Innoviva, Inc.

 

INVA Details
 
Revenues up 43% Year Over Year: Innoviva, Inc. (NASDAQ: INVA) is engaged in the development, commercialization and financial management of biopharmaceuticals. Recently, the company announced that it has appointed Pavel Raifeld as its Chief Executive Officer, effective from May 20, 2020.
 
1QFY20 Key Financial Highlight: During the quarter, the company reported total net revenues of $78.7 million, up by 43% year over year. Income before taxes during the said quarter came in at $94.9 million, up 96% year over year, due to the change in the fair value of equity investments. The company’s gross royalty revenues came in at $82.1 million from Glaxo Group Limited (“GSK”). In 1QFY20, total operating expenses came in at $2.6 million, down from $3.0 million reported in the year-ago quarter. Global net sales of RELVAR®/BREO® ELLIPTA® went up 31% year over year. Net cash and cash equivalents, short-term investments and marketable securities at the end of the quarter stood at $384 million, and royalties’ receivable from GSK amounted to $82.1 million.
 

Key Financial Highlights (Source: Company Report)
 
Growth Impetus: The company had announced its phase-I clinical trial for INO-4800 in the United States and it enrolled 40 healthy volunteers receiving their first dose. The short-term immune responses and safety findings from the trial are likely to come out in late June. Along with that, the company has aligned with Beijing Advaccine and the International Vaccine Institute to advance clinical trials of INO-4800 in China and South Korea, respectively.
 
Key Risks: On the flip side, foreign currency translation might have an adverse impact on its ex-U.S. sales, thus hurting Innoviva’s royalties. Further, stiff competition and consolidation in the healthcare industry might pose financial threats to the company.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
  
 EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of INVA closed at $14.54 with a market capitalization of ~$1.47 billion. The stock made a 52-week low and high of $7.58 and $15.62, respectively, and is currently trading at the upper band of its 52-week trading range. The stock went up by 41.28% in the last three months. Debt to equity multiple of the company stood at 1.00x in Mar’20, higher than the industry median of 0.41x. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with limited upside (in percentage terms). Hence, considering the current trading levels and valuation, we suggest investors to ‘Avoid’ the stock at the current market price of $14.54, up 1.39% as on 25 June 2020.

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

Nuance Communications, Inc.

 

NUAN Details
 
NUAN Join Forces with Wolters Kluwer: Nuance Communications, Inc. (NUAN) is engaged in providing innovative conversational artificial intelligence tools to improve business productivity. The company also provides healthcare delivery offerings, which include clinical language understanding solutions. On 25 June 2020, the company stated that the Nuance® AI Marketplace for Diagnostic Imaging is accelerating AI implementation for radiologists at top US healthcare systems. In another update, the company stated that it has partnered with Wolters Kluwer, Health to make it simple for clinicians to access evidence-based clinical data using advanced voice search driven by NUAN Dragon® Medical One’s voice assistant competences.
 
2QFY20 Key Financial Highlights: During the quarter, the company reported revenues on a non-GAAP basis of $369.5 million, up from $336.6 million reported in the year-ago quarter. In 2QFY20, Non-GAAP EPS came in at 21 cents per share, up from 11 cents reported in the year-ago period. Non-GAAP net income increased from $30.8 million reported in 2QFY19 to $59.7 million. Non-GAAP operating margin came in at 22.7% in 2QFY20, up from 17% in 2QFY19. In spite of COVID-19 outbreak, the company witnessed 11% organic revenue growth on a year over year basis. Further, the company saw strength in both its Healthcare and Enterprise segment revenue, which increased 10% and 19% year over year, respectively. Operating cash flows from continuing operations for the quarter stood at $87.9 million, up from $79.5 million reported in the year-ago period.
 

Key Financial Highlight (Source: Company Report)
 
Key Risks: The company’s healthcare variable transactional businesses were adversely impacted by a significant reduction in elective and non-COVID-19 related procedures. Also, taking into account COVID-19 disruption, the company has lowered its FY20 outlook. For FY20, the company lowered its
revenue outlook to be in the ambit of $1,405 million to $1,485 million, which signifies a reduction of
$70 million at the mid-point. The company also lowered its outlook for non-GAAP operating margin by 50 basis points to adapt the lower revenue prospects. Further, the company also lowered its non-GAAP EPS to reflect the COVID-19 revenue impacts. The company also suspended its outlook for cash flow from operations, fee cash flow and cash balance to accommodate uncertainty related to payment timing. 
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation:NUAN possesses a leveraged balance sheet, with long-term debt amounting to $1.5 billion. The stock of NUAN closed at $24.84, with a market capitalization of ~$6.99 Bn. The stock made a 52-week low and high of $12.98 and $26.01, respectively, and is currently trading at the upper band of its 52-week trading range. The stock went up by 49.46% in the last three months. Debt to equity multiple of the company stood at 1.56x in Mar’20, higher than the industry median of 0.25x. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with the correction of high single-digit (in percentage terms). Thus, it can be said that the stock of NUAN is overvalued at current trading levels. Hence, considering the current trading levels and expected correction, we give an “Expensive” rating on the stock at the current market price of $24.84 per share, up by 1.04% on 25 June 2020.
 
 
NUAN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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