively as the stock makes further highs. We believe the stock can rally toward BRL 70. If the stock begins to pull back, we would trim defensively if it closes below its sharply rising 21-DMA.
  • Fundamentals remain strong:Geographical Expansion with new acquisitions: In 2019, the company acquired six companies along with completing its biggest acquisition of Greenline in January, expanding its coverage in Rio.
  • Underpenetrated market: Of the total population of 211M, ~48M people have private insurance, resulting in a penetration rate of 23%. This can be compared with 68% private insurance penetration in the U.S.
  • Better-than-expected Q2 results:Revenue was up 35% y/y to BRL 2B, in line with expectations and driven by 36% y/y growth from health plans. Adjusted net income increased 24% y/y to BRL 130.7M, ahead of expectations.
  • Next catalyst:The company will announce Q3 results on November 6. In 2019, consensus is expecting revenue and EPS growth of 34% and 59%, y/y, respectively.