One short-term strategy I've implemented over the years is the buying and selling stock ahead of a company's earnings report. In this article I've examined Stem Cells, Inc. (STEM) and PharMerica Corp. (PMC) ahead of their earnings reports due out August 2nd. Each of these companies have variables to consider, however the short-term strategy may not necessarily be to acquire a large position in anticipation of an earnings pop.
STEM trades in a 52-week range of $0.59 (52-week low) and $3.57 (52-week high), and closed trading at $1.86/share on Wednesday as the company prepared to announce its quarterly EPS numbers on August 2nd. Analysts are expecting STEM to post a loss -$0.25/share on revenue of just $550,000 for the June quarter, and if the last quarter was any indication of what we can expect from STEM, shareholders may be in for yet another disappointment.
The last two quarters haven't favored STEM and based on the trends I really don't see this report being anything but unfavorable. The December miss of -$0.07/share and the March miss of -$0.19/share are just evidence that STEM has a long way to go before anything substantial comes out of the company. The first quarter contained variables which highlighted the fact that the company anticipates burning through nearly $20 million in cash and generating less than $300 thousand per quarter in revenues from the company's drug SC Proven. The balance in the first quarter just wasn't there and I strongly believe such an imbalance will continue if STEM doesn't find alternative, and soon.
Have there been pockets of promise? Yes, but nothing, in my opinion, substantial enough to boost the company's earnings. On July 17th the company released a study pertaining to the restoration of memory models in patients with Alzheimer's disease, but investors should note the tests were done on animals, not humans. Even though analysts are estimating STEM to grow 13.60% for the quarter and 26.20% for the year, I'd remain cautious on the company before establishing a position. There is nothing significant, in my opinion, which justifies meeting or exceeding those particular growth prospects. My fellow SA colleague Scott Matusow may be right in calling Stem Cell Therapy the investment of the future, but I don't think STEM is the right play especially since they are very limited in terms of cash.
PMC trades in a 52-week range of $9.03 (52-week low) and $16.45 (52-week high), and closed trading at $9.95/share on Wednesday as the company prepared to announce its quarterly EPS numbers on August 2nd. Analysts are expecting PMC to earn $0.30/share on revenue $488.48 million dollars for the June quarter, and if the last quarter was any indication of what we can expect from PMC, shareholders could continue to see favorable outcomes from the company.
The EPS trends for PMC are very promising, having surpassed estimates in each of the last four quarters by an average of 48.2%, which is nearly 5.44 times that of Pfizer (PFE), who has surpassed estimates by an average of 8.875% during the last four quarters. One the positive things potential investors should consider is the fact the company recently announced a $25 million dollar share repurchase plan and Gregory S. Weishar, Chief Executive Officer of PharMerica Corporation, noted, "We remain confident in PharMerica's long-term growth prospects. Given the market dynamics following the termination of the tender offer, we see the Company's stock as significantly undervalued, giving us a unique opportunity to drive shareholder value." Even though the growth estimates for both the June quarter -6.30% and year 0.80% are very slim there are several positive catalysts such as EPS trends and a very nice stock buyback that should bolster that stock.
When it comes to healthcare stocks my methodology is simple. I examine the fundamentals first and then look at any significant developments with regard to the company's pipeline or clinical research.
Based on my analysis I'm clearly in favor of establishing a position in PMC rather than STEM for two reasons. First, STEM is only managing to generate just under $1 million per year in revenues from its drug SC Proven, and disclosing the fact that the company's burn rate is nearly 20 times that. Second, the company released the preliminary results of its Pelizaeus-Merzbacher trial on April 2nd, which in most cases would be a very good thing, except the study only included 4 patients, which to me isn't anything that significant.
In terms of PMC there's another variable to consider rather then just the great EPS trends and a $25 million dollar stock buyback. The company had noted the recent insider buying activity by CEO Gregory Weishar, CFO Michael Culotta, and EVP William Monsat totaling 55,500 shares on June 14th. When insiders are buying and establishing a larger total position something tells me their own confidence has grown, which in turn trickles down to the shareholders, and becomes a positive catalyst.
Disclosure: I am long PMC.