Stocks’ Details

1Life Healthcare, Inc.

ONEM Expands its Geographic Reach: 1Life Healthcare, Inc. (NASDAQ: ONEM) is engaged in providing software solutions and offers healthcare application for billing, insurance, planning and other related services. In a recent update, the company revealed its plans to enter greater Raleigh-Durham, North Carolina, and parts of Wisconsin, strengthening its foothold in the 14th and 15th metropolitan markets. This supports entry into Atlanta, Oregon, Georgia, Portland, and Orange County, California in 2020. The company is also expected to make its presence in Austin, Texas.

2QFY20 Key Financial Highlights: During the quarter, the company reported net revenues of $78.0 million, up 18% year over year. At the end of the reported quarter, membership count reached 475,000, a 25% rise from the prior corresponding period. Care margins during the quarter came in at $24.6 million, or 31% of total net revenue, whereas the company reported a loss from operations of $28.7 million, or 37% of total net revenue. Adjusted EBITDA loss was reported at $15.2 million, whereas the net loss for the quarter stood at $30.3 million. During the period, the company announced its plan to expand into two new markets with health network partners. The company exited the quarter with a cash balance of $664.4 million.

Key Highlights (Source: Company Reports)

Outlook: For 3QFY20, the company expects membership count to be between 486,000 to 496,000. ONEM expects net revenue to be in the ambit of $84.0 million to $89.0 million, whereas care margin is expected to be between $26.0 million to $31.0 million. Adjusted EBITDA is expected to be in the range of a loss of $12.0 million to a loss of $7.0 million. For FY20, the company expects ending membership count in the range of 505,000 to 515,000.

Risks: Uncertainties around the world due to COVID-19 pandemic is likely to have an adverse impact on its financial performance. Further, stiff competition, rising costs and stringent regulations outlined by governments remain a potential headwind.

Stock Recommendation: The stock of OMEN closed at $29.67 with a market capitalization of ~$3.74 billion. The stock made a 52-week low and high of $15 and $44.87, respectively, and is currently trading close to the average of its 52-week trading range. The stock gave negative returns of ~25.36% in the last one-month period and 12.18% in the last three months. Debt to equity ratio of the company stood at 0.00x in Mar’20, as compared to the industry median of 0.67x. Considering the above factors, current trading levels and positive outlook, we recommend a “Buy” rating on the stock at the closing price of $29.67, up 2.35% on 19 August 2020.

Lipocine Inc.

A Look at 2QFY20 Key Financial Highlight: Lipocine Inc. (NASDAQ: LPCN) is a specialty pharmaceutical company, which is engaged in the development of pharmaceutical products for usage in men's and women's health. LPCN announced its quarterly results for the period ended 30 June 2020, wherein the company reported a net loss amounting to $6.4 million, as compared to a net loss of $3.4 million in Q2FY19. Diluted net loss per share for the quarter stood at $0.13. Research and development expenses stood at $2.3 million, up from $ 2 million reported in the year-ago period. The increase in R&D expenditures was on the back of higher contract research organization and consulting and manufacturing costs pertaining to the LPCN 1144 LiFT Phase 2 clinical study in NASH. General and administrative expenses stood at $2 million as compared to $1.4 million in 2QFY19. The company reported $18.3 million in cash and cash equivalents as on 30 June 2020.

1QFY20 Income Statement Highlights (Source: Company Reports)

Key Risks: On the flip side, the company has been carrying the burden of operational inefficiency for the past few quarters. Increasing R&D and G&A expenses related to the LPCN 1144 Phase 2 LiFT Phase 2 clinical study is likely to reduce operating margins. Also, the company is exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers which adds to the woes. However, the company is taking necessary steps to ensure the safety and well-being of patients and caregivers, curtail the risk of supply disruption, and achieve its growth strategies.

Stock Recommendation: The stock of LPCN closed at $2.04 with a market capitalization of ~$133.79 million. The stock is trading at the upper band of its 52-week trading range of $0.30 to $3.45. The stock of the company went up by 61.94% and 118.97% in the last one month and three months, respectively. Debt to equity ratio of the company stood at 0.97x in Mar’20, as compared to the industry median of 0.48x. On the valuation front, the stock is trading at a P/BV multiple of 10.9x as compared to the industry median (Biotechnology & Medical Research) of 3.5x on TTM (Trailing Twelve Months) basis and thus, seems overvalued. Considering the aforesaid facts, current trading levels, and valuation on TTM basis, we suggest investors to wait for better entry levels and have a watch stance on the stock at the closing price of $2.04, down 5.99% on 19 August 2020.

3M Company 

3M Stops Fake N95 Schemes on Amazon: 3M Company (NYSE: MMM) focusses on business transformation, which involves localization of decision making and integration of supply chains, thereby enhancing its competitive position in the market. In a recent update, the company took necessary measures in a federal court case in California to detect and prevent fake N95 fraudulent scheme on Amazon and pursue legal action against the Defendants. 

3M Provides July 2020 Sales Update:  Recently, the company provided an update on its sales performance in July 2020, wherein, its top line rose 6% from the prior corresponding period on bolstering demand in several geographies served and businesses. Apart from the sales update, the company stated that it has received the board of directors’ approval for the payment of the quarterly dividend of $1.47 per share for the third quarter of 2020, payable on September 12, 2020. July 2020, sales stood at $2.8 billion. Organic sales for the period increased 3% on pcp and acquisitions or divestitures had a positive impact of ~3%.  

Other Recent Updates: On August 5, 2020, 3M, and Mitsubishi Paper Mills Ltd. (MPM) inked a patent license agreement for the use of 3M’s metal mesh technology. In another update, 3M Innovative Properties Co. and Cinotop Electronics Co., Ltd. also entered a patent license agreement for the use of 3M’s metal mesh technology.

2QFY20 Key Financial Highlight: During the quarter, the company reported adjusted earnings of $1.78 per share, down 16.4% year over year. The company’s net sales also declined 12.2% year over year and came in at $7,176 million. The results were primarily impacted by adverse impacts of organic sales decline, COVID-19 led crisis, acquisitions/divestitures, and forex troubles. The company exited the quarter with a cash balance of $4,219 million, with a long-term debt balance amounting to $19,276 million.

Key Highlights (Source: Company Reports)

Outlook: The company anticipates worldwide economy to improve on a sequential basis in 3QFY20. The company targets to produce 2 billion respirators in 2020 and expect the same to boost organic sales by 300-350 bps in the coming quarter.

Risks: The company is likely to be impacted by pandemic related issues on its operations. Further, lower end-markets demands for discretionary healthcare, oral care, office supplies, general industrial, automotive OEM and commercial solutions are likely to weigh on its financial performance. Also, stiff competition and a leveraged balance sheet add to the woes.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

 P/E Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MMM closed at $163.97 with a market capitalization of ~$94.4 billion. The stock made a 52-week low and high of $114.04 and $182.54, respectively, and is currently trading above the average of its 52-week trading range. The stock gave positive returns of ~10.12% and 2.85% in the last three months and one month period. Debt to equity ratio of the company stood at 1.91x in Jun’20, as compared to the industry median of 0.97x. Considering the above factors, we have valued the stock using P/E multiples based relative valuation method (illustrative) and arrived at a target price with a correction of single-digit (in % terms) and thus, seems overvalued. Considering the aforesaid facts, we suggest investors to wait for better entry levels and have a watch stance on the stock at the closing price of $163.97, down 0.25% on 19 August 2020. 

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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