Shares of Alibaba Group fell 3.9% on Feb. 2 after the e-commerce giant gave an update on its regulatory challenges at its fiscal 3Q earnings.
The company is facing an anti-monopoly investigation from the State Administration for Market Regulation in China. Alibaba (BABA) said that while it continues to co-operate with the Chinese authorities regarding this investigation, it has also established a special task force to conduct an internal review.
Alibaba also gave an update regarding the planned initial public offering (IPO) of its Ant Group, which was suspended in November. The company stated that Ant Group is in the process of developing a rectification plan that will be subject to regulatory scrutiny in China as there had been “significant changes in the Fintech regulatory environment”.
As a result, Ant Group’s IPO plans and business prospects remain considerably uncertain, the company said.
In the fiscal third quarter, Alibaba reported non-GAAP diluted EPS of $3.38, which were up by 21% year-on-year and came in ahead of consensus estimates of $3.26. Revenues jumped by 37% to $33.8 billion year-on-year, beating analysts’ expectations of $33.3 billion. (See Alibaba Group stock analysis on TipRanks)
Alibaba CFO Maggie Wu said, “We delivered another solid quarter...our strong free cash flow enabled us to further invest in strategic areas. We are pleased that our Alibaba Cloud business achieved positive adjusted EBITA during the quarter and Cainiao Network was operating cash flow positive. These progresses reflect our long-term approach to organically incubate and expand businesses from launch to profitability.”
Separately, the company also announced a plan to sell US dollar-denominated senior unsecured notes. The principal amount, maturity dates, interest rates and other terms of the notes have yet to be finalized, Alibaba said.
Following the earnings release, Mizuho Securities analyst James Lee raised the stock's price target from $270 to $285 and reiterated a Buy rating. Lee wrote in a note to investors, “Dec20 quarterly results were modestly better than expectations due to strong demand from Double 11 promotions. At the same time, the Cloud computing business reached profitability for the first time on strong growth. “
“However, margins will likely be under pressure due to increased investments in community-buying model, local delivery for non-food categories, and retail stores in lower-tier markets. We are maintaining FY23 Core EBITA estimate at RMB 319bn as we already factored in increased expenses.” the analyst added.
The rest of the Street is firmly bullish about the stock with a Strong Buy consensus rating. That’s based on 22 analysts recommending a Buy and 1 analyst suggesting a Hold. The average analyst price target of $325.11 implies 27.7% upside potential to current levels.
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Overview
The bull case for Esperion Therapeutics (ESPR) neatly falls into three categories. There is a lot to like here, however, the recent missteps need to be addressed to achieve its full long-term potential. Let's review what has transpired.
The Good
The good is the approval of Nexletol (Bempedoic Acid) by the US FDA in February of 2020 to lower cholesterol. The product's main claim to fame is its "non-statin" mechanism of action. Due to this unique design, Bempedoic acid is positioned to capture the bulk of an estimated 5-6% of the overall cholesterol-lowering market for patients who can’t tolerate a statin.
The overall cholesterol-lowering market is worth $16 billion, with an estimated CAGR of 7%. The quick back of the envelop math gives us a path to a projected $1 billion treatment in 2025 for Nexletol. Sounds excellent with an impressive runway for growth, but there are significant challenges facing Esperion Therapeutics.
The Bad
What’s the bad? The company's performance as it navigates the problematic field of trying to launch a new treatment during a pandemic. The results have been abysmal, with Esperion posting mediocre returns. Total sales of Nexletol in the first three quarters of 2020 was $4.8 million. That is a far cry from an estimated peak sales number of $1 billion as the company is failing to gain traction.
That said, the product is far from doomed as anemic initial sales hampering a drug can spring to life as prescribers come around to using the product. The most notable recent example is Eliquis, which took a few years before hitting its stride. Even though the company is having cash burn issues as sales growth has failed to materialize as projected, financing isn’t the main challenge, especially in today's low-interest-rate environment.
The Ugly
Nexletol is facing an upcoming pivotal data readout, which will determine the overall fate of the company. The trial is called Clear Outcome and follows a large cohort of patients (over 16,000) for multiple years to determine if Nexletol is lowering major cardiac events far and above what is being seen in the control arm. Data from this trial, which is scheduled to conclude in the second half of 2022, could be a seminal event for Esperion. A win in the outcomes trial catapults Nexletol to the forefront of treatment, which will likely assure its path to $1 billion in annual sales. Conversely, a less than robust data set effectively vanquishes the value of the company.
A recent example of over-hyped cholesterol-lowering agents was the PCSK-9 class heralded by Amgen's (AMGN) Repatha. In the stock’s euphoric run, talk circled the Street that it had a blockbuster on its hands with a sure path towards $5 billion in annual sales. Along came a less than stellar outcomes trial a few years back, and Repatha posted $205 million in sales during the first three quarters of 2020. Its nearest competitor, Regeneron's (REGN) Praluent, posted sales of $127 million in the same time frame for 2020.
Target Price
To base price targets, we can look at the 28 million shares currently outstanding in Esperion. The executive team does have a large compensation package revolving around stock options that will not be included in the projection. A win in the Outcomes trial gives Esperion a clear path to $1 billion, with multiple suitors lined up to acquire. Under the optimistic scenario, a buyout in the $2 billion range is feasible, netting a share price of roughly $71 a share. In the case of a "Repatha result," the product might not even hit $100 million in sales, which would translate to a valuation in the single-digit range for Esperion.
Wall Street’s Take
How do Wall Street analysts feel about Esperion Therapeutics? Based on 4 Buys and 2 Holds assigned in the last three months, the healthcare name earns a Moderate Buy consensus rating. At $61, the average analyst price target indicates 77% upside potential. (See Esperion Therapeutics stock analysis on TipRanks)
Concluding Thoughts
Esperion Therapeutics is a classic case of a binary event that can lead to vast rewards or conclude in a stunning defeat with a loss of almost all capital. The outcome will not be revealed until well into late 2022 at the earliest, leaving shares of Esperion without a near-term catalyst to spark its share price higher. However, a buyout can manifest itself at any point. Let's see how this one plays out.
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Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
Shares of Chipotle Mexican Grill declined 2.8% in Tuesday’s extended trading after the fast-casual restaurant operator reported lower-than-expected fourth-quarter results.
Chipotle’s (CMG) 4Q adjusted earnings rose to 21.7% $3.48 per share year-on-year but fell short of the Street’s estimates of $3.73 per share. Revenue during the reported quarter increased 11.6% to $1.6 billion year-over-year and came in marginally lower than analysts’ expectations of $1.61 billion.
The company said, “The adjusted diluted earnings per share was negatively impacted 32 cents by several items due to the increased severity of the COVID-19 pandemic including exclusion pay and higher medical claims, as well as 9 cents from performance bonus accruals.”
Chipotle top-line was driven by a 5.7% increase in comparable-store sales and the opening of 61 new restaurants. Meanwhile, a 177.2% spike in digital sales accounted for almost half of the total sales growth in the quarter.
As for 1Q, the company said, “Assuming the pandemic doesn't worsen, we expect first-quarter 2021 comparable restaurant sales to be in the mid to high teens range given an easier comparison during the second half of March.” Chipotle expects to open around 200 new restaurants in 2021. (See Chipotle stock analysis on TipRanks)
Following the earnings results, Oppenheimer analyst Brian Bittner maintained a Hold rating on the stock citing its valuation. Shares have gained about 75.7% over the past year.
Bittner commented in a note to investors, "We are positively biased toward the business, but given shares at ~54x P/E off '22E, we await a better entry."
"Sales momentum is solid; margins could nicely improve as incremental expenses fade. But, we have low visibility into restoration of historical sales/margin relationship (e.g., $2.5M AUV's/25% margins), which we believe is required to underwrite a powerful earnings upside thesis at current levels," the analyst added.
The rest of the Street has a cautiously optimistic outlook with a Moderate Buy consensus rating based on 12 Buys and 6 Holds. The average analyst price target of $1,542 implies upside potential of about 1.2% to current levels.
Meanwhile, the TipRanks’ stock investors tool shows that investors currently have a Very Negative stance on CMG.
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