For Immediate Release
Chicago, IL – June 26, 2020 – Zacks Equity Research highlights Quidel QDEL as the Bull of the Day and Keysight Technologies KEYS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Adobe ADBE, Nvidia NVDA and Zoom Video ZM.
Here is a synopsis of all five stocks:
Bull of the Day:
Quidelis a $8 billion provider of point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses and they have multiple new COVID-19 tests that have received FDA expedited emergency use authorization (EUA) in the past six weeks.
Combined with CEO Douglas Bryant buying 5,000 shares of his company on June 11th, all this good news saw QDEL jump 18% on June 15 and subsequently go on to new highs above $215.
The insider buy transaction was worth a little over $800,000 implying a price in the low $160s. And other investors were happy to join him as EPS estimates have skyrocketed 150% in the last few weeks with the 2020 consensus going from $3.06 to $7.56.
And next year's EPS consensus launched from $3.40 to $8.68.
The Testing Battleground Against COVID-19
We'll look at all the good news driving this optimism in a moment. First, let's cover some of the basics of COVID-19 medicine...
There are two basic types of tests for the SARS-CoV-2 virus, diagnostic and antibody. The diagnostic tests, which determine active coronavirus infection, are primarily through the detection of the ribonucleic acid (RNA) of the virus via a polymerase chain reaction (PCR). This molecular test is complicated and time-consuming.
Another type of shorter diagnostic test to determine if someone has an infection is the antigen tests that detect specific proteins on the surface of the virus.
Antibody tests look for antibodies that are made by the immune system in response to a threat, such as a specific virus. These tests are used to detect the markers of the virus after someone has already had an infection.
Note: I am summarizing information from the FDA and CDC websites. Please use those resources for the most accurate and complete knowledge.
Last month, the FDA issued the first emergency use authorization (EUA) for a new COVID-19 antigen test from Quidel.
Recapping the Good News
On May 8, Quidel announced it had received EUA from the FDA for a rapid antigen COVID-19 diagnostic assay. The EUA will allow Quidel to market its Sofia 2 SARS Antigen FIA, a rapid point-of-care test to be used with the Sofia 2 Fluorescent Immunoassay Analyzer for the rapid detection of SARS-CoV-2 in nasal or nasopharyngeal specimens from patients meeting the Centers for Disease Control and Prevention's criteria for suspected COVID-19 infection.
The company says the test offers positive results in 15 minutes. From the company press release...
"Sofia 2 is Quidel’s next-generation version of its best-selling Sofia instrumented system. Sofia 2 utilizes the original Sofia fluorescent chemistry design while improving upon the graphical user interface and optics system to provide an accurate, objective and automated result in 15 minutes. The next-generation Sofia 2 system also comes connected to Virena®, Quidel’s data management system, which provides aggregated, de-identified testing data in near real-time."
Then on May 18, Quidel received EUA for the Lyra® Direct SARS-CoV-2 Assay to allow direct sample processing. The innovation of the Lyra® Direct assay is that it removes an RNA extraction processing step, and test kit supply bottlenecks.
On June 11, Quidel received BARDA funding to develop point-of-care diagnostic assays. The funding from the Biomedical Advanced Research and Development Authority, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services, would support the development of a point-of-care diagnostic assay that potentially tests for four respiratory viruses: SARS-CoV-2, Influenza A, Influenza B, and Respiratory Syncytial Virus.
The respiratory virus panel would be developed to run on Quidel's Sofia 2 flagship instrument and would test for four viruses in 15 minutes or less. BARDA funding will directly support Quidel's development of the four-virus, point-of-care test. Funding began on May 29, 2020, and will run through April 2021, totaling approximately $635,000. The goal of the funding is to achieve an Emergency Use Authorization for the test by the U.S. FDA within the funding period.
COVID-19 Testing Is the Play This Year
QDEL is a novel diagnostic/testing play that had about a 2-1 reward/risk ratio before last week's surge. We missed that good entry along with the CEO but I'm watching closely for a new opportunity because if their science is as unique and pivotal as it sounds, it will be an M&A target under $10 billion.
Recently a report by investment bank Jefferies stated that the U.S. needs to increase its coronavirus testing capacity by 10 times or more with an estimate of at least 400 or 500 million tests required through the first COVID-19 season to contain the virus while reopening the economy.
At that scale, large MedTech companies involved in diagnostic testing are likely beneficiaries. Giants like Abbott, Danaher, Roche and Thermo Fisher Scientific might gain from a collective $16 billion boost the analysts suggest.
This is why I think QDEL could already be on the M&A shopping lists of the bigger players. I would look to be a buyer on pullbacks inside $180 to $200.
Bear of the Day:
Keysight Technologiesis a $19 billion provider of electronic design, measurement and test instrumentation systems. Keysight emerged as a public company from the 2014 move by Agilent Technologies to split apart divisions.
KEYS provides specialized electronics solutions to dozens of industries including aerospace and defense, automotive and energy, telecommunications, government and education, and, of course, semiconductors.
And even though the company finds itself classified in the Zacks Electronics - Measuring Instruments industry, it is as much a software company. More on that coming up when I tell you about their recent key acquisition that rolls in AI-powered software test automation.
Keysight calls the top 25 technology enterprises in the world customers, and 78 of the Fortune 100, including AT&T, Broadcom, Boeing, Cisco, Samsung and Toyota.
But KEYS is back in the cellar of the Zacks Rank since the global shutdown disrupted manufacturing and supply chains. And analysts took estimates down further since the company reported a weaker-than-expected quarter on May 26.
Keysight Q2 Earnings Miss Estimates, Revenues Down Y/Y
Keysight Technologies, Inc. delivered second-quarter fiscal 2020 non-GAAP earnings of 78 cents per share, missing the Zacks Consensus Estimate by 22%. The bottom line also declined 36.1% from the year-ago quarter.
Non-GAAP revenues declined 18% year over year to $895 million. Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions in a year’s time) fell 18% on a year-over-year basis to $892 million. Moreover, GAAP revenues slumped 18% from the prior-year quarter to $895 million. The Zacks Consensus Estimate for revenues was pegged at $1.02 billion.
The coronavirus crisis-induced supply chain disruption and shutdown of production facilities affected Keysight’s fiscal second-quarter results.
Quarter in Detail
Orders fell 3% on a year-over-year basis to $1.089 billion during the reported quarter. Notably, core orders declined 3%.
Beginning first-quarter fiscal 2020, the company’s financial reporting comprises two segments — Electronic Industrial Solutions Group (EISG) and Communications Solutions Group (CSG). Ixia Solutions Group (ISG) segment reporting has been aligned with the CGS segment.
CSG includes commercial communications (CC) and aerospace, defense & government (ADG) end markets. CSG revenues of $653 million declined 18% on year-over-year and core basis. CSG contributed 73% to total non-GAAP revenues in the fiscal second quarter. CC revenues of $468 million were down 15% year over year due to coronavirus crisis-induced supply chain disruption. However, management noted robust 5G order growth primarily fueled by 5G investments.
ADG revenues came in at $185 million, down 25% year over year, due to lower international spending. However, higher government spending and momentum in investments aimed at technology modernization, across the United States, was a positive.
EISG revenues declined 19% to $242 million. Challenges pertaining to the automotive sector weighed on revenues. However, management noted momentum in first-to-market solutions, and demand for the company’s solutions in process node technology testing, considering the semiconductor vertical. EISG contributed 27% to total non-GAAP revenues in second-quarter fiscal 2020.
Non-GAAP revenues from Americas came in at $330 million, down 23% year over year. Non-GAAP revenues from Europe and Asia Pacific of $145 million and $420 million declined 19% and 14%, respectively, on a year-over-year basis. Americas, Europe and Asia Pacific contributed 36.9%, 16.2% and 46.9%, respectively, to total non-GAAP revenues in the reported quarter.
Non-GAAP gross margin contracted 90 basis points (bps) to 62.8% during the reported quarter. CSG gross margin of 63.1% contracted 150 bps, while EISG’s gross margin of 61.1% expanded 70 bps on a year-over-year basis.
Non-GAAP operating expenses fell 9.1% to $389 million. As a percentage of revenues, the figure expanded 430 bps to 43.5%.
Consequently, non-GAAP operating margin contracted 520 bps to 19.4%.
The company is improving production and services operations and anticipates returning to 100% capacity by the end of the fiscal third quarter amid persistent supply chain challenges.
Analyst Estimate and Price Target Moves
In the past 60 days, the window for the Zacks Rank, consensus EPS for FY20 (ends in October) has dropped 15.5% from $4.96 to $4.19, representing an 11% annual profit decline from last year.
And revenues are projecting to come in 6.25% lighter near $4 billion.
After the late May report, Citi analyst Jim Suva said management's commentary on its earnings call shows its fundamentals are already improving with a book to bill of 1.22 times and the company commenting that the July quarter will see sales and margins "flat to up." The stock will be under pressure near term as consensus estimates recalibrate lower, but the stock pressure will be short lived as production is ramping. The analyst kept a Buy rating on the shares.
JPMorgan analyst Samik Chatterjee upgraded Keysight Technologies to Overweight from Neutral with a price target of $127, up from $112. The analyst recommends the shares to investors looking for recovery plays within the networking equipment space. The sector has been "largely unscathed" by the COVID-19 disruption, and Keysight offers the opportunity to participate in "robust growth" for test and measurement equipment in the communications end-market with "strong leverage" to the 5G cycle. The company is cycling past supply headwinds, which sets up the shares as a recovery play, said Chatterjee.
Eggplant and Testing Software: A Delicious AI Combination
Finally, on Thursday Keysight Technologies announced the company had completed the acquisition of Eggplant from The Carlyle Group. Eggplant is a software test automation platform provider that uses artificial intelligence and analytics to automate test creation and test execution. Eggplant's Digital Automation Intelligence platform can test any technology on any device, operating system or browser at any layer, from the user interface to application programming interfaces to the database.
This transaction is valued at US $330 million. London-based Eggplant had 2019 revenue of US $38 million and its CEO, John Bates, will join the Keysight leadership team reporting to Soon Chai Gooi, president of Keysight's Electronic Industrial Solutions Group.
This relatively inexpensive acquisition sounds like powerful synergistic scoop by Keysight. It will keep them being an innovative player on the frontiers of technology testing systems.
Plus, Keysight appears to have a strong suite of design, testing, monitoring, and validation software that is allowing companies to keep working remotely. From their website...
"Whether working on design and simulation, or managing multiple instruments and test stations remotely, our PC-based software can help you stay productive at home, at the office, or anywhere you need to innovate."
I would look to be a buyer of KEYS when the estimates stop going down and start heading back up. The Zacks Rank will let you know.
3 Large-Cap Stocks to Buy Now Not Named Apple, Amazon or Microsoft
The Nasdaq Composite jumped to new all-time records Tuesday as the big-tech giants prove the most immune to the coronavirus. Investors and Wall Street seem poised to continue to pile into tech stocks for safety from continued uncertainty surrounding the pandemic.
Stocks followed Tuesday’s climb, which came on the back of positive economic data and the easing of U.S.-China trade tensions, with drops over 2% Wednesday. The downturn ended the Nasdaq’s eight-day winning streak and marked its worst day since the big June 11 selloff. Yesterday’s downturn, like two weeks ago, stemmed from worries about a spike in coronavirus cases in the U.S. and elsewhere as economies reopen.
For instance, Disney agreed to postpone the reopening of its California amusement park and Apple announced it would shut down more stores in the Houston area. Fears of a second lockdown might remain, but it’s unclear if there would be the political will to even attempt that unless things get far worse.
Stocks swung between small gains and losses through morning trading Thursday. And investors must remain vigilant and the coronavirus is certainly still a real concern. Yet there are signs of an economic recovery and as long as we remain in “don’t fight the Fed” mode the market could continue to climb. That said, it might be best to stick within the broader area that has helped drive the comeback from the market’s March 23 lows.
Big tech names such as Apple, Amazon and Microsoft all hit new highs recently. But today let’s dive into three other large-cap tech stocks that have jumped to new records and look ready to expand within different tech industries…
Adobe might not be the biggest name in tech, but its various cloud-based creative software offerings are considered irreplaceable by many users and are sold on a subscription basis for individuals, businesses, and schools. ADBE’s suite of creative and design software includes Photoshop, Illustrator, Lightroom, and many others, and its bundle packages and its Creative Cloud offering can be viewed in a similar light as MSFT’s Office suite. The firm has also boosted its business-focused platforms and solutions for marketing, commerce, and more, and let’s not forget its PDF and e-signature space.
ADBE topped our Q2 fiscal 2020 estimates on June 11, with sales up 14% for the period ended on May 29 and adjusted earnings 34% higher. The firm’s Digital Media division jumped 18% and it bought back roughly 2.6 million shares during the quarter at a time when the likes of AT&T put a halt to their programs. “The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth…” CEO Shantanu Narayen said in prepared remarks.
Adobe shares have popped 12% since its Q2 report as part of a 32% climb in 2020 that has seen it hit multiple new highs. The stock has now outpaced Netflix and AAPL in the last three years, up 200%. Our current Zacks estimates call for ABDE’s revenue to jump 14% in FY20 and another 15% in FY21, which would stretch its streak of double-digit growth to seven years.
Meanwhile, its adjusted earnings are expected to jump 24% and 13%, respectively over this stretch. Adobe sports a “B” grade for Growth and an “A” for Momentum in our Style Scores system and is currently a Zacks Rank #3 (Hold) that longer-term investors might want to consider for its ability to expand within a niche cloud software space.
Nvidia is a GPU giant that has proven for years its strength in the booming gaming market and its more recent expansion into data centers and cloud computing has impressive Wall Street. NVDA topped our Q1 estimates on May 21, with revenue up 39%, driven by an 80% climb in data center revenue, which crossed the $1billion threshold for the first time. And NVDA’s new Ampere architecture is set to play a key role within AI-focused chips and in cloud computing
Nvidia in late April also closed its $7 billion acquisition—its largest ever—of Mellanox Technologies to help bolster its data center business and more. Nvidia’s earnings estimates have turned far more positive since its Q1 beats to help it earn a Zacks Rank #2 (Buy) right now. Our Zacks estimates call for its revenue to jump 42% and 33%, respectively in Q2 and fiscal 2021. Meanwhile, NVDA’s adjusted earnings are projected to soar 57% and 36.5% over this same stretch. And Nvidia’s adjusted FY22 EPS figure is projected to jump another 22% higher on 18% higher sales.
NVDA stock is now up 60% in 2020, against its industry’s 6% climb, and 135% in the last year. NVDA’s valuation picture is a bit stretched, but investors have been willing to pay a premium for Nvidia for five years now and its stock price sits just off its new highs. And Wall Street might continue to scoop up Nvidia for its longer-term growth outlook within cloud computing, gaming, and more. Plus, Nvidia pays a dividend, is part of an industry that rests in the top 8% of our Zacks industries, and boasts a strong balance sheet.
Zoom remains one of the unquestioned winners of the coronavirus stay-at-home economy for its ability to connect people via video, voice, chat, and content sharing. ZM, which went public in April 2019, is up 200% in the last 12 months and 280% in 2020, and notched another new high Thursday.
The cloud-based video firm on June 2 posted blowout Q1 results, topping our earnings estimate by 100%, while its revenue skyrocketed 169%. ZM closed the first quarter, ended on April 30, with around 265,400 customers with more than 10 employees, up 354% from the year-ago period. And customers contributing more than $100,000 in trailing 12-month sales climbed 90% to 769.
Peeking ahead, Zoom’s Q2 revenue is projected to climb 241%, with its FY21 sales set to surge 189%. ZM’s adjusted Q2 earnings are projected to soar over 462% to $0.45 a share, with its full-year figure expected to expand by 237%. Zoom’s impressive post-release earnings revisions help it grab a Zacks Rank #1 (Strong Buy) right now. The stock also earns an “A” grade for Growth and its Internet – Software industry rests in the top 20% of our more than 250 Zacks industries.
Some investors might think it’s too late to jump into Zoom, but people have been saying that for months now. The stock could pull-back in the near-term, but it is likely to remain a solid coronavirus play for its ability to explode while much of the economy contracts.
There is also no guarantee that companies, especially in big cities with public transportation, will race back to the office even as the economy reopens. Plus, firms that find the remote environment relativity seamless might permanently cut back on rent and commercial real estate expenses. And let’s remember that Zoom was growing before the pandemic.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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Click to get this free report NVIDIA Corporation (NVDA) : Free Stock Analysis Report Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report Quidel Corporation (QDEL) : Free Stock Analysis Report Keysight Technologies Inc. (KEYS) : Free Stock Analysis Report Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research