Alexion Pharmaceuticals (ALXN) receives drug approval, Ameriprise (AMP) and XL Group (XL) report third-quarter results, Chipotle Mexican Grill (CMG) moves from Buy to Hold and PulteGroup (PHM) moves from Strong Buy to Buy.
Alexion Pharmaceuticals (ALXN) received FDA approval for a new use for Soliris, which will treat a group of adult generalized myasthenia gravis (gMG) patients who had not previously been offered any similarly effective treatment. MG is an autoimmune disorder of progressive muscle weakness. The new indication for Soliris will begin adding to revenue in 2018.
Alexion is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. Alexion will report third-quarter results on the morning of October 26. Analysts expect $1.32 EPS, with a range of $1.23 to $1.46. ALXN is overvalued based on 2017 numbers and solidly undervalued for 2018. In the coming months, I expect ALXN to rise to 160, where it last traded in April 2016. The best-case scenario will be a retracement of 190, where the stock last traded in December 2015. Buy.
Ameriprise Financial (AMP – yield 2.1%) reported third-quarter non-GAAP earnings of $3.15 per share, when the market was expecting about $2.80, and repurchased $333 million of stock during the quarter. All company divisions performed well except long-term care, which took an unexpected charge related to morbidity assumptions. Wall Street will produce earnings estimate increases in the coming days. AMP remains undervalued. The stock seems overdue for a pullback, yet continues to rise. Shorter-term investors should use stop-loss orders to protect the downside. Hold.
Chipotle Mexican Grill (CMG) reported third-quarter 2017 results yesterday afternoon. All of the key numbers were better than a year ago—operating margin, revenue, net income, same-store sales, food costs and more—but that’s not saying much because 2016 was an horrendous year for Chipotle due to the e coli problems. Adjusted non-GAAP earnings per share (EPS) were $0.69, net of a $0.64 and $0.13 per share charges related to this year’s data security incident and the impact of hurricanes Harvey and Irma. Added together, the aforementioned EPS and charges totaled $1.46 per share when Wall Street was expecting $1.63 per share. For perspective, Chipotle earned only $0.27 per share in the year-ago quarter, so profits continue to rapidly rebound.
The company plans to open approximately 190 new stores in 2017, then 130-150 new stores in 2018. Chipotle is slowing its new store growth while focusing on operations. The stock is down today in reaction to the slowdown in new store growth.
The Board of Directors authorized another $100 million in share repurchases.
Bottom line: Chipotle is a growing restaurant chain that has many moving parts contributing to current and future profitability, including food and labor costs, new products and services, new stores, increased pricing, and new executives revamping procedures and marketing.
The stock is undervalued, volatile and earnings estimates change weekly. In yesterday’s weekly update, I wrote, “The stock could easily reach 350 in the short term, or fall to 295, depending on the market’s reaction to the third-quarter earnings report.” The stock reacted on the downside today, currently trading around 280. I would expect CMG to rise into the 290s later today, then resume trading in the 295-320 range. I’m moving the stock from Buy to Hold until it shows a readiness to rise above 320 again. Hold.
PulteGroup (PHM – yield 1.2% ), the third-largest U.S. homebuilder, reported third-quarter adjusted earnings per share (EPS) of $0.60 on October 24, a penny above consensus estimates. Revenue of $2.13 billion came in under the consensus estimate of 2.30 billion. The company reported year-over-year growth in new orders, average selling prices and number of homes sold. In addition, Pulte repurchased $260 million of stock during the quarter.
Between the third-quarter earnings beat, and CEO Ryan Marshall’s expectation of “strong fourth-quarter and full-year financial results,” investors can expect upward revisions to full-year consensus earnings estimates. Prior to such revisions, Wall Street expected Pulte to grow EPS by 29.6%, and the P/E is just 14.2. The 2018 consensus estimate also reflects 30% EPS growth.
The growing economy, combined with low interest rates and high levels of consumer confidence, is fueling new home purchases. The industry continues to be hamstrung by scarce labor. In addition, costs of wood products in the wake of recent hurricanes and wildfires are expected to impact fourth-quarter margins.
PHM is up 20% in the last three months. I’m moving the stock from Strong Buy to Buy until it rests from the recent run-up. Buy.
XL Group (XL – yield 2.1%) reported third-quarter results of (-$4.00) vs. the recent consensus estimate of (-$3.91). The company announced price increases that will enhance profitability. The financial impact of recent natural disasters lowered book value by 9.2% to $38.27. XL remains in a strong financial position, with $1.4 billion in excess reserves. Initial comments on the quarter by Credit Suisse and Morgan Stanley were enthusiastic. XL is rising toward its recent July high near 47. Hold.