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.

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.

 

Oct 17, 2019 – Best Ideas in the Medical Devices Space

Posted on by Raj Gupta

The iShares U.S. Medical Devices ETF has pulled back off highs and below its 50-DMA ahead of Q3 earnings. Despite this, it has held up well relative to the broader market largely because of its mega-cap constituents. In this week’s webinar, Executive Director, Research Analyst Raj Gupta will review support and resistance levels for the group, preview Q3 earnings, and reveal which ideas he believes have the fundamental and technical characteristics to climb to new highs. He will also discuss international ideas that have best opportunity going forward.

Viva Biotech

Posted on by Raj Gupta

Key Points:

 

  • We recommend buying shares after a strong break out from a stage-one IPO base in heavy volume. The company trades at a steep discount to peers and expects high double-digit growth over the next two years outpacing industry growth of 11%.
  • Favorable industry tailwinds: China’s CRO market will grow at a 28% CAGR to reach $14B by 2022. R&D Outsourcing in China is expected to accelerate to 40% in 2022 from 31% in 2017. Viva is the fourth largest player in China with 3% market share in terms of China-based revenue. Viva earned H1 2019 gross margin of 50%, higher than Wuxi’s 40%, Pharmaron’s 33%, and Charles River’s 37%.
  • Sticky customer base: In H1 2019, revenue generated from repeat customers accounted for 83% of total revenue in the CFS segment, up from 81% in 2018. More than 60% of existing customers have used Viva’s services more than once. In H1 2019, the company added 23 new customers, taking its total to 388.
  • Unique equity-for-service (EFS) segment: Viva is a pioneer of the incubation business model, where it provides drug discovery and/or incubation services to select customers in exchange for equity interest. Thus far, Viva has realized gains in four of its incubation projects, with return rates of 212%, 494%, 200%, and 315%. The company targets adding 35 and 50 additional incubation projects in 2020 and 2021, respectively, for a total of 137.
  • Double-digit H1 growth: Revenue increased 84% y/y to RMB 142M, driven by 72% y/y growth in the CFS segment. Adjusted EPS grew 33% y/y to RMB 0.08.
  • Looking forward: Consensus expects 2019 revenue and EPS growth of 74% and 20%, y/y, respectively. For 2020, consensus expects revenue and EPS growth of 64% and 92%, y/y, respectively.

Global Health Care Sector—Medical Devices and Equipment

Posted on by Raj Gupta

Some highlights from the report:

 

  • The iShares U.S. Medical Device ETF ( IHI ) is consolidating within a 7% range. Near-term resistance is the 50-DMA before all-time highs at ~$253. We see strong support at ~$234, which is the top of the prior base. The majority of Medical Device names are also consolidating within longer-term ranges with near-term direction dependent on Q3 results and guidance. We advise a selective approach as we are still looking for a break into new highs that we believe could lead to a new trend higher.
  • Next year’s growth/valuation remains in line with historical medians. The median five-year EPS growth rate is 15% and median five-year average P/E ratio is 32x. 2020 EPS is expected to grow a median of 13% with a median P/E ratio of 26x.
  • Q3 earnings are expected to decelerate sequentially, but reaccelerate in Q4 and into 2020 due to favorable comps. IHI constituents expect median Q3 2019 EPS and revenue growth of 9% and 6%, y/y, respectively, slowing from 10% and 8% in Q2. Q4 2019 EPS and revenue is expected to grow 10% and 9%, y/y, respectively.
  • U.S. Focus List ideas include EW, HAE, and IDXX.
  • European Focus List ideas include AFXX.DE, ELKB.SE, SRT3X.DE, COL.DK, and LONN.CH.
  • APAC Focus List ideas include NAN.AU, SDW.HK, and WUXA.HK.