“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, July 20, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade – AbbVie Inc (NYSE:ABBV) Calls

Thursday, July 23, 2020

** OPTION TRADE: Buy ABBV NOV 20 2020 100.000 CALLS at approximately $5.10 (Up to $5.40).

Place a pre-determined sell at $10.20.

Also include a protective stop loss of $2.05.

The North Chicago, IL-based company AbbVie Inc (NYSE:ABBV), a research-based biopharmaceutical company, has continued progress in its atopic dermatitis drug which is a positive catalyst that will send the stock higher.

Rinvoq (upadacitinib) is a compelling challenger to Regeneron. Regeneron's Dupixent, which is used to treat to treat moderate to severe atopic dermatitis, is a biologic. Patients must inject the drug every two weeks. By comparison, Rinvoq is a pill and is easier to take, albeit more frequently.

AbbVie's positive results from the Phase 3 trial, Measure Up 2, is a positive catalyst for the stock.

After AbbVie's drug met all primary and secondary endpoints, it could easily start with at least $150-300 million in initial sales. The JAK inhibitor, which the FDA approved for treating rheumatoid arthritis last year, has a large addressable market.

Rinvoq is a possible treatment option for Dupixent patients who did not respond to treatment. If 10-25% of subjects could not use Dupixent, then AbbVie would make $340 million at a minimum around two years after it launches this drug to market.

Also, Dupixent treatment costs do not come cheap. But Rinvoq's value-based price benchmark is between $44,000 and $45,000 for treating RA.

About Abbvie…..

AbbVie made its debut on the stock market in 2013 when it split from its former parent company, Abbott Laboratories.

AbbVie Inc discovers, develops, manufactures, and sells pharmaceutical products in the United States, Japan, Germany, Canada, Italy, Spain, the Netherlands, the United Kingdom, Brazil, and internationally.

The company offers HUMIRA, a therapy administered as an injection for autoimmune and intestinal Behçet's diseases; IMBRUVICA to treat adult patients with chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL), mantle cell lymphoma, waldenström's macroglobulinemia, marginal zone lymphoma, and chronic graft versus host disease; VENCLEXTA, a BCL-2 inhibitor used to treat adults with CLL or SLL; VIEKIRA PAK, an interferon-free therapy to treat adults with genotype 1 chronic hepatitis C virus (HCV); TECHNIVIE to treat adults with genotype 4 HCV infection; and MAVYRET to treat patients with chronic HCV genotype 1-6 infection.

Influencing Factors…..

After AbbVie acquired Allergan, the company added a therapeutic business to its portfolio that complements its own existing business. CEO Rick Gonzalez said in the last quarter,

"It's important to highlight that Allergan has both a therapeutic business which is similar to the AbbVie business and represents approximately two-thirds of their revenues and profits; and an aesthetics business which represents roughly one-third of their revenues and profits."

As Allergan's drugs in the clinical phases come to market, revenue will grow. As dermatology clinics and plastic surgery operating rooms re-open, revenue from Allergan should bounce back.

Humira has seen declining sales, and is the company's biggest cash cow, but sales of this blockbuster drug are still growing in the U.S., which is helping it recoup some of its losses in international markets.

During the first quarter, the rheumatoid arthritis treatment generated $3.7 billion in revenue domestically, a 13.7% year-over-year increase.

As well, the pharma giant has a robust lineup (beyond Humira) that will allow it to continue generating solid financial results. For instance, there's Venclexta and Imbruvica, two cancer drugs whose combined worldwide sales of $1.5 billion during the first quarter increased by about 32% year over year.

Overall, the company reported a revenue figure of $8.6 billion during the quarter, a 10.1% increase compared to the prior-year quarter.

AbbVie's acquisition of Allergan, a transaction that closed in May means that the company got its hands on Allergan's Botox, which generates well over a billion dollars in revenue per year.

On June 10, AbbVie announced a collaboration deal with Danish company Genmab. The companies will collaborate on three anticancer antibodies that will ultimately allow the delivery of a therapeutic toxin directly to cancer cells while sparing normal, healthy cells. AbbVie is paying $750 million up front and up to $3.15 billion later, if the development programs succeed.

On July 9, Allergan announced that the U.S. Food and Drug Administration (FDA) had approved a supplemental Biologics License Application (sBLA) that supports expanded use of Botox for the treatment of spasticity in pediatric patients, including those with lower limb spasticity caused by cerebral palsy.

Other, newer drugs in AbbVie's arsenal that Wall Street is optimistic about include Skyrizi and Rinvoq. Analysts expect Skyrizi, which treats psoriasis and other autoimmune disorders, to grow annual sales from about $1 billion to $4.4 billion by 2025. Rinvoq, which treats arthritis and eczema, is expected to grow from a few hundred million a year now to $3.7 billion in 2025.

AbbVie has built a substantial oncology franchise with Imbruvica and Venclexta, which generated combined revenues of nearly $5.5 billion in 2019. Strong double-digit growth is expected in 2020.

Further, AbbVie is working on a coronavirus treatment under a partnership with Harbour BioMed, Utrecht University and Erasmus Medical Center. The antibody-based approach could either treat or prevent Covid-19.

In late May, AbbVie and Neurocrine Biosciences (NBIX) gained U.S. approval for Oriahnn, a treatment for heavy menstrual bleeding associated with uterine fibroids. The companies said the drug would be available by the end of June.

Past Earnings…..

AbbVie last posted its quarterly earnings results on Friday, May 1st.

The company reported $2.42 earnings per share for the quarter, beating the consensus estimate of $2.25 by $0.17. The firm had revenue of $8.62 billion during the quarter, compared to the consensus estimate of $8.31 billion.

AbbVie had a net margin of 24.77% and a negative return on equity of 169.80%. The business’s revenue was up 10.1% compared to the same quarter last year.

During the same period in the previous year, the firm posted $2.14 earnings per share. Sell-side analysts forecast that AbbVie Inc will post 10.46 EPS for the current fiscal year.

AbbVie's CEO, Richard Gonzalez, had this to stay during the company's first-quarter earnings conference call: "We remain confident that the AbbVie/Allergan combination will generate significant cash flows, which will support our strong and growing dividend and rapid debt repayment, and we remain highly committed to both of those priorities."

Future Earnings.....

AbbVie is expected to report earnings on July 31.

In the second quarter, analysts expect AbbVie to earn $2.22 a share on $10.06 billion in sales. Earnings would slip 1.8% while sales would rise 21.8%.

For the current fiscal year, AbbVie is expected to post earnings of $10.45 per share on $45.29 billion in revenues. This represents a 17% change in EPS on a 36.14% change in revenues. For the next fiscal year, the company is expected to earn $12.15 per share on $53.4 billion in revenues. This represents a year-over-year change of 16.23% and 17.91%, respectively.

Analysts’ Opinions.....

Mizuho lifted their target price on shares of AbbVie from $101.00 to $110.00 and gave the stock a “buy” rating in a research note on Monday, June 29th.

Several other equities analysts have recently commented on the company…..

  • UBS Group raised their price objective on shares of AbbVie from $96.00 to $109.00 in a report on Wednesday, June 17th.
  • Atlantic Securities raised shares of AbbVie from a “neutral” rating to an “overweight” rating and set a $115.00 price target on the stock in a report on Tuesday, June 23rd.
  • Wolfe Research raised shares of AbbVie from a “peer perform” rating to an “outperform” rating in a report on Tuesday, June 9th.
  • TheStreet raised shares of AbbVie from a “c+” rating to a “b-” rating in a research note on Friday, June 12th.
  • Royal Bank of Canada lifted their target price on shares of AbbVie from $102.00 to $125.00 and gave the stock an “outperform” rating in a research note on Thursday, June 25th. They noted that the move was a valuation call.
  • Finally, Piper Sandler lifted their target price on shares of AbbVie from $97.00 to $110.00 in a research note on Wednesday, June 10th.

One equities research analyst has rated the stock with a sell rating, three have assigned a hold rating and fourteen have issued a buy rating to the company’s stock. The company presently has an average rating of “Buy” and a consensus target price of $106.80.

So…..

AbbVie's price-to-earnings ratio is 17, well below the industry average P/E of 34, and its price/earnings-to-growth ratio is 0.66, indicating that AbbVie shares are undervalued.

Despite over a 55% rise since the March 23 lows of this year, at the current price of around $100 per share it is believed that AbbVie stock has more room for growth. AbbVie’s stock has rallied from $65 to $100 off the recent bottom compared to the S&P which moved 44%, with the resumption of economic activities as lockdowns are gradually lifted. AbbVie stock is also up 18% from levels seen in early 2018.

AbbVie stock has fully reached the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. Despite the healthy rise since the March 23 lows, it is felt that the company’s stock still has potential, because of its current valuation, and the recent Allergan acquisition, which has expanded its drugs portfolio.

Besides the company's growing dividend, strong demand trends for Humira in the United States, an impressive portfolio of new drugs, and continued strong sales performance of Imbruvica and Venclexta are some solid reasons to own the stock.

AbbVie Inc has a 52 week low of $62.55 and a 52 week high of $101.28. The company has a market capitalization of $146.99 billion, a price-to-earnings ratio of 17.62, and a PEG ratio of 2.18 and a beta of 0.86. The stock’s 50 day moving average price is $96.38 and its 200 day moving average price is $87.95.


Option Trade – Canadian Solar Inc. (NASDAQ:CSIQ) Calls

Tuesday, July 21, 2020

** OPTION TRADE: Buy CSIQ OCT 16 2020 25.000 CALLS at approximately $2.70 (Up to $3.00).

Place a pre-determined sell at $5.40.

Also include a protective stop loss of $1.10.

Environmental, social, governance investing, or ESG, has gained in popularity among investors in recent years. A cornerstone of ESG is solar energy. And, alternative energy company Canadian Solar Inc. (NASDAQ:CSIQ) fits nicely into this category.

Canadian Solar has outperformed 84% of all stocks on key metrics over the past 52 weeks.

Canadian Solar's turnaround this year has been dramatic.

Shares of the solar wafers manufacturer had gained 38.05% in the past month. In that same time, the Oils-Energy sector lost 11.14%, while the S&P 500 gained 0.02%.

The solar energy company saw both earnings and sales growth rise last quarter vs. a year earlier.

Earnings-per-share increased from a 29 cent loss to a $1.84 profit, a 734% pop. Revenue growth rose from 2% a year ago to a 70% jump to $826 million.

Its shares have outperformed the industry in the past month. Canadian Solar’s cash and cash equivalents were $1,151 million at the end of first- quarter 2020, while its long-term debt of $666 million as of Mar 31, 2020 was much lower than its cash reserve. This reflects a strong solvency position on the company’s part, which is further evident from the sequential improvement in its financial ratios.

About Canadian Solar…..

Canadian Solar is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. 

Canadian Solar Canadian Solar has one of the world’s largest utility-scale solar project development platforms, with commercial operation over 5.6 GWp of solar power plants. It has a strong project pipeline and continues to identify attractive development opportunities to redeploy capital and ensure future success.

Of late, it has expanded its global late-stage project pipeline into nations like Argentina, Australia and South Korea. Such project pipeline reflects solid growth prospects for this stock through monetization of its global, solar project assets.

Past Earnings…..

Canadian Solar last announced its quarterly earnings results on Thursday, May 28th.

The solar energy provider reported $1.84 EPS for the quarter, beating the consensus estimate of $0.86 by $0.98. The business had revenue of $825.60 million during the quarter, compared to analysts’ expectations of $792.65 million. Canadian Solar had a return on equity of 16.69% and a net margin of 8.45%.

The firm’s quarterly revenue was up 70.3% compared to the same quarter last year. During the same quarter in the previous year, the business posted ($0.29) EPS.

Future Earnings.....

Canadian Solar is expected to issue its next earnings results on Thursday, August 20th.

Equities analysts forecast that Canadian Solar will report earnings per share of ($0.01) for the current fiscal quarter. Canadian Solar posted earnings per share of $0.77 during the same quarter last year, which would suggest a negative year over year growth rate of 101.3%.

Analysts expect that Canadian Solar will report full year earnings of $2.69 per share for the current financial year, with EPS estimates ranging from $2.32 to $3.43. For the next fiscal year, analysts expect that the firm will post earnings of $3.00 per share, with EPS estimates ranging from $2.50 to $3.72.

Also, equities analysts forecast that Canadian Solar will report sales of $652.24 million for the current fiscal quarter. Canadian Solar posted sales of $1.04 billion in the same quarter last year, which suggests a negative year-over-year growth rate of 37.3%.

On average, analysts expect that Canadian Solar will report full year sales of $3.26 billion for the current year, with estimates ranging from $3.12 billion to $3.45 billion. For the next fiscal year, analysts anticipate that the business will report sales of $3.84 billion, with estimates ranging from $3.66 billion to $4.00 billion.

Influencing Factors…..

This designer and manufacturer of solar ingots, wafers, cells, modules, and other solar power products has seen its Consensus Estimate for its current year earnings rising 30% over the last 60 days.

CSIQ currently has a Forward P/E ratio of 8.7. For comparison, its industry has an average Forward P/E of 31.55, which means CSIQ is trading at a discount to the group.

Unlike its bankrupt peers Sungevity, Solyndra, and SolarWorld, Canadian Solar has prospered over the past two decades, and investors are confident that plenty of sunny days remain. In 2020, for example, Canadian Solar forecasts solar module shipments of 11,000 megawatts (MW). Should the company achieve this guidance, it will represent a compound annual growth rate of 34% since 2010, when it shipped 803 MW.

Also, Canadian Solar's burgeoning energy business, which deals in the development of solar power projects, currently has 1 gigawatt-peak (GWp) in operation, with 3.7 GWp in backlog and 12 GWp in the pipeline. Additionally, Canadian Solar's focus on the energy storage market is also a source of enthusiasm since the company has 2,820 megawatt-hours of storage projects in the pipeline.

Analysts’ Opinions.....

Canadian Solar was upgraded by investment analysts at BidaskClub from a "hold" rating to a "buy" rating in a research note issued last Thursday..

Several other equities analysts have recently commented on the company…..

  • Oppenheimer reaffirmed a “buy” rating and set a $25.00 target price on shares of Canadian Solar in a research report on Thursday, May 28th.
  • Cfra raised Canadian Solar from a “hold” rating to a “buy” rating and upped their target price for the stock from $20.00 to $22.00 in a research report on Friday, May 29th.

Two analysts have rated the stock with a sell rating, one has issued a hold rating and five have assigned a buy rating to the stock. Canadian Solar presently has a consensus rating of “Hold” and an average target price of $26.60.

So…..

Canadian Solar currently represents a bargain. Shares are trading at 2.3 times operating cash flow, which is a discount to its five-year average multiple of 4.1. 

Canadian Solar has a market cap of $1.47 billion, a price-to-earnings ratio of 5.05, a PEG ratio of 0.26 and a beta of 1.57. The company has a current ratio of 1.17, a quick ratio of 0.95 and a debt-to-equity ratio of 0.45. Canadian Solar has a 12 month low of $12.00 and a 12 month high of $25.85.