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Pharmaceuticals

Arcus Biosciences, Inc. (NYSE:RCUS) $20.50

Good support from Gilead: Drug giant Gilead Sciences (GILD) paid just over $300 million to up its stake in this developmental firm to 33%, paying some $21 a share to do so. 

Gilead also upped its members on the board of Arcus from two to three. However, the shares are trading approximately 25% under what Gilead just paid to increase its holdings in Arcus, which could be an opportunity.

Broad Portfolio: The company’s lead product candidate is called Domvanalimab, which is an anti-TIGIT investigational monoclonal antibody. It has a broad portfolio of several other compounds in development as well.

The recent additional funding/equity investment from Gilead is not surprising as it just part of approximately $1.7 billion Arcus has received from the drug giant in recent years. It is also just one of several developmental partnerships Arcus has with larger pharma concerns, which allowed the company to build a diverse and large pipeline with three late-stage programs.

This is led by the development of Domvanalimab which is currently being evaluated in a half dozen Phase 2 and Phase 3 studies to treat NSCLC and upper GI cancers. Most of these are within a combination therapy with its in-house anti-PD-1 antibody called Zimberelimab. If any of these are successful, this could lead to a large potential market.

Arcus Biosciences seems a solid ‘sum of the parts’ investment at current trading levels. The company certainly has multiple ‘shots on goal‘, several partnerships with larger drug development concerns, upcoming trial milestones and is quite well-funded. 

Risks

As outlined in the risks for the other biotech companies, successful completion of trials and FDA approval are the two main risks. Additionally. successfully marketing and profitable sales takes a huge effort, so the go to market strategy has to be almost perfect. 

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Pharmaceuticals Stocks

 Intellia Therapeutics Inc (NTLA) $22 and BeiGene Are High Risk High Reward Investments

Top tier gene editing company, therefore High Risk, High Reward. I think the best bet for Intellia would be a takeover from the bigger pharma/biotech companies.

STRENGTHS

Strong pipeline of in vivo and ex vivo CRISPR-based therapies for life-threatening diseases with high unmet need. Their In vivo therapy is more advanced.

CRISPR gene editing is a leading therapy and likely to succeed. Intellia has a collaboration with Regeneron Pharmaceuticals, which is a stronger Bio Tech company.

Good cash balance to fund operating plans into late 2026.

With nice liquidity and three cutting edge clinical programs in or near pivotal stage, Intellia has garnered a nice following. Wall Street Analysts are excited about its prospects, however sizable revenue starts only in 2026, 2027.

RISKS

FDA has only approved one ex vivo CRISPR/Cas9 therapeutic for human use and none in vivo.

Even after approval the commercial viability is still to be proven and also importantly profitable, even if it takes time – Wall Street estimates call for sizable revenue in 2026-2027.

There have been several failures including the giant Gilead’s after FDA approval.

BeiGene (BGNE) $164

Chinese biotech giant with $3.24Bn estimated sales in 2024. Also, High Risk / High Reward.

BeiGene is a much larger company with an anti-cancer blockbuster, Zanubrutinib. By the end of 2023, it had been approved in more than 65 markets, although U.S. demand remains dominant with annual sales there rising nearly 143% to $946 million.

Zanubrutinib contributes nearly 62% of BeiGene’s overall product revenue. It was the first China-developed innovative drug to gain approval in the United States, initially to treat a type of lymphoma. The the company’s investment in R&D, the biggest in China’s pharmaceutical sector, has brought another star product to market, the injectable drug Tislelizumab. The drug, which boosts the body’s immune defenses against cancer cells, has just been launched in Europe. It brought in $537 million in 2023, a year-on-year rise of almost 27%, although sales notably fell 12.5% in the fourth quarter to $128 million from the same period a year earlier.

This is a matter of prestige for the Chinese government and businesses, I suspect that the government will not hesitate to pump in more cash since biotech needs a vast amount of capital.

Weaknesses and Risks

  • Still Losing money: Having proved its ability to develop novel drugs, BeiGene now needs to show it can come up with multiple blockbusters that will finally deliver profits for shareholders. The earliest estimate of profits is 2027 – chances are the stock could remain a show me story, till then or not get a better multiple / rating.
  • In the cash-hungry biotech business, even a blockbuster drug with annual sales of more than $1 billion may not be enough to cure an excess of red ink. Besides, BeiGene now has 17 commercial products and a pipeline of more than 50 candidate drugs, which are gobbling up cash for R&D, promotional activities and sales.

It’s a bit of a double edged sword – the Chinese government is likely to continue support without regard to profits, but on the other hand the markets are less likely to support a continuously loss making company.

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Shipping Stocks

Arcbest (ARCB) $105 Is A Cyclical Business

It’s a cyclical business with long term revenue growth now expected to be 6-7% but given better operating efficiency earnings should increase about 12%. That said this is a low margin high cost/high volume business, operating margins are only 8%.

2023 was a weak year, revenue dropped 12%, the first in 9 years. Management has cautioned weakness for 2024 as well, but business should pick up in 2025

It being a cyclical business, buying the stock cheap is essential to make a decent return on investment, and at $105 the stock is about 30% cheaper than the 52-week high of 154. It is also substantially cheaper than some of its peers like XPO and Heartland. 

The good thing about cyclicals is that they outperform from the bottom of the down cycle so if one picks up a stock like Arcbest really, really cheap at $80-$85, it can easily scale back to $150 in 3 years, which means doubling your investment. Given that there is nothing exceptional about the business or the company I would wait for a really cheap price.

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Cybersecurity Stocks

Sentinel One Q1 2025 Results: Solid Performance Overshadowed by Conservative Guidance

Sentinel One (S) Post Market $17.25 – 10% drop after falling 6% during the day.

Sentinel One declared Q1-2025 (April 2024) results today, which beat estimates but guided in line for the next quarter and 1% below for FY2025.

These were all solid numbers:

  • Q1 Non-GAAP EPS of $0.00 beats by $0.05.
  • Revenue of $186.36M (+39.7% Y/Y) beats by $5.3M.
  • Annualized recurring revenue increased 35% to $762 million as of April 30, 2024.
  • Customers with an ARR of $100,000 or more grew 30% to 1,193 as of April 30, 2024.
  • Gross margin: GAAP gross margin was 73%, compared to 68%. Non-GAAP gross margin was 79%, compared to 75%.
  • Operating margin: GAAP operating margin was (43) %, compared to (86) %. Non-GAAP operating margin was (6) %, compared to (38) %.
  • Cash flow margin: Operating cash flow margin was 23%, compared to (21) %. Free cash flow margin was 18%, 42 percentage points higher compared to (24) %.
  • Q2 Guidance: $197 million revenue, vs. consensus of $197.75M; Non-GAAP gross margin 79%; Non-GAAP operating margin (6) %.
  • 2025 Guidance: $808-815 million revenue vs. consensus of $817.28M; Non-GAAP gross margin 78-79%; Non-GAAP operating margin (6)-(2) %.

Even the slightly lower guidance (At mid-point, $807.5Mn in revenue is lower by just 1%) sunk the stock, as did a weaker market environment, which saw marquee names like Dell and Salesforce get hammered 20% for weaker guidance in the case of Salesforce and inline expectations in the case of Dell. 

In this market, which seems to have stalled for now and is fuzzy about direction because of inflation and higher interest rates, small companies like Sentinel One, which are not growing exceptionally fast are getting the short shrift – perhaps even a 31% growth rate for FY2025 wasn’t good enough. 

Nonetheless, the valuation has become attractive at 6x sales, margins continue to improve, there is solid cash generation and Sentinel One is getting close to adjusted break even. I may add some shares tomorrow after the PCE report, and upgrades/downgrades. Will post again.

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Semiconductors Stocks

Nvidia (NVDA) Q1-2024 Earnings Preview: High Expectations and Market Optimism

Source: Nvidia

Nvidia Earnings Preview – Q1-2024 

The big event is finally here (Post-market Wednesday, May 22nd) and expectations are sky-high! 

Consensus estimates are for earnings of $5.58 (up 412% YoY) and revenues of $24.6Bn, (up 242% YoY). However, analysts seem to be pointing out that anything less than $5.75 and $26Bn would lead to disappointments. Similarly, expectations for higher guidance for Q2 are also, well, high. Just meeting consensus estimates of $6 per share and $27Bn won’t cut it.

Wall Street remains optimistic – the average price target is $1,040 a 9% upside, with a high of $1,400 from Rosenblatt Securities, who believe that there won’t be any air pockets transitioning from the H(Hopper) series to the B (Blackwell) series, even as AWS this morning confirmed that they would wait for the Blackwell to ship before buying more Hoppers.

Other Wall Street analysts also have higher-than-average targets from $1,100 (Barclays) to $1,200 (Baird).

Seeking Alpha analysts, not to be outdone also talk of the large and growing TAM, with one estimate of $600Bn by 2030, extrapolating growth from the Chips Act, the massive Capital expenditures from mega-caps like Microsoft, Google, Meta, and Oracle, plus the partnership with Dell, new AI use cases and even proxying TSM’s manufacturing capacity. So yes, there are plenty of defensible theories about why this AI gravy train won’t slow down.

For my part, I last bought Nvidia for around $780 on April 22nd, and with a high exposure in it, don’t plan to add more for now. It should remain a very strong, high-conviction, core holding for a long time. I will be looking out for other AI stories.

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Semiconductors Stocks

Nvidia (NVDA) Achieves New Record: Q1 Earnings Beat and Forward Split Announcement

Nvidia (NVDA) Post Market $990 New Record.

  • Another beat, 10:1 forward split new record price, and higher guidance
  • Nvidia press release (NASDAQ: NVDA): Q1 Non-GAAP EPS of $6.12 beats by $0.54.
  • Revenue of $26.04B (+262.2% Y/Y) beats by $1.45B.
  • Record quarterly Data Center revenue of $22.6 billion, up 23% from Q4 and up 427% from a year ago
  • Ten-for-one forward stock split effective June 7, 2024
  • The quarterly cash dividend raised 150% to $0.01 per share on a post-split basis.
  • Q2 Outlook: Revenue is expected to be $28.0 billion vs. consensus of $26.84B, plus or minus 2%.
  • GAAP and non-GAAP gross margins are expected to be 74.8% and 75.5%, respectively, plus or minus 50 basis points. For the full year, gross margins are expected to be in the mid-70% range.
  • GAAP and non-GAAP operating expenses are expected to be approximately $4.0 billion and $2.8 billion, respectively. Full-year operating expenses are expected to grow in the low-40% range.
  • GAAP and non-GAAP other income and expenses are expected to be an income of approximately $300 million, excluding gains and losses from non-affiliated investments.
  • GAAP and non-GAAP tax rates are expected to be 17%, plus or minus 1%, excluding any discrete items.
  • Shares +4.3%.
Categories
Enterprise Software Stocks

Snowflake (SNOW) Q1 Earnings Review: Strong Revenue Growth Amidst Mixed EPS Results

Source: Snowflake

Snowflake (SNOW) $171 Up 7% post earnings.

  • Snowflake press release (NYSE: SNOW): Q1 Non-GAAP EPS of $0.14 misses by $0.03.
  • Revenue of $828.71M (+32.9% Y/Y) beats by $42.82M.
  • Product revenue of $789.6 million in the first quarter, representing 34% year-over-year growth
  • Net revenue retention rate of 128% – This is great.
  • 485 customers with trailing 12-month product revenue greater than $1 million
  • 709 Forbes Global 2000 customers
  • Remaining performance obligations of $5.0 billion, representing 46% year-over-year growth. – This is another good sign. Growing faster than revenue growth.
  • Q2 Outlook: Product revenue $805m – $810M; Operating income margin 3%.
  • 2025 Outlook: Product revenue $3,300M; Operating income margin 3%; Adjusted free cash flow margin 26% – Good cash flow margin.
Categories
Stocks Travel

Airbnb (ABNB) Analysis: Network Effects Leader Warranting Strategic Entry Points

Airbnb – ABNB $145 Buy on declines around $125.

Solid long-term player, well entrenched, and has the virtuous cycle and network of being one of the largest players, with a large and wide choice of rentals and therefore attracting the largest number of travelers – perpetuating the network/cycle.

Had amazing revenue growth from $2.5Bn to $9.9Bn in 6 years through 2023 but has now come down to an estimated more sedate growth of 12% for the 3-5 years, but earnings should grow faster at 13-15% – it has matured and has good operating margins of 18-19%, this should improve. This is more of an earnings story now.

Has gone up 34% in the past year to $145, and with an earnings growth of only 12-14% the P/E multiple of 32 is high, more than two times the earnings growth – hence my preference for a dip for a better price. Unfortunately, with this raging market and because it is the largest player it deserves a premium, it might not happen. If you want to buy now and add more on declines that is not a bad strategy. I would think its still worth a 10-12% return in the next few years with the possibility of more upside.