I’m not going to sugarcoat it—this earnings season has not been for the faint of heart. It seems like for every earnings success story, there’s several disappointments. Biotechnology stocks in particular have gotten hit with profit taking in recent weeks.
I don’t know about you, but I never like to see one of my stocks fall on earnings news. I spend a lot of time hand picking stocks to avoid this exact scenario. The unfortunate reality is this is one of the toughest earnings seasons in years, so we’re seeing a lot of sales and earnings misses.
If one of your stocks falls after earnings, the important thing is to get all of the facts before selling. What caused the selloff? Was it a sales or earnings miss, or did is the company’s forward guidance fall below the Street view? Or are investors using this as an excuse to take profits?
To help you decipher the mixed signals, run your stock through Portfolio Grader, which will reveal the stock’s Quantitative Grade and Fundamental Grade. If the stock earns a D or F, that’s your signal to sell into any near-term strength you can get. If the stock earns a C, you’ll want to continue holding it until it is either upgraded or downgraded. And if the stock earns an A or B, you could very well have a buying opportunity on your hands.
The fact of the matter is that stocks pull back for any number of reasons. Sometimes those reasons are legitimate, and sometimes they’re not. In the latter case, this can open up buying opportunities for the savvy stock picker. So today, let’s review three healthcare companies that have pulled back…but are poised for an impressive rebound:
Comeback Story #1: LCI
Today, shares of Lannett Company Inc. (LCI) fell 12% after the generic drug company missed sales expectations for the fiscal third quarter. As I’ll explain shortly, I consider this a kneejerk reaction; Lannett Company had an otherwise strong quarterly announcement.
Last quarter marked the thirteenth consecutive quarter of sales and earnings growth for Lannett Company. Compared with the year ago quarter, net sales climbed 24% to $99.4 million. This missed the $100.7 million consensus sales estimate by a hair. Over the same period, net income jumped 58% to $36.2 million, or $0.97 per share. Analysts were expecting $0.95 EPS, so Lannett Co. posted a 2.1% earnings surprise.
Lannett Co. also lifted its full-year guidance. Looking ahead to FY 2015, Lannett Co. forecasts net sales in a range of $403 million to $408 million, or between 47% and 49% annual sales growth. This is higher than its previous guidance of $395 million to $405 million. Meanwhile, the analyst community is calling for 48.8% annual sales growth and 101% earnings growth for FY 2015. LCI has gotten hit with some profit taking of late, but I expect it to bounce back. The fact remains that the Lannett Co. is fundamentally healthy and the stock trades at less than 15 times forecasted earnings. LCI is an A-rated Strong Buy.
Comeback Story #2: ANIP
This has also been a rough week for pharmaceutical company ANI Pharmaceuticals (ANIP), which plunged after it announced earnings and sales results from its first quarter 2015. Revenues increased 72% year-over-year to $18.8 million, up from $10.9 million in Q1 2014. Operating income surged 170% year-over-year to $9.6 million, while adjusted earnings per share were $0.57.
The consensus estimate was for earnings of $0.56 per share on $19.86 million in sales, so the company posted a slight earnings surprise and just missed sales estimates.
For full-year 2015, ANI Pharmaceuticals reiterated guidance, expecting sales between $80 million and $88 million and adjusted earnings per share between $2.44 and $2.67. This is below the current consensus estimate for earnings of $2.79 per share on $92.06 million in sales.
Because guidance was weaker than expected, ANIP shares pulled back. However, this is still strong earnings and sales growth, as the company’s estimates represent between 43% and 57% annual sales growth and between 114% and 134% annual earnings growth. So, with an A-rating, ANIP is a good buy on this dip.
Comeback Story #3: CNC
Last week, shares of Centene Corporation (CNC) fell after investors used the healthcare company’s miniscule sales miss as an excuse to take profits. But, as you’ll see, the report was quite strong otherwise. Centene Corp. reported that earnings grew 79.3% year-over-year, while sales increased 42% year-over-year in the first quarter. The company posted earnings of $0.52 per share on $4.8 billion in sales, up from earnings of $0.29 per share and sales of $3.4 billion in Q1 2013. This beat the consensus estimate for earnings of $0.48 per share and just missed estimates for $5.12 billion in sales.
Centene Corporation noted that the increase in revenues was thanks to new programs and expansions in several of their states, particularly Illinois, Ohio and Florida. During the first quarter, the company served 331,800 Medicaid members and boosted managed care membership by 44% to 4.4 million.
For full-year 2015, Centene Corporation expects sales between $20.5 billion and $21 billion, and earnings per share between $2.60 and $2.72. This is relatively in line with the current consensus estimate for earnings of $2.63 per share on $21.89 billion in sales. CNC is also an A-rated Strong Buy.
So, if you’re looking to pick up a solid healthcare play at a bargain rate, I’d recommend any of the above stocks. As earnings season rolls along, we’ll undoubtedly get our fair share of earnings surprises and upsets, so I’ll keep my eyes peeled for further buying opportunities.
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