Tuesday, May 10, 2022

An International Equity holding: JAZZ Pharmaceuticals PLC. (JAZZ, $156.62): “Listen to the Music!” By: Danny Scelza, AIM Student at Marquette University

JAZZ Pharmaceuticals PLC. (JAZZ, $156.62): “Listen to the Music!”

By: Danny Scelza, AIM Student at Marquette University

Disclosure: The AIM International 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:

Jazz Pharmaceuticals. (NASDAQ: JAZZ) is a global pharmaceutical company that focuses on the identification, development, and commercialization of pharmaceutical products. Their products are centered around medicines for both adults and adolescents in the areas of neuroscience, oncology, and other. JAZZ has developed staple brands like Xyrem and Xywav, as well as newly approved drugs and therapies along with an extensive pipeline of 17 drugs and therapies in clinical trial phases.

• In Quarter 1 of 2022, JAZZ reported an EPS of $3.73, lower than the consensus EPS of $3.84 for the quarter. EPS is up 7% YTD from Q1 2021.

• JAZZ’s vision 2025 plan to reach a net leverage ratio of 3.5x by the end of 2022, a main point of focus in JAZZ’s pitch in February, is on pace to meet the goal. Since the close of the large GW acquisition in Q2 2021, JAZZ has consistently lowered net leverage quarter-to-quarter and currently have a net-leverage ratio of 3.9x.

Key points: JAZZ’s recent earnings call showed the company slightly missed adjusted EPS by $0.11, but the company raised revenue guidance for fiscal year 2022 from $3.5 billion to $3.7. Focusing on Epidiolex, the adopted drug from the GW acquisition with massive potential, product sales YTD are up 6.7% and accomplished $18 million inventory build in 2021 Q4, majority reserved for this past quarter. Commercialization of Epidiolex in European markets continues on pace with the drug fully available in 4 of 5 key European markets with an expected launch in France by the end of this year.

Recently launched and near-term R&D pipeline opportunities remain promising with the addition of two new early-stage molecules. Programs emerging from the cannabidiol platform are on track to begin additional phase 3 trial for Epidiolex in epilepsy later this quarter, which could bolster this drugs outlook. Ongoing compelling Xywav clinical trials to address idiopathic hypersomnia remain strong following the first full quarter of treatment options for IH that don’t just address symptoms. Active patients taking Xywav for IH has grown 200% over the past quarter.

Earlier this quarter, JAZZ acquired global development and commercialization rights to Werewolf Therapeutic’s WTX-613, worth up to $1.2 billion. "We believe WTX-613 has the potential to minimize the toxicity associated with systemic IFNα therapy, preferentially delivering IFNα to tumors, and thereby expanding its clinical utility in treating cancer," said Rob Iannone, executive vice president, global head of R&D of Jazz Pharmaceuticals. JAZZ made an upfront payment of $15 million, and Werewolf is eligible to receive a tiered, mid-single-digit percentage royalty on net sales of WTX-613.

What has the stock done lately?

After beating EPS estimates of $3.64 by producing a 2021 Q4 EPS of $4.21, JAZZ’s stock price rose 12% and continued to trend positively reaching a six-month high of $168.66. After their recent missed earnings, the stock dropped 4.7%. Focusing on organic growth and taking a back seat on more major investments following the GW acquisition, the company has seen their new top line drivers gain traction as they lower their net leverage ratio, making recent stock price drop nothing catastrophic to its long-term outlook.

Past Year Performance: In the last year, JAZZ is down 11.68%, with a high $181.17 and a low price of $122.41. The iShares MSCI ACWI is down 8.28% over that same time. The low-price period was due to the expected aftermath of the GW acquisition which caused JAZZ unprofitability for quarter’s 2 3 and 4 of 2021.

Source: FactSet

My Takeaway

Following the recent earnings report, the stock price declined due to missed EPS guidance, but revenue outlook for the year increased by $200 million. When AIM international fund acquired JAZZ, their expanding drug portfolio and robust pipeline was essential to driving top line growth and overall company growth. Financial goals and continued guidance remain consistent with initial outlook presented, making the long-term outlook on JAZZ strong. As top line growth and drug specific market penetration continues, JAZZ is a strong recommended HOLD.

Source: FactSet

A Small-Cap Equity holding: Casey’s General Stores (CASY, $201.30): “Pizza and Gas, an Unlikely Combination” By: Max Tiemann, AIM Student at Marquette University

Casey’s General Stores (CASY, $201.30): “Pizza and Gas, an Unlikely Combination”

By: Max Tiemann, AIM Student at Marquette University

Disclosure: The AIM Small-Cap 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

  • Casey’s General Stores Inc. (NASDAQ: CASY) operates gas stations and convenience stores across the US Midwest region. The company operates through a fuel segment (55% of revenue), a grocery and other merchandise segment (31%), a prepared food and fountain segment (13%), and an other segment (1%).
  • The Covid-19 pandemic forced the company lose revenue as less people were on the roads which decreased fuel sales and foot traffic.
  • To combat the pandemic, management has been extremely focused on their growth strategy to earn 8-10% EBITDA growth year over year.
  • Growth strategies include acquiring more stores, a digital app, Casey’s branded products, and partnerships with UberEats and DoorDash

Key points: Ever since Darren Rebelez took over as CEO, Casey’s has aimed to have 8-10% EBITDA growth year over year. This growth is needed due to the revenue lost from the Covid-19 pandemic. To achieve this high growth the company has implemented a variety of strategy to ultimately increase earnings for shareholders.

The first growth strategy that Casey’s has implemented is store growth and acquisitions. Since 2010, the company has increased stores by a 4.37% CAGR and currently operates over 2,458 stores. Casey’s increases their stores by either new store builds or through acquisitions. This past year the company acquired 178 stores from other gas stations.

The next growth strategy that Casey’s has implemented is partnering with UberEats and DoorDash. This partnership allows the company to earn revenue from digital orders and ultimately target a different customer base.

Another growth strategy that Casey’s has implemented is introducing a digital app and their own brand. With over 4.2 million people on the Casey’s app, the company has been able to earn revenue from digital sales of grocery and prepared foods. On top of that Casey’s introduced their own brand that allows them to increase their gross margin by having a lower cost of goods sold on their branded foods.

By combining all these strategies, Casey’s aims to earn 8-10% EBITDA growth over the coming years.

What has the stock done lately?

Over the past six months, CASY is up 4.39%. This increase can be attributed to management’s growth strategy of acquisitions and adding more stores to increase earnings. Over the past month, CASY is up 0.61% but over the past five days the stock is down 4.52%. This displays that recently CASY has had success and their returns may be skewed from a difficult week.

Past Year Performance: Over the past year, CASY is down 9.74%. However, this decrease primarily came in the beginning of the year. Over the past six months CASY is up 4.39%, displaying that management’s growth strategy has been effective in increasing earnings and the share price.

Source: FactSet

My Takeaway

I believe that Casey’s General Stores growth strategy will prove to be successful. By combining the strategies of unit growth, digital sales, and their own brand, I think the company will be able to grow their EBITDA and ultimately increase EPS. On top of that, I think the Covid-19 pandemic forced Casey’s to miss out on a ton of foot traffic which ultimately decreased revenue and their share price. As the world finally returns to normalcy, I believe the stock price should continue to increase.

Source: FactSet

An International Equity holding: STMicroelectronics NV ADR RegS (STM, $37.64): “ST(MEMS)” By: Kevin Igoe, AIM Student at Marquette University

 STMicroelectronics NV ADR RegS (STM, $37.64): “ST(MEMS)”

By: Kevin Igoe, AIM Student at Marquette University

Disclosure: The AIM International 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

  • STMicroelectronics NV ADR RegS (NYSE: STM) designs, develops, manufactures, and markets products, which offers discrete and standard commodity components, application-specific integrated circuits, full custom devices and semi-custom devices for analog, digital and mixed-signal applications.
  • STM has seen a variety of wins in their automotive segment through new microcontrollers and power modules.
  • STM intends to target industry leaders within the industrial industry with leading-edge products adapted to their needs. 
  • STM is currently on track with their 2022 plans in revenues and CAPEX investments to sustain short- and long-term growth. 

Key points:  STM through Q1 2022 has earned designed wins with their power modules and module maker using Gen3 SiC MOSFET technology EV Traction Inverter applications.  What this technology does is help eliminate tail current during switching which results in faster operation, reduced switching loss, and increased stabilization.  Along with this effective use of new technology STM has also designed their next-generation stellar automotive MCU into a new zonal architecture for software-defined vehicles.     

In STM’s latest earnings presentation they explained for their industrial segment they ranked number one worldwide in general purpose microcontrollers for 2021.  While also introducing their first intelligent sensor processing unit with Gen3 MEMS.  MEMS is a process technology used to create tiny integrated devices or systems that combine mechanical and electrical components helping their products become more efficient and in return attractive to customers. Finally, STM has grown their sockets in various industrial applications helping them target the growing markets of renewable energy and power saving technologies.

STM has planned to invest about $3.4 to $3.6 billion in CAPEX to increase the production capacity and strategic initiatives.  The first of their investments being in their new industrialization line located in Italy.  Based on the strong demand from customers and planned future investments STM has a goal of revenues for 2022 to be in the range from $14 billion to $15 billion.  This target goal would mean a growth of about 17%.  After quarter one 2022 they have done $3.55 billion in revenue currently being on track with their projected growth for the current year.     

What has the stock done lately?

In the past week STM has seen an increase of 3.32% after releasing earnings for quarter one fiscal year 2022 on April 27th.  The company reported EPS of $0.79 and revenue of $3.55 billion beating estimates in both categories.  This could be the momentum boost the companies needed after decreasing 11.79% in the past month.     

Past Year Performance:

STM year to date has decreased 25.02%.  This has been closely related to the current semiconductor shortage that has been going on for the last year and a half.  The reduction in car sales has also impacted STM’s automotive segment operations.     

Source: FactSet

My Takeaway

I believe STM is well suited for the future with the semiconductor industry taking a large impact from implications relating to the Covid-19 pandemic.  Research has shown that the global semiconductor should grow about 10% through the end of 2022 proving there is growth opportunities for STM to potentially capitalize on.  With their impressive revenue in quarter one staying on track with management’s plan to reach about $14 billion in total revenue for 2022 and advancements being made in the automotive and industrial industries I believe STM has tremendous opportunities for growth. 

Source: FactSet

A Small Cap Equity holding: National Vision Holdings, Inc. (EYE, $38.97) By: Grace McCrea, AIM Student at Marquette University

National Vision Holdings, Inc. (EYE, $38.97)

By: Grace McCrea, AIM Student at Marquette University

 

Disclosure: The AIM Small-Cap 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

  National Vision Holdings, Inc. (NYSE: EYE) specializes in the sale of optical products, specifically eye care and eyewear. The majority (91%) of revenue is generated from the Owned & Host segment, which contains sales from the eyeglass companies that EYE works with. The remaining revenue comes from the Legacy segment, which processes  inventory and lab services.

    Just a few weeks ago, on April 11, 2022, EYE added Joe VanDette to their company as Chief Marketing Officer. He has previous experience at Smart & Final (grocery), as well as at Toys ‘R Us (clothing and toy retailer) in positions involving marketing, analytics, and strategy.

   In an investor presentation released in March 2022, EYE emphasized that their store count has been increasing at a CAGR of 7% for 16 years. Although their new store success rate is a very impressive 97%, a comment about their commitment to e-commerce would have been beneficial. In order to accommodate younger generations who prefer online shopping, it will be necessary for EYE to focus on improving their experiential platform in the digital space.

Key Points: Although EYE has been committed to Corporate Social Responsibility (CSR) for over 30 years, they began a special dedication to CSR in 2021, which started with an Impact Report. In order to evaluate their historical commitment to CSR, EYE organized a strategic assessment and a sustainability assessment.

To begin these assessments, EYE identified their most prevalent environmental impact locations throughout the business. This helped clarify focus areas of CSR that need improvement at National Vision Holdings. Finally, management created a governance structure, lived out in the Board of Directors, to prioritize CSR initiatives.

In addition to this commitment towards CSR, EYE has an advantage in the market as a whole, which is important for their future success. According to management, EYE currently has 965 locations throughout the country, which only represents about 31% of the total available market. The other 69% of the market represents extreme growth potential for National Vision Holdings, Inc.

What has the stock done lately?

The overall markets saw a rough start to 2022, and recent macroeconomic issues like the conflict between Russia and Ukraine have not helped. However, in their Q4FY21 earnings call on Feb 28, 2022, EYE reported a 4.46% increase in revenue, signifying that they beat earnings. This is significant for many reasons, but primarily because it marks the first year that EYE brought in net revenues greater than $2 billion. Even with this positive news, EYE has reported a YTD return of -21.57%. This is likely due the company’s struggle to report pre-pandemic same store sales growth.

Past Year Performance: EYE’s performance over the past year has been quite volatile, resulting in a 52-week return of -26.47%. As shown below, as of April 28, 2022, the stock is rather cheap and trading near its 52-week low of $34.70.

Source: Factset

My Takeaway

EYE’s dedication to CSR is impressive. Commitment to corporate social responsibility and/or environmental social governance is currently a majority of investor's priority and preference. It’s really important to know what investors, as well as customers, want. With this in mind, I would like to see a stronger commitment to their customers through e-commerce. With one of their closest competitors being Warby Parker, who is known for offering an exceptional online experience for “trying on” glasses, EYE must commit to the younger generations who prefer to shop this way. 

Source: Factset

An International Equity holding: Eaton Corp. Plc (ETN, $145.71): “The (electrical) Power of Eaton” By: Zach Turbett, AIM Student at Marquette University

Eaton Corp. Plc (ETN, $145.71): “The (electrical) Power of Eaton”

By: Zach Turbett, AIM Student at Marquette University

Disclosure: The AIM International 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

  • Eaton Corp. Plc  (NYSE:ETN) provides energy-efficient solutions for electrical, hydraulic, and mechanical power. The company operates in four different segments: Electrical Americas and Electrical Global, Aerospace, Vehicle, and eMobility. Eaton operates internationally with the majority of sales based in the United States.
  • With the sale of Eaton’s hydraulic business, it has allowed the company to continue to heighten and expand in their current segments.
  • In Q1 of 2022, Eaton acquired Royal Power Solutions for $600 million. Royal Power Solutions is a manufacturer of electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets.
  • The company announced the addition of two key executives which will go into effect July 5th, 2022. Heath Monesmitch will be named President and Chief Operating Officer of the Electrical Sector where he will be responsible for the EMEA region. Additionally, Paulo Ruiz will be the President and Chief Operating Officer of the Industrial Sector. Both additions will add great value to the company in the future.
  • Eaton has experienced substantial financial growth in a challenging environment in Fiscal 2021 in relation to the Covid-19 pandemic, inflation, and supply chain constraints.

Key points: Late last year, Eaton completed the sale of its hydraulic business to Danfoss (a danish industrial company) for $3.3 billion. The hydraulic business was seen as a large but slower-growth, lower margin business than the rest of the company. With the sale of the hydraulic business, it marks as another milestone for the company’s transformation into a higher growth company. Additionally, this sale will provide great value for its shareholders as it earns higher returns.

Eaton completed a very recent acquisition of Royal Power Solutions which will synergize well with its already existing electrical segment. With Eaton’s continued commitment to improve quality of life through power management technologies, this will allow the company to excel. Also, this acquisition will give them the ability to capitalize on their fast-growing eMobility, Aerospace, and electrical businesses.

In the past year, the world has experienced major setbacks due to the pandemic, supply chain constraints, and rising inflation. Throughout this period, ETN has continued to show financial strength. For FY 21’, sales were up $19.6 billion dollars, representing 10% organic growth. In fact, all segment margins were up 18.9% which was an all-time record for the company. Additionally, the company continued to reinvest in the already growing company with $575 million going towards Capex and $616 million towards R&D activities. Lastly, Eaton returned $1.2 billion to their investors through dividends, and through this same period, their share price grew 44%.

What has the stock done lately?

As of late, the stock has seen increased volatility since the beginning of this year. At the beginning of this year, ETN’s share price was $170.56, and today it sits at $145.71, representing a decrease of 14.5%. This decline in price is partly due to the current geo-political tension between Russia and Ukraine, and ongoing supply chain constraints.

Past Year Performance:

ETN’s 52-week range stretches from $139.12-175.72, with its low trailing back to mid-June of last year. Today, the share price is hovering very close to its price of that a year ago. In August of 2021, ETN saw a slight dip from $168.84 to $148.39 due to the CEO’s press conferencing speaking on the supply chain issues. He explained that the company will have challenges when respect to their revenue. However, the share price quickly bounced back in the following months hitting its all-time high. The company will be releasing its Q1 2022 earnings on May 3rd.

1 Year Stock Chart vs. Benchmark from FactSet here

Source: FactSet

My Takeaway

ETN was added to the portfolio at the end of 2018 and has seen extraordinary growth since then. Although the company has seen many macro-economic challenges, ETN has stayed strong and has continued to push forward. Also the company has continued to be a pioneer in power solutions with its high M&A activity, key customer wins, and many development programs. Moreover, ETN is joined Bill Gates’ Breakthrough Energy Ventures and the UK-based Business Growth Fund in providing venture capital support to Reactive Technologies. The company still faces headwinds with the ongoing supply chain crisis in which they will need to effectively manage. With the company’s strong performance prior to the war between Russia and Ukraine, there is no doubt that Eaton will be a strong performer in the industry and compared to its peers.

1 Month Stock Chart from FactSet here

Source: FactSet