Enduro Royalty Trust (NDRO) is poised for a distribution turnaround and strong capital appreciation, making this stock a good short-term trading opportunity with the potential to be a long-term option, says Ethan Bellamy, Senior Analyst at Robert W. Baird & Co. He pairs NDRO with Whiting USA Trust II (WHZ) when recommending specific U.S. royalty trust stocks.
“We also have ‘outperform’ ratings on WHZ and NDRO with very strong capital appreciation likely. We think that those are both pretty good short-term trading opportunities for a couple of reasons, mostly capital expenditures. Their distribution payouts have been lower recently, and we think that that’s likely to turn around,” Bellamy said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
When the distribution turnaround happens, Bellamy believes that the stocks could benefit in the short run, and NDRO is one that investors could eventually own for the long term. He also says investors can benefit from NDRO‘s higher disclosure of information.
“After they go public, the availability of information on royalty trusts declines precipitously, so we have very good information and we know what the game plan is and what the assets look like at the time of the IPO, but thereafter investor communication on trusts is much more limited,” Bellamy said. “Enduro Royalty Trust (NDRO)…[puts] out an above-average amount of information relative to their peers.”
Pacific Coast Oil Trust (ROYT) is expected to outperform the market and royalty trust peers in the longer term thanks to its capable management, its structure and its exposure to higher global oil prices, says Ethan Bellamy, Senior Analyst at Robert W. Baird & Co. Although he is somewhat cautious on the U.S. oil and gas royalty trust group as a whole, he does like ROYT.
“Our favorite trust buy-and-hold for the long term — and what I would own personally if they let me eat my own cooking — is ROYT, and that’s 98% oil production from the Santa Maria and Los Angeles Basin in California. We think it has a very good structure; it’s a perpetual trust, it’s linked to global crude prices. California tends to trade at North Sea Brent prices, which is a premium price versus interior U.S. prices like WTI,” Bellamy said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Bellamy says ROYT is run by the same management as BreitBurn Energy Partners L.P. (BBEP), a master limited partnership he also likes. He also expects a total 9% rate of return for investing in this particular royalty trust.
“We think that there’s potential production upside from their exposure to the Orcutt diatomite. We have a $21 target on ROYT, which implies 30% potential to our target and 9% in total rate of return. We think that’s attractive and really well-run. It’s actually one of the few that’s actively marketed by the folks that run it,” Bellamy said.
Arena Pharmaceuticals’ (ARNA) recent FDA approval for its weight-loss drug seems to be overestimated by the market, as the weight-loss benefits are in the 3% range, there is a large patient copay for the drug and there is significant lack of insurance domestically, says Boris Peaker, Executive Director and Senior Analyst at Oppenheimer & Co. Inc.
“The drug on a placebo-adjusted basis helps people lose roughly 3% of their body weight, or something on that order — some are little more, some are little less, and that is on top of exercise and dieting. So while that was enough to show statistical benefit for the FDA, we think when the patients actually won’t continually take the drug due to a significant copay,” Peaker said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Peaker has a “market perform” rating on ARNA, and he says the potential for the new drug is highly limited due to copay, the current macroeconomic environment and the general lack of insurance. He says, however, many people are excited about the drug because of the obesity epidemic, and that’s one positive for the company.
“It’s going to be on the market, and it’s not a question of risk bringing a drug to market. When it comes to weight loss and antiobesity drugs, historically as you know, there’s a large target population perhaps, but in practice those drugs tended to have very limited commercial value,” Peaker said.
Endo Health Solutions (ENDP) will soon face declining revenues from generic competition against its two largest margin drugs, Opana ER and Lidoderm, says David Amsellem, Managing Director and Senior Research Analyst at Piper Jaffray & Co. He says Lidoderm’s generic competition is expected to hit the market in September, and Opana ER’s will see additional competition in 2013 and into 2014.
“You have these two products that constitute the company’s highest margin business, and there’s some potential that over the next two to three years that that revenue will evaporate, and I don’t mean completely evaporate, but you’ll see major declines. And so, what does that mean? It means that you’re going to see some major decline in cash flows over the next couple of years,” Amsellem said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Although ENDP hired Rajiv De Silva as its new President and CEO, Amsellem says righting the course of the company will take time. He adds that the balance sheet currently doesn’t allow the company to engage in M&A to broaden its pipeline, and he says the device business doesn’t seem to fit the rest of the company and wonders whether that part of the company is salable.
“The bottom line is that it’s going to take quite some time to turn this company around, also bearing in mind that they don’t have balance sheet flexibility right now, given that you’re looking at over $3 billion in debt and you’ve got a term loan that comes due in, I believe it’s 2016 or 2015,” Amsellem said. “I would expect the recent hire, and I think it’s a good hire — but it is an uphill climb, there’s no question about it, and I think that given all the dynamics, I think there’s a good chance it’s likely to get worse before it gets better.”
Toronto-Dominion Bank’s (TD) goals for 2013 include reaching 7% to 10% growth in the bottom line and delivering $1.6 billion in U.S. earnings, and are a reflection of the company’s improved productivity and valuable U.S. investment, says Colleen Johnston, CFO of TD Bank Group.
“We’re still aiming for about 7% to 10% growth in the bottom line; a lot of that in a slowing revenue environment has to be achieved by improved productivity, and we’re also seeing a steady credit environment, which is positive,” Johnston said. “Businesses that are growing at more of a double-digit rate for us are our wealth management business and our insurance business, where we have lots of opportunity to penetrate relationships and grow that business.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
TD has also made a large investment in the U.S. and is seeing tremendous growth in the fundamentals of its business there, with growth on its balance sheet for lending and deposits far exceeding TD‘s peer group, positioning the company to set a goal of $1.6 billion in U.S. earnings for 2013, Johnston says.
“Low interest rates are affecting margins in the United States, but again, we’re focusing on productivity to make sure we can deliver a good bottom line. This year our goal in the United States is to deliver $1.6 billion in earnings, which will mean an increase in the double-digit territory versus 2012, so we’re very pleased by the growth and the quality of that growth in the United States,” Johnston said.
Celldex Therapeutics, Inc. (CLDX) is currently licensing Seattle Genetics technology that is targeting a novel receptor in breast cancer in addition to other indications, making CLDX a solid play from a commercial standpoint, says Boris Peaker, Executive Director and Senior Analyst at Oppenheimer & Co., Inc.
“Celldex has a very interesting story. What they are using is, they are licensing Seattle Genetics (SGEN) technology, where you basically put a payload on an antibody targeted directly to the tumor, and while that technology has been tested in many indications, what really excites me about their drug is the fact that they are targeting an entirely novel receptor in breast cancer,” Peaker said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Breast cancer has the highest profile in awareness and research funding, and a new targeted therapy in this arena should push Celldex forward commercially, Peaker says.
“In a competitive space from a drug perspective, what we haven’t seen for a long time is a novel target that identified in breast cancer and specifically targeted therapy developed for that target. That’s exactly what Celldex has, in our view, and we think that that makes it commercially very attractive despite all the other therapies available on the market,” Peaker said.
JPMorgan Chase & Co. (JPM) maintains earnings power in the face of near-term legislative obstacles due to the renewed focus of Congress on the issue of “too big to fail” financial firms, says Eric Wasserstrom, Managing Director at SunTrust Robinson Humphrey.
“[I’m] recommending JPMorgan, largely on the view — which I think they recently reaffirmed on their investor day a couple of weeks ago — about the strength of the earnings power at that organization, which I think points to run rate earnings north of $6 in the next couple of years. I think it’s a very powerful earnings story,” Wasserstrom said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Wasserstrom says the renewed interest in the regulation of large financial firms by the legislative branch is not expected to result in large business shifts at JPM, and the shorter-term share weakness due to these worries leads him to think the money center bank currently presents investors with an entry opportunity.
“In the near term, I think they are obviously a bit more in the legislative cross hairs than some others. I doubt that’s going to have any meaningful longer-term business model impact, but it could certainly create some volatility in the share performance, so that’s a name where I am clearly a buyer on weakness,” Wasserstrom said.
Jazz Pharmaceuticals (JAZZ) trades at about 10 times 2013 earnings and is expected to reach earnings CAGR levels of 20% in the next three to five years, driven by the growth of its Xyrem drug for narcolepsy as well as Erwinaze for leukemia, says David Amsellem, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“[Jazz Pharmaceuticals‘] largest selling product is a drug called Xyrem; it is approved for narcolepsy. It is a high-growth product. The company has plenty of room to continue to grow penetration. In this treatment setting, the company has been aggressive in taking price increases. But going forward, they can continue to grow this product in the double digits, just on the back of strong volume growth, so I look at price increases going forward as not just gravy, but icing on the cake, if you will,” Amsellem said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
Amsellem says that although Xyrem has two generic filers on the product, there is very tight misuse pharmacovigilance around the product that’s under patent by Jazz, making wide generic production difficult. He also says the company has Erwinaze for leukemia, and it is expanding to other indications as well.
“The company is also looking actively at other commercial stage or near-commercial stage assets to further diversify the portfolio. So it has been in the past willing to use its cash to make diversifying acquisitions. We expect that to be the case going forward, so the combination of the current business, the health of the business, the growth, the barriers to generic entry on Xyrem, growth from secondary top line drivers and the potential for additional M&A, I think, makes this a really attractive name with, not just EPS growth, but real potential for p/e expansion,” Amsellem said.
Coronado Biosciences Inc (CNDO) is eyeing significant commercial opportunity in its development of a revolutionary parasite treatment for autoimmune disease and could see breakthrough results that could benefit sufferers of Crohn’s disease, ulcerative colitis, and systemic autoimmune diseases such as multiple sclerosis or rheumatoid arthritis, says Boris Peaker, Executive Director and Senior Analyst at Oppenheimer & Co. Inc.
“A majority of pharmaceuticals in development are generally incremental compared to their prior generation drug. Coronado is using a parasite to treat autoimmune disease. That’s very fascinating, and both scientifically and commercially, it’s a fascinating story based on the hygiene hypothesis,” Peaker said. “If you look at people in Third World countries, or pretty much the rest of the world or the entire world, over 100 years ago almost 100% of the population had intestinal parasites. The majority of them were not harmful to us, but they were there. What’s interesting is the moment we started to get rid of these parasites and started cleaning up our world, we started getting a lot of autoimmune disease.”
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
CNDO is now developing a treatment in which they take people with autoimmune disease and deliver a tiny parasite, invisible to the human eye, to the intestine, Peaker says. The first initial placebo control data is expected in the second half of the year, and if the results are positive, the treatment could be a scientific breakthrough and open up tremendous commercial opportunities, Peaker adds.
“If that does work, and you could start having this kind of treatment for Crohn’s disease, ulcerative colitis and ultimately systemic autoimmune diseases like multiple sclerosis or rheumatoid arthritis, you name it, the results would be revolutionary. That would be a huge breakthrough in science, because it would certainly help with one of the newer diseases that currently we treat with very expensive drugs and in a very crude fashion,” Peaker said.
Raptor Pharmaceutical Corp.’s (RPTP) newly approved drug for cystinosis, an orphan indication with 500 patients in the U.S. suffering from this rare lysosomal storage disease, is expected to be priced at highly profitable levels, says Boris Peaker, Executive Director and Senior Analyst at Oppenheimer & Co. Inc.
“Raptor is in the late stages of a drug for orphan indication. They’ve already completed clinical studies. They’ve submitted the file with the FDA; the only thing that’s left is for the FDA to respond. They have a PDUFA date April 30. We think it’s relatively low-risk on approval, so I think the drug looks very good. The real question there is pricing, and sometimes people cringe when they hear pricing in the several-hundred-thousand-dollar range, and it’s understandably so,” Peaker said.
FOR MORE INFORMATION ABOUT THIS INTERVIEW CLICK HERE.
The FDA has since approved the drug, and the commercial launch in the U.S. is anticipated by the end of Q2 2013, according to RPTP‘s most recent press release. Peaker believes that the market will indeed pay high prices for the drug, and he expects the key driver of the stock to be the pricing announcement that is expected in several weeks.
“The market keeps paying those prices, so we believe that the key driver of the stock is going to be pricing announcement, which we anticipate several weeks after approval. But we really like it because it’s a nice orphan indication, patients are easy to find, and you could charge a lot of money for the drug,” Peaker said.
