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Early Opportunities
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May 3, 2023

Updates on NRDS, LUNG, TKR & ISEE

NerdWallet (NRDS)

NerdWallet reported a better-than-expected quarter yesterday but issued guidance below expectations. Revenue rose 31% to $169.6 million, beating by $3.0 million, while EPS of $0.02 improved from -$0.16 a year ago and beat by $0.07. Management discussed how it is focused on managing through a tough market while delivering profits and continuing to focus on growth opportunities. The company continues to see strength in credit cards (+36% to $61.3 million) while loans (-36% to $22 million) remains a depressed market given higher interest rates for mortgages and student loans. All combined other markets (travel, banking, etc.) grew 74% to $86.3 million. Monthly Unique Users (MUUs) grew 7%. The company also authorized a share repurchase plan of up to $20 million. I thought there was a decent chance for NerdWallet to surprise to the upside, but I don’t think there’s enough in this report and the outlook to get shares significantly higher in the near term, even though I like the company’s portfolio of products and think they’re executing pretty darn well in the current climate. We made 66% and 71% on our first two partial sales. Let’s go ahead and sell our remaining half position for a modest profit. I’ll keep an eye on NRDS as I think the stock will work again once macro uncertainty and such extreme credit-tightening trends fade. SELL REMAINING HALF

Pulmonx (LUNG)

Pulmonx beat expectations when it reported after the close yesterday. Revenue grew 35% to $14.5 million, beating by $1.0 million while EPS of -$0.42 improved by a penny and beat expectations by $0.02. U.S. revenue grew 55% to $9.3 million, and the company added 15 new U.S. treatment centers for Zephyr Valves (total of 293 centers now). International revenue was up 9%. Full-year revenue guidance of $63 - $65 million was reiterated. Big picture, the company is doing well and there appears to be significant opportunity to do better than the guidance management has given in a market that seems to be stabilizing after a very rough pandemic. LUNG continues to trade at a discount to high-growth peers. BUY HALF

Timken (TKR)

Timken reported a beat-and-raise quarter this morning. Revenue in Q1 rose 12% to $1.26 billion and adjusted EPS rose 22% to $2.09. By segment, Engineered Bearings revenue rose 16.6% to $900.7 million (EBITDA profit margin of 22.8%) and Industrial Motion revenue rose 2.8% to $362.1 million (EBITDA profit margin of 13.3% should improve in the future due to accounting changes that will fall off). Management raised full-year revenue growth guidance from 6% to 9.5%, which is better than the 8% analysts had expected. The company also sees adjusted EPS of $7.00 to $7.50 (15% to 22%) implying considerable upside potential to the $7.02 consensus expectation. Not much to complain about with the quarter. BUY

Iveric Bio (ISEE)

Iveric was added to our Watch List recently. On Monday we learned the company will be purchased by Astellas (ALPMY) for $5.9 billion (40 per share). The stock is currently trading around 38, up roughly 30% from where it was when I added it to the Watch List. I regret not adding it to our portfolio, however, it’s nice to see we had the right target in our crosshairs. Given that the buyout will likely go through, I’m dropping ISEE from our Watch List.

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.