Healthcare investors often look to drug makers for exposure to the sector. However, several MoneyShow.com contributors see upside in lesser-known diagnostic and life sciences firms involved in areas from genetic tools to telemedicine.
Doug Gerlach, SmallCap Informer
As the world faces an increasing onslaught of new threats from biological and chemical weapons, viruses and epidemics, one company is making products and treatments to assuage these risks.
Emergent BioSolutions (EBS) is a global specialty life sciences company focused on providing solutions that address medical and public health preparedness and response against accidental, intentional and naturally emerging public health threats.
Emergent was founded in 1998 and currently offers eight products in the chemical, biological, radiological and nuclear defense line. Six target biological threats (anthrax, botulism and smallpox) and two target chemical threats (nerve agents).
The company's pipeline includes therapeutics for influenza, dengue and Zika, as well as vaccines for anthrax, Ebola and Zika. Globalization increases the likelihood of rapid disease transmission (as in the case of pandemic flu, Ebola and Zika), and the rising threat of antimicrobial resistance also demands new treatments.
During the quarter ended Sept. 30, Emergent closed on acquisitions that include the only smallpox vaccine licensed by the FDA, and an FDA-approved anthrax monoclonal antibody.
Both acquisitions include the responsibility to fulfill long-term contracts to provide the products to government agencies. The company also signed contracts with the United States departments of Defense and State.
Analysts are looking for 20% annual earnings-per-share growth from Emergent over the next five years. We are a bit more conservative but see 15% annual growth as sustainable for both revenues and EPS.
Based on a high price-earnings ratio of 25, Emergent could reach a high price of $85 in five years. On the downside, a low P/E of 15 and trailing 12-month EPS of $1.69 provides a floor at $25, with an upside to downside ratio of 3.6 to 1.
Leo Fasciocco, Ticker Tape Digest
Illumina (ILMN) makes sequencing-based and array-based solutions for genetic analysis. Its products serve customers in the research, clinical and applied markets, and enable the adoption of a range of genomic solutions.
Its portfolio of integrated systems, consumables and analysis tools addresses the range of genomic complexity, price points and throughput, enabling customers to select the solution for their research or clinical challenge.
The company also provides reproductive-health solutions, including noninvasive prenatal testing, pre-implantation genetic screening and diagnosis and neonatal and genetic health testing. Annual revenues for the company are $2.4 billion.
Near-term the key driver should be a significant acceleration in quarterly earnings growth. Net for the fourth quarter is expected to rise 39% to $1.18 a share from the $0.85 the year before.
The stock currently sells with a price-earnings ratio of 57. So, it is most suitable for aggressive investors. However, we see good chances for an upside earnings surprise.
Then in the first quarter of 2018, Wall Street is predicting a robust 66% leap in net, while for all of next year analysts look for a 21% rise in net per share. We are targeting the stock for a move to $255 a share off its recent breakout.
Mike Cintolo, Cabot Top Ten Trader
ICU Medical (ICUI) is a pure-play infusion therapy medical firm, offering IV smart pumps, connectors and sets, along with cardiac monitor and pain management systems.
Historically, ICU Medical was a nice company but didn't show much growth, yet the stock is showing strength because a game-changing acquisition earlier this year is starting to pay dividends.
ICU Medical purchased Hospira Infusion Systems from Pfizer (PFE) for $675 million (with another $225 million of possible future payments). The buyout boosted ICU's overseas presence, broadened its product line and is beginning to result in a ton of efficiencies.
While the near-term results have been a bit messy because of the acquisition, investors are focused instead on the bullish 2018 guidance management gave out recently. The top brass leaders see various synergies adding up to $50 million (nearly $2.50 per share).
That should result in EBITDA of around $250 million for the year and earnings between $6.05 and $6.65 per share. That caused analysts to hike their estimates, and given ICU's penchant for topping expectations, it's possible next year's guidance will continue to rise over time.
While this isn't a great growth story, the Hospira acquisition is paying big dividends and should keep buyers interested. Dips of a few points would provide a nice entry point.
Mark Skousen and Jim Woods, Fast Money Alert
Teladoc (TDOC) is the leader in an industry called telemedicine, or telehealth. This is a relatively new field that merges online video technology and smartphone app technology with medical care.
The goal of telemedicine and the role Teladoc plays is to help provide cost-effective and far more convenient medical technology solutions for a host of traditional in-office medical services.
Think of Teladoc as a facilitator of online doctor visits and consultations, done from the convenience of your desk or smartphone, and in as little as 10 minutes.
Another way we like to describe it is that Teladoc gives you a "doctor in your pocket." The time savings and convenience of such a service are obvious, but what's more important is that many large health insurers, plan providers and companies are using Teladoc.
The company now has some 7,500 clients, including 30 healthcare plans and 220 Fortune 1000 companies. That impressive and growing roster has helped Teladoc's revenue grow at a compounded annual growth rate of 80% between 2013 and 2016.
Its shares are up some 98% in 2017, a performance that's outpaced 93% of all other publicly traded stocks over the same period. In fact, the stock rose 24% following the firm's investor and analyst day, when Teladoc reportedly detailed plans to target the back-to-school season and specifically the treatment of childhood illnesses.
The result of the Teladoc presentations to analysts was very positive, with several analysts issuing bullish comments and/or raising their price targets on the stock. This is the kind of thing the fast money notices, hence the recent surge in the shares. This is a surge we expect to continue, and that means an opportunity to profit from this service.
Peter Staas, Capitalist Times
Hologic (HOLX) , a leading provider of mammography equipment and diagnostic services for obstetricians and gynecologists, has made impressive progress on its turnaround story since CEO Stephen MacMillan took the helm in 2013.
The medical device company controls about 65% of the digital mammography market, thanks to its installed base of existing equipment and leadership in the transition to advanced 3-D solutions.
Although the U.S. market for 3-D mammography equipment has matured, revenue from this business continues to grow in the mid-single digits and associated service contracts drive a highly visible stream of cash flow.
Hologic appeared to be on the up and up earlier this year until its entry into the medical aesthetics business via the $1.44 billion acquisition of Cynosure -- which offers products for non-invasive body contouring, hair removal and skin revitalization.
At first blush, the acquisition appears to be an unmitigated disaster, with segment sales suffering year-over-year declines in two consecutive quarters. Hologic attributed these disappointing results to the defection of sales representatives in the first half of the year.
The company has sought to address these challenges by installing Kevin Thornal as the segment's president, the same executive who oversaw the successful reorganization of Hologic's international business.
At this point, the market's inordinate focus on Cynosure's headwinds obscures the potential for 2018 results to surprise for the upside, buoyed by the launch of innovative new products in breast health and diagnostic testing, as well as any signs of a turnaround the medical aesthetics business. Hologic rates a Buy for aggressive investors.
Thermo Fisher Scientific (TMO) has built itself into the 800-pound gorilla in life-science tools and diagnostics; it has the largest installed base of advanced research equipment in the industry, while its newest generation of tools tie into the cloud to enable collaboration and analysis.
A revolution is also underway in the pharmaceutical industry, with companies increasingly focused on developing biologics -- drugs synthesized using biological processes. The complexity of these treatments drives increased demand for equipment, consumables and outsourced services.
Thermo Fisher Scientific also provides investors with leverage to the emerging trend of precision medicine, a practice that considers a person's genetic traits to diagnose health problems earlier and develop a personalized treatment regimen.
Acquisitions also remain a big part of the company's growth story; in mid-2016, the company announced an agreement to purchase FEI Company, a leader in high-end electron microscopy.
This technology enables high-resolution analysis of proteins -- a key to better understanding how cells function that could have important implications for how we study cancer or infectious diseases.
Prospective investors may want to ease into the position to take advantage of any weakness that could result from concerns about reductions in the research budgets at universities and the National Institutes of Health.
