GW Pharmaceuticals Plc

GWPH Details

Positive Stance for EPIDYOLEX®: GW Pharmaceuticals Plc (NASDAQ: GWPH) is a biopharmaceutical company that specializes in developing, discovering, and commercializing novel therapeutics from its proprietary cannabinoid product platform. Recently, GWPH informed the market that its lead product, EPIDYOLEX®, has been accepted by the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) with a positive stance. The product is used for the medication of seizures for patients aged two years and above suffering from Tuberous Sclerosis Complex (TSC).

Q4FY20 Key Financial Highlights: During the quarter, the company reported total revenues of $148.2 million, up from $109.1 million reported in the year-ago period, driven by the robust response for EPIDYOLEX® from physicians and patients. Total net product sales of EPIDYOLEX® during the quarter came in at $144.1 million. Net loss for the period came in at $29.1 million against a net loss of $24.9 million reported in 4QFY19. The company exited the period with a cash balance of $486.8 million. Net cash used in operating activities for the year ended 31 December 2020 came in at $27.39 million.

Revenue Highlights (Source: Company Reports)

JAZZ to Acquire GWPH: In February 2021, GWPH and Jazz Pharmaceuticals Plc (NASDAQ: JAZZ) inked a deal, as per which Jazz will buy GWPH for a total consideration of $7.2 billion. Notably, the business deal is subject to the approval by the High Court of Justice of England and Wales, authorization of GWPH shareholders, and other regular closing requirements. The transaction is expected to close in the 2QFY21. Post the completion of the transaction, the merged company will be one of the leaders in neuroscience. The combined company will be well placed to boost the value of its diversified portfolio.

Key Risk Aspects: On the flip side, the company is exposed to short-term disruptions hindering from challenging macro-economic environment due to COVID-19 led outbreak. Also, the company is exposed to risks related to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers.

Outlook: The company remains on track to make continuous progress in expanding global reach of EPIDYOLEX®. It expects to unveil its key product in France, Spain, and Italy in 1HFY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went up by ~73.66%. The stock is currently trading close to its 52-weeks’ high price of $218.56. On the technical analysis front, the stock has a support level of ~$211.75 and a resistance level of ~$218.5. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer’s median, considering the increase in losses in 4QFY20, negative cash flow from operations and stringent regulatory approval. We have taken peers like SAGE Therapeutics Inc (NASDAQ: SAGE), Alnylam Pharmaceuticals Inc (NASDAQ: ALNY), to name a few.  Considering the current trading levels, steep price movement in the past months, risks related to COVID-19 pandemic, increase in losses in 4QFY20, valuation, and key investment risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $217.77, down by ~0.07% on 12 April 2021.

GWPH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

The Goodyear Tire & Rubber Company

GT Details

Appointment of Board Members: The Goodyear Tire & Rubber Company (NASDAQ: GT) is involved in the development, manufacturing, distribution and marketing of tires and related products and provides services worldwide. On April 12, 2021, the company informed the market regarding the appointment of 13 members to the Board of Directors for a term-period of one year at the company's virtual annual shareholder meeting.

Pricing of Senior Notes: On April 1, 2021, the company announced the pricing of its unsecured public offering worth $550 million and $450 million, aggregate principal amounts of senior notes, due to maturity in 2031 and 2033, respectively. Net proceeds from this offering, along with the current cash balance, will be utilized to redeem its outstanding $1 billion 5.125% senior notes in full, due to maturity in 2023.

GT’s Strategic Moves: On March 23, 2021, the company inked a strategic alliance with an all-digital, all-electric car rental company, UFODRIVE, in order to enhance electric vehicle fleet execution. On March 18, 2021, the company collaborated with Voyomotive, a connected car technology company, to test tire examining solutions, aiming to enhance the functions of vehicles in the United States. 

4QFY20 Operational Highlights:  During the quarter, the company delivered adjusted earnings per share of 44 cents as compared to earnings per share of 19 cents reported in the year-ago period, owing to better-than-expected performances from Americas & Europe, Middle East and Africa (EMEA) units. Revenues for the quarter stood at $3.7 billion, depicting a decline of 2% year over year. The year-over-year softness was due to lower industry volume and unfavorable foreign currency translation. The company exited the period with a cash balance of $1.5 billion and long-term debt and finance leases amounting to $5.4 billion.

 Key Highlight (Source: Company Reports)

Risk Analysis: Lower demand following shelter-in-place orders and strong declines in consumer confidence amid the coronavirus pandemic are weakening the company’s margins. Further, foreign exchange fluctuation and stiff competition in the market adds to the woes.

What to Expect: The company remains on track to enter FY21 on a good note. The company’s commercial business and consumer replacement business are expected to be key growth catalysts. The company opines to witness benefits from its robust consumer original equipment pipeline and capitalize on stronger industry fundamentals in FY21.

Stock Recommendation As per NASDAQ, the stock of GT is trading close to its 52-weeks’ high level of $19.38 and seems to have reached its market potential. The stock of GT gave a return of ~84% in the past six months and a return of ~56.3% in the last three months. On a technical front, the stock of GT has an immediate support level of ~$15.67 and a resistance level of ~$18.9. On the valuation front, the stock is trading at an EV/EBITDA multiple of 9.3x as compared to the industry median of 8.3x on TTM (Trailing Twelve Months) basis. Considering the current trading levels, steep price movement in the past months, decline in 4QFY20 revenues, valuation on TTM basis, and key investment risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $17.85, down by ~0.39% on 12 April 2021.

GT Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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