A Small Cap Equity holding: Vonage Holdings Corp. (NASDAQ:VG, $10.13): “Securing a Better Future of Communication” by Andrew Hoy, AIM Student at Marquette University

 Vonage Holdings Corp. (NASDAQ:VG, $10.13): “Securing a Better Future of Communication”

By: Andrew Hoy, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary                           

• Vonage Holdings Corp. (NYSE:VG) is leading provider of Voice over Internet Protocol (VOIP) technology in the United States. They offer an expansive portfolio of communication services to mainly enterprise customers, which include but aren’t limited to Unified Communication as a Service, Communication Platforms as a Service, and Contact Centers as a Service. 

• Revenue mix transition intact. API revenue 47% of enterprise revenue in Q2, up from 40% and 20% from FY19 and FY18 respectively. The segment accelerated 163% YoY in Q2, partially driven by an increase in demand from COVID-19. The growth in their API segment was a key factor in the Enterprise Segment’s overall 18% YoY growth.

• Consumer Segment Deliberation. As Vonage continues to move towards optimizing their business model, the company’s legacy Consumer continues to lag the explosive growth realized in the Enterprise segment. As a result, management is deciding whether to divest this revenue stream completely.

• Reworking Go-To-Market Strategy. While they offer a comprehensive range of cloud-based communication solutions, each individual market is fragmented because customers often pick and choose between offerings instead of buying the entire portfolio. Management recently identified the need for an improved go-to-market strategy in application software offerings and reiterated that they are making changes to improve top-line growth.

Key points:

As the company’s product portfolio becomes increasingly developed, the downstream opportunities continue to follow suit. One recent development is the company’s entry into the Telehealth market. In May of 2019 they became HIPPA compliant, reinforcing their position as a market leader in both security and product depth. Vonage is disrupting the industry because their developer-focused pipeline allows them to provide customers with customized solutions at scale. As a result, they are introducing novel features like AI to analyze facial expressions and conduct sentiment analysis to evaluate a patient’s underlying mental condition. 

Additionally, year-to-date Sales have slightly lagged modeled expectations. In the first and second quarters of this year, total revenue is on track to slightly miss the originally projected 10% revenue growth. Q1 and Q2 saw top-line sales growth of 6.4% and 4.4% respectively. Extrapolated over the following two quarters, this puts them in-line to earn ~$1,205mm in top-line revenue for FY20. Additionally, Vonage improved their EBITDA margin from -0.86% to 1.29% in Q1, and Q2 EBITDA margins of 0.78%. 

Compared to most of the industry, Vonage’s key competitive moat continues to be its stackable product portfolio. Under the OneVonage umbrella, they add value by providing market-leading geographic reach, security, customer service and scalability. To ensure the best quality coverage, they periodically assess the locations of regional data connection points and transfer calls to other carriers as needed. Vonage continues to improve their customers’ experiences through strategic alliances with several service providers to grow their geographic footprint.

What has the stock done lately?

VG’s share price has dropped 22% from its early august high at $12.99 after reporting second quarter earnings. Valued at $15/share in 2019, the market began discounting the company’s shares because of the uncertainty surrounding the large number of acquisitions (eight in the past two years) Vonage had undertaken. This continues to be a period of transition for Vonage as they shift to an enterprise customer focus. Adoption of remote-communication software solutions in the enterprise market was accelerated by the COVID-19 pandemic, and their focus on driving growth through offering ease of use and rapid customization has really taken off with their API’s posting 160% growth in the Q2’19.  

Past Year Performance: 

Vonage’s share price put in a bottom at $4.19 in mid-March. From there, it grew 141% and is currently holding around the $10 mark. Volatility has been decreasing, reflecting an enduring change to investor sentiment. While a 22% pullback is quite a lot, when put into perspective I believe it is a healthy correction given the scale of the moves the stock has experienced. Prior to COVID-19, the stock was underperforming its benchmark. Post-pandemic, the market realized the potential for growth, but ahead of itself in terms of valuation. I think that as the transition period comes to a close, Vonage’s shares will continue to rise in the same manner they have YTD.

My Takeaways:

Vonage was originally pitched to the AIM Small-Cap Equity Fund with a price target of $12.32, representing a 63% upside. From the execution price of $6.88 the stock has delivered a 47% return to date and continues to offer growth potential to the portfolio. Margin stabilization, along with a potential divestiture of the residential business are a couple key factors the market is currently weighing. I recommend that the AIM fund continue holding Vonage as of 9/27/20.

A Small Cap Equity holding: Federal Signal Corporation (FSS, $28.93): “Federal Signal to Contribute to Coronavirus Clean-Up” by: Adán Jiménez, AIM Student at Marquette University

  Federal Signal Corporation (FSS, $28.93): “Federal Signal to Contribute to Coronavirus Clean-Up”

By: Adán Jiménez, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Federal Signal Corp. (NYSE: FSS) is a leading manufacturer of industrial vehicles and machinery used for a wide range of infrastructure projects, especially street and sewer cleaning. The company also manufactures safety and security equipment such as lights and sirens. Federal Signal serves governments and commercial clients in the United States and Canada.

• FSS has been a hot stock since Jennifer Sherman was appointed CEO in January 2016. Prior to the corona crash in March this year, the stock had increased ~130%.

• Under new leadership and through the development of innovative products and key acquisitions, the company has seen average revenue growth ~20% per year and expanded operating margins from 8% to 12% from 2016 to 2019.

• Federal’s “Safe Digging” water and air pressure machines are effective and sustainable excavation tools that are widely accepted in Canada and increasingly in the US (19 of 50 states today). This suggests an attractive long-term opportunity in which Federal is a leading player.

• The industry took a massive hit as the pandemic strained government and commercial budgets, but orders have recovered tremendously and backlogs are near all-time highs and expected to grow.

Key points: Federal Signal competes against primarily small private companies in the US and Canada. About 75% of the company’s sales are to federal and municipal governments that have demonstrated a consistent need to upgrade their machinery. The pandemic has certainly hurt the financial position of these government entities in the short-term; however, the company’s cleaning and security products are deemed “essential,” which we know to be good news for a business.

Not only did the pandemic tighten the budgets of the company’s key clients, it also hurt the company’s ability to market their products. The global lockdown completely shut down trade shows and equipment demonstrations—key tactics the company uses to drive sales. As a result, revenue was down 17% compared to the same quarter last year. Still, the company was able to use this difficult time to acquire PWE, a distributor of maintenance and infrastructure equipment in southeastern United States, for an attractive $6 million. They also paid down $36 million in debt.

Furthermore, average weekly orders were 24% higher in June than in May and the company ended the quarter with a backlog of $333 million, compared to $348 in Q2 2019, indicating a strong recovery from the market crash. One of the original drivers for the addition of FSS into the AIM small cap fund was their aftermarket parts and services initiative which has been growing over 10% per year. Despite the tough market conditions, sales in this segment continue to make up an increasing share of total revenue. 

Federal also continues to diversify its revenue streams, decreasing its dependence on publicly funded sources from 60% last year to 50% today. This is made possible largely through the company’s continued success in acquisitions of leading manufacturers in attractive markets. Through strong free cash flow generation and access to credit markets, acquisitions (74% of cash allocation) will continue to drive Federal’s performance. Management has also approved $91 million of share repurchases which provides additional support to a historically bullish stock.

What has the stock done lately?

At the beginning of the month, a significant market correction stemming from uncertainty regarding the election, the coronavirus, and federal stimulus began to unravel. In this time, the S&P 500 has dropped 5.4%, with industrials falling more than that in the past week. There has been no fundamental change to the prospects of Federal Signal, therefore it seems like the 9.5% drop in the stock is largely a short-term market reassessment of valuation.

Source: FactSet

Past Year Performance: Prior to the market decline at the beginning of the month, FSS stock was up ~3% which has certainly lagged the market but is unsurprising for a cyclical industrial company. It’s important to note that this stock was added to the small cap portfolio in early April and had increased over 25% prior to the current market downturn.

Source: FactSet

My Takeaway

Federal Signal is a name that the AIM Small Cap Fund has been in and out of a few times in the last five years. It’s been a strong performer since the appointment of CEO Jennifer Sherman in 2016. The board has also elected an effective CFO and COO in the last few years. Management continues to identify strategic targets for M&A activity and has executed these initiatives even in the middle of a pandemic. The company’s leverage remains low and has ample room to continue to expand operations in this way. Federal also continues to improve its organic growth through the development of their parts and services aftermarket initiative and constant innovation of their products. The company has ~35% market share in a highly fragmented market that it is attractive for further penetration. Federal’s sustainable and efficient “Safe Digging” excavation practices are in the early stages of adoption in the United States which suggests long-term opportunity. Q2 2020 was undoubtedly the bottom for Federal and I believe we made a good choice in adding this stock at market lows back in April. The stock’s performance this year is largely clouded by the volatility of the market as a whole, but the drivers of the investment thesis are playing out favorably and have lots of room to run. For these reasons, I recommend we maintain our position in FSS in the AIM Small Cap Fund in order to see further development of the original investment thesis. 

An AIM Small Cap Equity Holding: Stitch Fix Inc. (SFIX, $29.06): “SFIX suits perfeclty” by: Luca Cardamone, AIM Student at Marquette University

Stitch Fix Inc. (SFIX, $29.06): “SFIX suits perfeclty”

By: Luca Cardamone, AIM Student at Marquette University 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Stitch Fix Inc. (NASDAQ: SFIX, $29.06) Stitch Fix Inc. is an online personal styling service that delivers customs outfits to men, women, and kids. The company operates in the United States and internationally in the United Kingdom. Besides, SFIX is 100% digital and sells its products through its Website and mobile app. The company was founded in 2011 and is headquartered in San Francisco, CA. 

• SFIX utilizes algorithms, data science, and stylist’s expertise to match the size, budget, and style desired by the customers. 

• SFIX charges clients for each Fix. A fix is Stitch Fix-branded box that contains a complete custom outfit with accessories. The company also offers an annual Style pass that allows unlimited styling for the year for $49.

• SFIX is benefitting from the growing expansion of e-commerce that continues to take market share from brick and mortar retails. The company business model embraces this trend and looks to get ahead of the competition by “personalizing” the shopping experience with personalized shopping advice.  

• SFIX is approaching its 52-week high and being one of the biggest COVID beneficiaries could be an important catalyst.

Key points: Stitch Fix is the world’s leading online personal styling service. SFIX is innovating the online shopping experience with a mix of algorithms and stylist’s expertise. These characteristics are helping people to save time buying clothes and to find their best styles. With the COVID-19 pandemic and consumers shifting their purchasing behavior online, the company business model has kept a strong client engagement. According to the Q2 2020 report from the U.S. Census Bureau, U.S. retail e-commerce reached $211.5 billion, up 31.8% from the first quarter. Besides, online penetration for clothing in the US and UK has increased at a CAGR of 17% in the past 5 years.

Throughout the years, SFIX has grown its client base by increasing the number of active users. Active clients are now 3.4 million which represents a 9% YoY growth. In addition, the company has strong client retention that is continuing to drive revenues and demand. SFIX’s business model is capital effective and highly scalable, and, in my opinion, it has plenty of room to grow, especially in today’s settings. The company has constantly improved since its first days and management expects to generate positive free-cash-flow in Q4. In addition to the growing performances, the company is strengthening its balance sheet. In June, SFIX closed a $90 million revolving credit facility. The company will also gradually decrease its SG&A expenses that along with sustained revenue growth will increase operating margins. 

The company is in a great position to capitalize on growing trends. Not only SFIX is tacking advantage of e-commerce but it is improving the online experience by offering an interactive model that engages with customers.  SFIX’s data science advantage is one of the company’s most important competitive advantages as competitors are unable to match the personalized and fun shopping experience. Finally, as people’s shopping habits are changing and moving towards digital channels SFIX’s model will not be affected by future COVID-19 related issues and is in a great position to keep growing. 

What has the stock done lately?

SFIX was incorporated into the AIM small-cap equity fund on January 31^st, 2020. The stock was purchased at the price of $22.74 and since then it increased to 29.06$ below its price target of $31.39. Since its addition, SFIX contributed to the small-cap portfolio with a 25% upside. After reaching a 52-week high of $30.44 in February 2020 the stock sank 60% hitting its 52-week low, during the COVID-19 pandemic in March. Since April, the stock has appreciated over 145% due to its unique business model and positive earnings results. 

Past Year Performance: Since last year, SFIX has increased ~30% in value. Sales in Q3 were $372 million which results in a 9% decrease YoY. The decrease can be attributed to the COVID-19 pandemic panic and the reduced expenses on advertising. The company relies on consumer spending and the more conservative customer’s approach affected SFIX’s revenues. Even though the company had less advertising it was able to grow its active customers that are now 3.4 million, a 9% growth YoY. In conclusion, in early June the company strengthened its liquidity position and its balance sheet by closing a $90 million revolving credit facility.

Source: FactSet

My Takeaway

With the stock relying on customer engagement and online spending, I believe SFIX has more growth in store for the AIM small-cap equity fund. With the US retail e-commerce increasing more than 30% from the first quarter, and 45% YoY, SFIX is in a great position to take advantage of the post-pandemic spending behavior. The stock has almost completely recovered from the March market crash and is less than 10% down from its 52-week high. Besides, during March, the company did a great job keeping a strong client engagement and momentum that kept a constant and healthy demand. One of the main risks for this company, being 100% online, is the possibility of a data breach. However, I believe that management is doing an outstanding job hiring talented web engineers and constantly improving the data science department. In conclusion, I believe that SFIX’s business model can give its best during this period and can benefit from consumers shifting their purchasing behavior online. Besides, the competent management team, and the strong financial position are reasons why I rate this stock a hold. 

Source: FactSet

Lumentum (LITE) by Brook Seifu

The Fifth Set of Fall 2020 Marquette AIM Program Student Equity Pitches / Q&A will be on Friday, September 25th

 AIM Class of 2021 Student Equity Presentations on Friday, September 25th

Because of the Covid-19 pandemic, we are not pitching live in the AIM Room on Friday afternoons during the fall 2020 semester; however, you can still participate.  

 The 5th set of fall AIM equity presentations for the Class of 2021 on Friday, September 25, 2020

This is the link for the AIM equity write-ups (each week’s write-ups will be available on Thursday mornings): AIM Write-ups for 9/25/20

This is the link for the YouTube videos of the 8-minute student presentations (each week these will be posted on Thursday afternoons): AIM Video Presentations.

If you would like to participate in the live Q&A session with the student presenters at 11:00 am CST on Teams, please email Jessica Hoerres at: jessica.hoerres@marquette.edu

Please feel free to submit questions to be asked of the students by emailing them to david.krause@marquette.edu

Ashtead Group (ASHTY) by Sean O'Leary

Hamilton Lane, Inc (HLNE) by Sean Dole

Danone ADR (DANOY) by Molly O'Neill

Clarivate Plc (CCC) by Alex Malitas

An AIM Small Cap Equity holding: Natera Inc. (NTRA, $59.21): “Early Detection for your Protection” by: Alexander Warstler, AIM Student at Marquette University

 Natera Inc.  (NTRA, $59.21): “Early Detection for your Protection”

By: Alexander Warstler, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 

 Summary

• Natera Inc. (NASDAQ: NTRA) is a global leader in cell-free DNA testing with a focus on developing new minimally invasive technologies to evaluate risk for, and thereby enable early detection of, a wide range of medical conditions within reproductive health, cancer, and organ transplantation. The company was founded in 2004 and is headquartered in San Carlos, CA.

 

• NTRA processed 234,000 tests in Q2 2020 (despite Covid-19) which was on par with all-time record volumes experienced in Q1 2020.

 

•  Reinstated and raised full year guidance based on projections of current and future business trends. The major contributors to raising guidance were the resiliency in NTRA’s customer base, stable ASP’s, good cost trajectory, and the timeline of new product introductions. 

 

• Announced a key partnership with BGI to bring Signatera technology to China. NTRA has already signed deals with leading Chinese biopharmaceutical firms who are excited about Signatera’s commercial launch at the end of 2020. 

 

• Management has made significant strides towards obtaining cash flow break even performance in their reproductive health business segment. Volume growth, stable average selling prices, and a decrease in cost of goods sold are all key performance indicators of management’s progress. 

 

Key points:

Natera continues to be the leader in reproductive health genetic testing. In Q2 2020 alone, the company processed 234,000 tests representing a 24% YoY increase in testing volume. Contributing to this explosive growth is the Panorama test Natera developed in 2018, which has the lowest false negative and false positive rates, the ability to detect triploidy and vanishing twins, and determine zygosity in twin pregnancies. Natera has processed more than two million Panorama tests and clinical use continues to increase. To date, Natera believes the noninvasive prenatal testing market is only 15% penetrated, particularly in an average risk setting because there are a lot of physicians who only order tests for high-risk patients. 

Natera is rapidly expanding into oncology with the addition of Signatera to its product portfolio. In oligometastatic disease, patients can be treated with minimally invasive surgery, plus or minus adjuvant chemotherapy. Many of these patients can be cured with surgery alone, but doctors do not have good diagnostic tools to determine which patients need adjuvant chemotherapy. Signatera is a blood test that can help clarify which patients still have residual disease in their blood after surgery. Originally, Signatera submitted a Medicaid reimbursement request for the indication of Stage II and III colorectal cancer, however data collected as of Q2 2020 showed the validity of Signatera in Stage IV colorectal cancer. Signatera detected relapse in patients with Stage II-IV colorectal cancer 8.7 months earlier than standard diagnostic tools. The favorable data results create an opportunity for 900,000 additional tests per year, nearly doubling Natera’s previous addressable market associated with Stage II and III colorectal cancer. Natera expects reimbursement details to be finalized by year end and a commercial launch at the onset of FY 2021.    

Natera is applying its expertise in cell-free DNA to non-invasively identify organ transplant rejection before kidney transplant failure occurs. NTRA’s Prospera test assesses kidney rejection by measuring the fraction of donor derived cfDNA in the recipient’s blood, without the need for prior donor or recipient genotyping. Following the same path for a number of indications in oncology, NTRA was able to submit claims to Medicare for Prospera and received reimbursement consistent with the final pricing of $2,841 per test. Natera is now focused on executing their commercial launch.

 

What has the stock done lately?

After reporting earnings on August 5th, the stock rose 17% due to stronger than expected earnings and a raise in full year revenue guidance. The stock continued to outperform the market, reaching an all time high of $66.93 on August 19^th. Since obtaining an all time high, NTRA has started to form a base around $60. The stock continues to trade at a 14.1x P/S ratio which is high relative to the overall market and competitors.

 

Past Year Performance: 

Over the past year, NTRA has significantly outperformed the Russel 2000. NTRA is up 77% compared to -3% from the Russel 2000 index. On August 19^th, 2020 NTRA hit an all time high at $66.93. The stock gained strong momentum from rapid growth in test volumes, Signatera’s potential for further application in oncology, and Prospera’s positive data results. At its high, the stock had a P/S ratio of 15.8. The stock currently trades at $60/share and has a P/S ratio of ~14.

1 Year Stock Chart vs. Benchmark

Source: FactSet

My Takeaway:

Natera is well positioned for continued growth ahead. The NIPT market has historically been exclusively focused on high risk patients. Going forward, the company sees a path towards testing a majority of moderate risk patients. In addition, based on favorable data results collected on Signatera, NTRA now expects to test ~1.7 million people annually beginning in 2021. Although pricing has not been finalized, analysts expect pricing to be between $1,800-$4,000 per test. The oncology segment alone could contribute an additional $3 - $7 billion to Natera’s top line. Furthermore, Natera’s Prospera product has a price of $2,841 per test and the company has just begun commercial launch. This could be another large revenue opportunity. Historically, the company has reinvested 20% of revenue into R&D which gives Natera operating leverage as R&D as a % of revenue decreases over time. Natera has a strong balance sheet with over $400 million in cash, however the company has a 14.1 P/S ratio and is valued at $5 billion which is high given the current and even future revenue base. Although, I believe in the longer term story, I recommend we trim our position in Natera to capitalize on the favorable near term stock price movement. 

 

1 Month Stock Chart

Source: FactSet

An AIM Small Cap Equity holding: Axos Financial, Inc. (AX, $23.31): “Not Your Father’s Bank” by: Sean Dole, AIM Student at Marquette University

 Axos Financial, Inc. (AX, $23.31): “Not Your Father’s Bank”

By: Sean Dole, AIM Student at Marquette University

Summary

• Axos Financial, Inc. (NYSE:AX) provides banking and securities products and services through its online channels to customers across the country. The company was founded in 1999 and is headquartered in Las Vegas, NV.

• The COVID-19 pandemic has accelerated the shift to digital banking and Axos is in a great position to benefit from this trend.

• Through their Universal Digital Banking and Axos Invest platforms, Axos proves that they are ready for the new age of banking.

• Historically, Axos’ concentration in hard asset secured loans has led to a strong performance, and the AIM fund should continue to hold this security.

Key points

With bank branches unable to operate face-to-face during the pandemic, they saw a large uptick in remote deposits and online account openings. McKinsey & Co. estimates the crisis accelerated the shift to digital banking by at least two years. In fact, a survey by Deloitte shows that over half of first-time online banking users will use a mix of online and in-branch services once the crisis is over and 14% will switch to completely online banking. This is an obvious threat to the typical brick-and-mortar banking industry, and Axos needs to capitalize on the trend.

Axos was founded as a digital bank and has grown into a “full-fledged, technology-based financial services company”. Their focus on online checking accounts is one of their key strengths and differentiators. At its core, Axos offers many of the same services as a traditional bank, but they also operate a couple exciting platforms: the Universal Digital Bank Platform and Axos Invest.

As a “Universal Digital Bank (UDB)”, Axos aims to create better personalization for customers. They will leverage AI and integrate products (savings, credit, investing) to create a smoother and more customizable experience. Through this process, the company can increase its own efficiency by cross-selling products and delivering on higher volumes.

Axos Invest offers a free financial digital advisor that automates the financial planning process. The platform boasts a high conversion rate (20%), low acquisition costs, and sticky accounts which creates a product moat. This service directly targets the growing demand for do-it-yourself financial products. To keep improving the company, Axos needs both the UDB and Axos Invest platforms to attract new customers and retain existing customers.

The company consistently has a better ROE, ROA, and efficiency ratio than its peers. In the most recent quarter, they surprised analysts with an expanding net interest margin that will continue to be within 3.8% and 4.0%. For comparison, many major banks NIM’s have been decreasing and sit in the 2% to 3% range. Axos’ strong fundamentals come from its asset-backed lending focus. Currently, 94% of their loans are secured by hard assets. This differentiates them from other digital banks, such as Goldman Sachs’ Marcus, which have largely unsecured loan portfolios.

What has the stock done lately?

Over the summer, AX moved up with the rest of the market and now sits 60% above its March lows. A positive earnings report at the end of July also helped propel the stock upward through August. Now with an LTM P/E ratio of 7.92, AX is trading at a discount to its pre-pandemic P/E ratio of 11. As the market continues to turn toward cyclical stocks, I expect AX to continue rising in the short term.

Past Year Performance

AX has fallen about 10% over the last twelve months. Given that the stock fell more than 50% from peak to trough in March, this performance is not all that bad. Also, it has recovered faster than the iShares Regional Bank ETF (IAT) which is still down 35% over the past year. AX has been holding in a range ever since 2014, but the acceleration of digital banking may be the catalyst it needs to take its next leg up. 

Source: FactSet

My Takeaway

Going forward, Axos will face intense competition from large tech companies such as Apple and fintech startups such as Betterment. However, Axos knows what they do well, and they stick to it. The overall movement to online banking should greatly benefit their digital strategy. Because they have performed well recently and have strong growth prospects, I recommend the AIM Small Cap Fund continues to hold the security.

Source: FactSet

The Fourth Set of Fall 2020 Marquette AIM Program Student Equity Pitches / Q&A will be on Friday, September 18th

 AIM Class of 2021 Student Equity Presentations on Friday, September 18th

Because of the COVID-19 pandemic, we are not pitching live in the AIM Room on Friday afternoons during the fall 2020 semester; however, you can still participate. 

The 4th set of fall AIM equity presentations for the Class of 2021 on Friday, September 18th, 2020

This is the link for the AIM equity write-ups (each week’s write-ups will be available on Thursday mornings): AIM Write-ups for 9/18/20

This is the link for the YouTube videos of the 8-minute student presentations (each week these will be posted on Thursday afternoons): AIM Video Presentations

If you would like to participate in the live Q&A session with the student presenters at 11:00 am CST on Teams, please email Jessica Hoerres at: jessica.hoerres@marquette.edu

Please feel free to submit questions to be asked of the students by emailing them to david.krause@marquette.edu

Jamf Holdings Corp. (JAMF) by Haley Gaffner

PagSeguro Digital Ltd (PAGS) by Erik Floyd

Cimpress PLC (CMPR) by Riley Pollard

HeadHunter Group (HHR) by Manuel Cukaj

National Vision Holdings, Inc. (EYE) by Ellie O'Donoghue

Sonic Healthcare Limited ADR (SKHHY) by Mia Albian

Casey's General Stores, Inc. (CASY) by Katie Nozel

The Third Set of Fall 2020 Marquette AIM Program Student Equity Pitches/Q&A will be on Friday, September 11th

 AIM Class of 2021 Student Equity Presentations on Friday, September 11th

Because of the Covid-19 pandemic, we are not pitching live in the AIM Room on Friday afternoons during the fall 2020 semester; however, you can still participate.  

 The 3rd set of fall AIM equity presentations for the Class of 2021 on Friday, September 11, 2020

 

This is the link for the AIM equity write-ups (each week’s write-ups will be available on Thursday mornings):  AIM write-ups for 9_11_20

This is the link for the YouTube videos of the 8-minute student presentations (each week these will be posted on Thursday afternoons): AIM Video Presentations.

If you would like to participate in the live Q&A session with the student presenters at 11:00 am CST on Teams, please email Jessica Hoerres at: jessica.hoerres@marquette.edu

  

 

Please feel free to submit questions to be asked of the students by emailing them to david.krause@marquette.edu

 

Cerence, Inc. (CRNC) by Nicholas Rohrer

 

SPS Commerce Inc (SPSC) by Riley Arnold

 

Uniti Group (UNIT) by Tyler Bomba

 

QTS Realty Trust (QTS) by Christian Musbach

 

Coherus (CHRS) by Vince Park

 

An AIM International Equity holding: Horizon Therapeutics PLC (HZNP, $75.38): “Keeping Our Eyes on the Horizon” by: Mia Albian, AIM Student at Marquette University

Horizon Therapeutics PLC (HZNP, $75.38): “Keeping Our Eyes on the Horizon”

By: Mia Albian, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Horizon Therapeutics PLC (NYSE:HZNP) is an international biopharmaceutical company that focuses on researching, developing, and commercializing medicines for rare and rheumatic diseases. It operates through the Orphan and Rheumatology (72%), and Inflammation segments (28%). The company was founded in 2008 and is headquartered in Dublin, Ireland.

• HZNP’s main source of revenue stems from the United States, accounting for 99.4% of FY2019 total revenues.  

• Since the addition of HZNP to the AIM International Equity Fund in January 2020, the stock price dipped in March 2020 due to Covid-19 shutdowns. Despite this drop, the stock accelerated and hit its price target of $49.96 in mid-June 2020. Since being added to the AIM International Equity Fund on January 28, 2020 at $36.03, the stock has grown and is currently trading at $75.38, representing a 109% increase from the initial purchase price.

• The company beat both Q2 2020 earnings and revenue estimates by a substantial amount (actual EPS $0.40 versus $0.36 estimate and actual sales $462.78 mil versus $333.70 mil estimate). In their Q2 2020 earnings call, the company mentioned that sales jumped 44% YoY.  

• Management stated that they expect to see little disruptions from Covid-19 in their largest operating segment, which includes pharmaceutical products for various rare diseases. 2020 net sales are expected to be between $1.40-$1.45 billion, instead of management’s earlier projections in the $1.40-$1.42 billion range.

Key points

Since HZNP was added to the AIM International Equity Fund, the stock has been in line with all three investment drivers: (1) the untapped Thyroid Eye Disease market, (2) the expansion of Krystexxa, its flagship drug for uncontrolled gout, and (3) their growing R&D pipeline.

The FDA approved Tepezza for the treatment of Thyroid Eye Disease (TED) in January 2020, making it the first and only drug available for TED. Despite the closing of many physician’s offices due to the pandemic, Tepezza’s impressive uptake in the market shows the unmet need for this type of treatment. In fact, Tepezza has had substantially higher revenues than expected so far this year. Management upgraded its first-year sales estimate for this drug from $250 mil to $650 mil, and analysts believe that this therapy for TED is extremely well positioned to exceed this upgrade.

The company’s flagship drug, Krystexxa, has helped patients with uncontrolled gout for nearly a decade. Given that this drug treats rheumatology patients, there was a slight decline in patient volume due to these patients being immune compromised and not being able to attend appointments. Despite this decline, Krystexxa’s sales still increased 23.5% Y/Y in July. Additionally, regarding R&D progress for Tepezza, the company announced results from the Tepezza OPTIC-X extension trial and the OPTIC 48-week off treatment follow-up period. Both these trials provided further data regarding the strong efficacy of Tepezza in patients with severe cases of TED. The pipeline is continuing to make significant advances that are expected to continue throughout this year.  

What has the stock done lately?

For the month of August 2020, the stock is up 19%, trading at $63.07 on August 3 and $75.12 on August 31.

Past Year Performance

Over the course of HZNP’s most recent fiscal year, the stock increased 107% YTD. The 52-week range includes a low of $23.81 and a high of $78.93.

HZNP Past Year Performance

Source: FactSet

My Takeaway

Given that the investment thesis for Horzion Therapeutics was accurate, we must contemplate if these same drivers will continue to advance the growth of the company in the long run. Due to the exclusivity of HZNP’s Krystexxa and Tepezza drugs in their respective markets and the re-opening of many physician offices around the world, I believe that HZNP will continue to see growth in their pharmaceutical products for rare diseases. The fact that the pandemic did not drastically affect patient’s demands for these products reassures the opportunity for further growth when the world is back to normal. Even though the stock has surpassed its price target, I believe there is still growth in Horizon Therapeutics. Due to these factors, the recommendation for Horizon Therapeutics is Hold.

HZNP Past Month (August) Performance

Source: FactSet