For Immediate Release
Chicago, IL – November 3, 2020 – Zacks Equity Research Shares of Vericel Corporation VCEL as the Bull of the Day, Nikola Corporation NKLA asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Lowe’s Companies, Inc. LOW, Dollar General Corporation DG and Best Buy Co., Inc. BBY.
Here is a synopsis of all five stocks:
Bull of the Day:
Vericel is an $800 million provider of advanced cell therapies for the sports medicine and severe burn care markets. The goal of their therapies is to repair or restore a patient’s damaged tissues or organs using their own cells.
The company markets two autologous cell therapy products in the United States: Carticel for the treatment of cartilage defects in the knee, and Epicel for the treatment of severe burns. It is also developing MACI (TM) for the treatment of cartilage defects in the knee, and ixmyelocel-T for the treatment of advanced heart failure due to ischemic dilated cardiomyopathy.
Sales for this small-cap are projected to launch 40% to over $170 million next year and profits are expected to vault more than 400% after a rough 2020 due to the massive hold on elective medical procedures during the COVID-19 shutdown.
In late June, the company revealed their next pipeline candidate for FDA approval…
Vericel Announces Submission of Biologics License Application to the FDA for NexoBrid for the Treatment of Severe Thermal Burns
Below I share some explanations of the science of Vericel therapies and analyst views. But before you listen to them, or me, check out this warrior’s story…
DARA TORRES: 5-TIME OLYMPIC SWIMMER AND MOM
What is cell therapy?
Cell therapy is the infusion, injection or transplantation of whole cells back into a patient for treatment of a condition. In autologous therapy the patient is the source (donor) of their own therapy. With the patient acting as their own donor, the risk of rejection and the use of immunosuppressive therapy is minimized.
How does autologous cell therapy work?
The goal of cell therapy is to repair or restore damaged tissues using cells. For Vericel therapies, tissue from the patient is collected by a qualified and trained surgeon, and then processed and expanded by Vericel into a specific cell type or multicellular therapy. The patient’s own cells are then returned to the surgeon for implantation.
The Vericel Process
Vericel uses a proprietary cell-processing technology to expand naturally occurring populations of cells derived from the patient’s own tissue. Specific to the type of therapy needed, a small sample of tissue is taken from the patient. The sample is then sent to their laboratory in Cambridge Massachusetts for cellular expansion. Rigorous testing ensures the quality and viability of cells before they are delivered back to health care professionals. These cells, in conjunction with rehabilitation regimes, have demonstrated the ability to restore function to patients with serious medical conditions.
Why I Bought Vericel in July
After the company’s May 5 quarterly report where they removed 2020 guidance due to the pandemic, analysts were so excited about the pipeline, with new FDA submissions coming in knee treatments, that they raised their price targets above $20, on average.
SVB Leerink analysts hosted virtual meetings with VCEL senior management in June and here’s what they had to say…
“We view VCEL as a virtual monopoly in a highly underpenetrated cartilage repair market with MACI, and a continued leader in the severe burn market with both Epicel and NexoBrid, with the company reiterating plans for a mid-2020 submission of the NexoBrid Biologics License Application to the FDA.”
Meanwhile, the high Street target has rested with Oppenheimer for over a year, and here was that call from last year…
Vericel price target raised to $32 from $23 at Oppenheimer: Analyst Kevin Degeeter raised his price target on Vericel to $32 from $23 after the company reported Q1 results, raised its 2019 revenue guidance and announced a deal to license North American rights for NexoBrid from MediWound.
I’m sharing this long-standing call because it exemplifies the true growth trajectory of the company in cell therapy, despite the current shutdown on elective procedures. Here was the Oppenheimer update on May 6…
On 5/5, VCEL reported 1Q20 results in-line with pre-announced levels and noted 1) early rebound in MACI demand from states eliminating elective surgery restrictions, 2) stable Epicel biopsy rate since late March, and 3) delay for NexoBrid procurement revenue into 2021. While not providing financial guidance, we view management’s comments on correlation between near-term demand growth and lifting of elective surgery restrictions as a measuring stick for 2Q20 implying a 40-50% potential reduction in MACI revenues. Furthermore, VCEL provided metrics for thinking about operating leverage ($0.25 reduction in expenses for every $1 decline in revenue) and discretionary spending reductions ($1.5M per quarter). On net, guidance implies lower operating expense than we’d modeled resulting in 2020E EPS revision from ($0.25) to ($0.03).
Then on October 14, Vericel pre-announced impressive Q3 results. The Oppenheimer analyst Kevin Degeeter and his team welcomed the good news as VCEL pre-announced 3Q20 revenues above their estimates and the Street driven by MACI growth. 3Q20 revenues are expected to be $32M vs. their prior estimate of $29.0M and consensus of $28.6M.
The Oppy team noted that upside was across all three product lines: MACI (+$2.25M vs their estimate), Epicel (+$0.55M) and NexoBrid (+$0.20M). The company also generated $4.6M in cash flow during the quarter, which they believe may have benefited from working capital adjustments. They raised their 3Q20E EPS to ($0.03) from ($0.07) and stated their belief that “investors are currently assigning little-to-no value for launch of NexoBrid in 2H21.”
They also noted that the company’s planned investor event on 10/16 would be a first step in raising the profile of NexoBrid with investors and as a potential catalyst for VCEL shares.
Vericel Analyst & Investor Day Reactions
On October 16, Vericel hosted analysts and investors for a deep-dive on their science and sales outlook. The 80+ slide presentation is a clinic on tissue damage and regeneration technologies. Afterwards, we saw several analysts raise their view of the pipeline, and their price targets…
Vericel price target raised to $30 from $23 at BTIG: Analyst Ryan Zimmerman cited the company’s recent investor event that mainly focused on NexoBrid – its “recently licensed” burn enzymatic debridement product from MediWound (MDWD) – leaving him “encouraged” about its potential following numerous clinical studies showing its efficacy. NexoBrid will become “highly utilized” within the burn space as it fills a clear unmet need, Zimmerman told investors in a research note.
SVB Leerink: VCEL hosted a NexoBrid-focused virtual analyst event that: (1) Affirmed our view that the burn market is massively underpenetrated overall, even for current standard of care for surgical debridement; and (2) highlighted NexoBrid as a game-changing advance in burn debridement to sustain strong double-digit growth for the company for the foreseeable future and supplement ongoing double-digit growth from the core cartilage defect business. The SVBLeerink analysts had already raised their PT to $30 before the event, and they were confident to reiterate that call.
Bottom line: As Vericel achieves several milestones with their pipeline and increased sales, I would continue to be a buyer of the stock between $18 and $20 for the long-term market potential of their restorative cartilage and skin technologies.
Bear of the Day:
Nikola Corp. bulls have gotten their face ripped off these past few months, with the start-up’s survival being put into question. Since NKLA’s ostentatious rally out of the public market gates in early June, the share price has plummeted over 80%.
Following Hindenburg Research’s (appropriately named) strongly-worded report about Nikola misleading investors, “Tesla Wannabe’s” CEO, Trevor Milton, stepped down on September 21st.
This ‘tactical’ move by Nikola almost felt like an admission of guilt. Get the one responsible for this ostensible felonious securities fraud out so that the company can keep itself together.
Since Hindenburg Research’s stock crushing report, NKLA has capitulated 57%, likely blowing out many retail investing bulls’ trading accounts. This stock looks to be headed further into the depth of negative returns. Unless its new leadership can change the narrative on this pipe dream of a company, it will not survive much longer.
Analysts have been increasingly pessimistic about this company’s future, dropping their long-term estimates and pushing NKLA into a Zacks Rank #5 (Strong Sell).
Losing Critical Relationships
Hindenburg’s accusation, combined with Milton’s “early retirement,” has many of Nikola’s potential partners questioning the business’s legitimacy. Relationships with energy enterprises like BP to build hydrogen-refueling stations are crucial to this alt-energy automotive start-up’s future success. Now conversations with these potential partners have halted.
If Nikola were to lose its key hydrogen-refueling relationships, it could spell the end for this alternative energy-driven automotive start-up.
Apprehension From The Beginning
I had been very apprehensive about NLKA shares since they surged past Ford’s valuation. How can a company that hasn’t sold a single car be more valuable than a 117-year-old automotive giant?
The valuations looked stretched out of the gates with FOMO ridden retail investors driving the bid to seemingly no end when it went public in early June. The shares even IPO’d in a very precarious way, through a special purpose acquisition company (aka SPAC).
A SPAC is a company that goes public on nothing but the promise to purchase a business at some point in the future. This year, more than $33 billion has been raised through SPACs, which, in my mind, signals over optimism in the equity markets.
These SPACs seem to be a cesspool for overzealous retail investors, which can be exemplified with the surge in Virgin Galactic and its eventual drop-off. DraftKings is also a 2020 SPAC IPO that has recently fallen off its high horse after hitting insane valuations. DKNG has dived 45% since it peaked a month ago.
NKLA appears to have been a double whammy of disaster with an enormously stretched valuation from overexcited investors & traders combined with what seems to be a mounting securities fraud situation that has halted its ability to conduct business.
Nikola may happen to come out of the ashes of this disastrous start in the public market. The business is yet to even display a functional vehicle, and with its partnerships looking to be in shambles, I would not risk an investment in NKLA.
Lowe’s to Hire 20K Staff, Offer Bonuses
Lowe’s Companies is all set to make the most of this festive season. Per the recent development, it looks to hire about 20,000 associates at its U.S. stores and regional distribution centers to address customer demand this holiday period and beyond. The company has been filling permanent full-time and part-time positions at stores and adding 2,500 team members across regional distribution centers throughout the nation.
The available supply-chain openings consist of day, night, weekend and overnight shifts for team members whereas the store 12 positions include cashiers, receivers, unloaders, load pullers, customer service employees and sales specialists. Lowe’s hired above 155,000 associates via seasonal hiring process throughout such tough times. Majority of such workers transitioned to permanent roles.
Markedly, the company commits a discretionary bonus of another $100 million, with respect to acknowledging its front-line hourly associates’ efforts in such trying times. While the full-time hourly staff will receive $300, the part-time and seasonal employees are entitled to receive $150.
Notably, the active hourly staff across the U.S. stores, distribution centers and call centers are entitled to receive the bonus on Nov 13. We note that Lowe’s spent over $775 million to support employees amid the pandemic.
We note that Lowe’s has been benefiting from its retail-fundamentals strategy with improved technology and operational channels. Industry experts point out that consumer spending on home improvement products are likely to remain favorable in the near term.
Safety concerns and continued work-at-home practice amid the pandemic have compelled individuals to stay inside. As a result, DIY projects for remodeling, decorating as well as maintenance of furniture and fixtures are being widely undertaken. We expect Lowe’s to keep gaining from such trends.
Lowe’s is investing toward boosting its omni-channel operations for a while. When shopping preferences began witnessing a major shift with the onset of the pandemic, Lowe’s accelerated its efforts to expand digital offerings. Notably, sales at lowes.com grew 135% in fiscal second quarter.
Encouragingly, shares of the Zacks Rank #2 (Buy) company have gained 48.3% in the past six months, outperforming the industry’s 28.7% rally.
A Couple More Solid Picks
Dollar General has a long-term earnings-growth rate of 11.1% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy, also a Zacks Rank #2 stock, has a long-term earnings-growth rate of 7.7%.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks’ 3 Best Stocks to Play This Trend >>
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