Norwegian’s 2Q report reflected industry-wide disruptions. Demand for 2021 sailings remains within historical ranges – similar to last quarter – but the company’s updated cash burn estimate is at the high end of its prior target due to additional debt and higher costs (now $160mm per month vs. $120mm-$160mm previously). Expectations across the category remain low, and we continue to view the return of U.S. sailings as the key operational milestone for the industry (expected at the end of October).
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BMY reported Q2 results ahead of the market open on Thursday, beating on revenues and EPS, and lifting 2020 guidance (modestly). During its earnings conference call, there were some important new disclosures that speak to critical parts of the BMY story. First, on Eliquis, we asked whether generics might get delayed beyond the mid-2027 timeframe that we and consensus broadly assume, and the company suggested this is a possibility (the genesis of the question was curious language in the press release from Wednesday night, mentioning a formulation patent that extends to 2031 – a delay could be meaningful to sentiment as future LOEs is the central bear case against BMY and Eliquis is one of the major brands slated for LOE between now and the end of the decade). Second, BMY also announced it now has in-hand positive ph2 results from TYK2 in the new indication of psoriatic arthritis – the upside with TYK2 is that it is a “platform drug” beyond just psoriasis (where ph3 results are pending – due before year-end) – BMY will now be advancing to ph3 in psoriatic arthritis, and other POC trials in other indications remain underway. There were other small updates given as well that were encouraging – such as its confidence in the strength of the data relative to competitors for both Checkmate-9ER (Opdivo in renal) and ozanimod in ulcerative colitis – both data sets have only been top-lined, with presentation of full results coming in 2H most likely.
BMY has been the most controversial of the Outperform ratings we have. It has been a volatile stock over the years tied to mishaps in the immuno-oncology space and there is continued uncertainty over the long-term trajectory of Opdivo, but the product will continue to remain one of the market-leading PD1 therapies over the long-term and its importance to the story is much less than it used to be. The success of CM-227 Part 1A and CM-9LA resulted in two approvals in 1L lung (finally!) offering some differentiation from MRK’s Keytruda+chemo combo, in that BMY offers a “chemo-lite” and “chemo-free” regimens, but the incremental revenue potential from this is likely only modest. The main reason to own BMY is for its broader pipeline of late-stage assets, with plenty of data read-outs and new product approvals coming over the next 12-18mo. Our belief is that, assuming there are no major setbacks, BMY’s P/E multiple has room to expand enough to generate a decent investor return, while still leaving the stock at a discount to peers (warranted because of its heavy future LOE burden). As we have shown in recent analyses, it is very uncommon for big pharma stocks to have single digit P/E multiples, when doing a look-back over the last 20y – this history suggests some degree of mean reversion lay ahead (meaning P/E multiple expansion) which could deliver a good return to shareholders.
FOUR reported impressive results in its first earnings as a public company this morning, highlighted by net revenue and adj. EBITDA coming in well-ahead of Street estimates. Net revenues of $67.4mm (down 10% Y/Y) beat our and the Street’s $41mm. Adj EBITDA of $14.8mm (down 45%) beat our $6.5mm and the Street’s $6.2mm, reflecting adj. EBITDA margins of 18.7%, vs. the 16.0% in our prior model. End-to-end volume of $4.24bn (down 23% Y/Y) came in ahead of our $3.30bn. Gross profit of $32.3mm (down 26% Y/Y) came in ahead of our $20.5mm. Overall, we are encouraged by the print and believe trends underscore Shift4’s omnichannel differentiation which has become increasingly important to restaurant and hospitality clients in the current environment. It’s worth noting that the company’s end-to-end volume grew in June and July (and is included in guidance for 3Q and 4Q to grow), which is impressive given its end markets and underscores FOUR’s likely share gains, tech differentiation, and gateway conversion. For reference, the Company noted CNP trx comprised ~40% of total volume in April, compared to ~5% pre-COVID-19. Coupled with significant customer wins, conversions from gateway-only service, and attrition rates which we estimate are ~30-40% better than the industry average, we believe FOUR will continue to demonstrate relative resilience despite challenging vertical headwinds. On the call we will be looking for color on 1) revenue detail between gateway-only, end-to-end, and SaaS offerings, 2) recent metrics on CNP trx volumes, and 3) potential operating leverage from recovering trends. We would expect shares to outperform over the coming weeks following these results.
This morning CAH reported fiscal 4Q20 adjusted EPS of $1.04, above Wolfe/Consensus EPS of $0.88/$0.90. Pharma and Medical EBIT were both above our estimates. CAH estimates a $130M headwind to EBIT from COVID in Q4 ($0.33). More importantly, CAH established FY21 EPS guidance of $5.25-$5.65 vs. WR/Consensus $5.50/$5.48. Our sense is that expectations had moved higher after strong results from ABC and MCK, but consistent with recent practice we suspect the guidance imbeds an above-average amount of conservatism.
Papa John’s 2Q numbers were relatively short on surprises – the company had previously announced monthly comps through the end of June – but today’s release showed North American SSS accelerated into July (+30.3% vs. +24.4% in June). The July improvement reflected new products (Shaqaroni pizza) and the return of national marketing; performance has been strong across geographies. Management sounded upbeat about the prospect of accelerating unit development into 2021.
MUR reported a mixed 2Q update as Eagle Ford volumes came in better than expected despite non-op activity pushed into 3Q, offset by EBITDA and overall volumes misses. Additionally, the 3Q update shows the off-shore production base being challenged by storm and repair downtime. An initial framework for 2021 was also outlined, with volumes estimated to be 150-160mboepd on a similar $700MM budget, both below our 162mboepd and $770MM capex estimates, as MUR looks to support greater FCF ahead of upcoming maturities. We remain Underperform based on valuation, exploration catalysts being pushed out, and less certainty around 2021 onshore volumes than peers.
AAWW reported adjusted 2Q EPS of $4.71/share vs. our estimate of $2.20 and Cons. of $2.13. This includes $0.94 from a previously announced rent refund that we’ve excluded from continuing EPS in our model. So we view underlying EPS as more like $3.78. Adjusted EPS doesn’t include anything related to the $200M CARES Act grant AAWW received in 2Q.
Big morning for BHC – although we’re not fans on what we’re hearing (although we’ll hold off our final opinion until we get more details ex. Will these be an equity linked spin off etc..)
EPAM reported 2Q earnings this morning, highlighted by a top and bottom-line beat, and a strong F3Q guide above our model and the Street, especially given the challenging and uncertain macro backdrop (FY20 guidance still withheld). Total revenues of $632mm were up 15% Y/Y and 14% CC, handily beating the $598mm guidance midpoint and our $596mm (in line with the Street). Adj. EPS of $1.46 came ahead of the Street’s $1.20 and our $1.21. Adj. operating margins of 17.1% were up 30bps Y/Y and above the 15.1% in our prior model. Performance by Vertical: On a reported basis, Software & Hi-Tech was up 13.2% Y/Y (vs. our 14.0% and 22.0% in 1Q), Financial Services was up 6.3% Y/Y (vs. our 8.0% and 16.2% in 1Q), Business Information & Media was up 42.9% Y/Y (vs. our 25.0% and 46.0% in 1Q), Travel & Consumer was up 0.1% Y/Y (vs. our -20.0% and 14.6% in 1Q), Life Sciences was up 16.4% Y/Y (vs. our 20.0% and 26.3% in 1Q), and Emerging Verticals was up 11.9% Y/Y (vs. our 15% and 30.4% in 1Q).
Bottom line, a blowout quarter and solid/conservative FY21 framework that will see headline consensus numbers increase as the Street transitions to cash EPS numbers. We would expect the stock to trade well after recent underperformance, but June/July order trends will be important to sentiment.
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