Unfortunately, the coronavirus isn’t going anywhere just yet, as the surge of infections in parts of the US shows no signs of slowing down. In many areas, the number of cases has continued to rise; Seven states — Arizona, Arkansas, California, North Carolina, South Carolina, Tennessee and Texas — reported the highest amount of hospitalizations since the pandemic’s onset.
To help in the battle against COVID-19, diagnostics specialist Biocept (BIOC) has entered the fray. The micro-cap has manufactured 10,000 nasopharangeal swab collection kits, which will be available by 3Q to conduct PCR testing for COVID-19 in California.
Maxim analyst Jason McCarthy believes “Biocept may be in the right place at the right time.”
“The availability of Biocept's collection kits comes at a crucial time when California is seeing a surge in COVID-19 cases as well as undergoing reopening. With the capacity to perform up to 2,000 tests per day, Biocept could play a role in the testing regimen for California,” said McCarthy.
As far as the commercial opportunity is concerned, taking into consideration the $100 reimbursement from the Centers for Medicare & Medicaid Services (CMS) for every test in labs with high throughput testing technology - for which Biocept qualifies - the 10,000 kits could represent revenue of $1 million. However, Biocept could potentially increase the testing capacity by a large margin.
“The number is far below Biocept's laboratory capacity,” McCarthy said. The 5-star analyst added, “Which stands at 300-2,000 tests per day, meaning the number could increase significantly. We expect Biocept to continue to build-out its sample collection kit production.”
To this end, McCarthy keeps a Buy rating on Biocept shares along with a $1 price target. Investors will be looking at a 57% gain, should McCarthy’s call play out over the next 12 months. (To watch McCarthy’s track record, click here)
Over the last three months, only one other analyst has posted a review regarding Biocept’s prospects. The additional Buy provides the micro-cap with a Moderate Buy consensus rating, while the average price target of $1.53 suggests potential upside of a hefty 120%. (See Biocept stock-price forecast on TipRanks)
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The biggest worry surrounding American Airlines Group (AAL) was the large debt load and whether the company could get back to cash flow positive quick enough to repay debt. For this reason, a lot of people have speculated on whether the weaker airline would go bankrupt.
The airline just raised about $2 billion reducing the bankruptcy fears. The bigger question all along was whether the airline had value here around $12.50, not whether American Airlines was ever going to end up bankrupt.
Equity Raise
American Airlines raised nearly $2 billion via an equity offering of 74.1 million shares and $1 billion via convertible notes. In addition, the airline raised another $2.5 billion via a notes offering in anticipation of raising $4.75 billion via the Loan Program portion of the CARES Act.
The airline issued the common shares at $13.50 for a steep discount from the $16.00 when the week started before the news of the planned equity raise. The equity raise of over $1 billion was upsized due to strong demand from an original plan of only $750 million.
The convertible debt comes with a 6.5% coupon with a conversion price of $16.20 per share. With 422 million shares outstanding, the combined equity and convertible debt offering is dilutive by up to 135 million shares. In addition, the underwriters are granted $150 million in additional shares and convertible debt leading to another 20 million in share dilution.
Cutting Debt
For all of the investors worried about mounting debt, American Airlines has technically not raised any meaningful debt prior to this week. The airline started the virus panic with $7 billion in cash and had raised $1.6 billion via the loan portion of the grant. This fundraising, assuming the convertible debt is converted into equity, nearly offsets all of the previous debt.
The company should have nearly $11 billion in liquidity ending the quarter and only the additional $4.75 billion loan from the U.S. Treasury actually adds substantial debt to the balance sheet. The airline would have ~$16 billion in total liquidity giving American Airlines the flexibility to draw down less of the government loan.
American Airlines has already cut daily cash burn to $40 million in June and the amount doesn’t even factor in the Payroll Support Program grant funds of ~$27 million per day. These funds require the company to keep payroll costs high, but the airline will be able to reduce costs on October 1.
The combination of the additional funds and the reduced cash burn eliminate the bankruptcy fears and set American Airlines up for the continued rebound in passenger traffic.
Takeaway
The key investor takeaway is that shareholders of American Airlines are disappointed the company raised so much equity at $13.50 per share. The upside is that the airline no longer has the same bankruptcy risk with the equity raised here and the limited boost in net debt so far during the downturn.
Cowen analyst Helane Becker views AAL as a "contrarian play" and believes the stock is likely to outperform as demand improve. The analyst noted, "[T]here is more opportunity in these shares than in some other airlines. We believe American should be considered in a basket of stocks for investors looking to play the recovery in demand." To this end, Becker rates AAL an Outperform (i.e. Buy) along with a $20 stock-price forecast, which implies about 60% upside from current levels.
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Disclosure: No position.