3 Healthcare Stocks That Offer a Compelling Buying Opportunity
When shares fall, investor focus locks in. The first instinct, for some, is to avoid the name entirely after the investing alarm bells have been sounded. Sure, dropping share prices can indicate that there’s a deeper issue hampering the company such as weak fundamentals or headwinds that appear unbeatable. Having said that, this isn’t the case for every stock that has seen its share price take a hit.
Wall Street pros remind investors that while not all beaten-down names are primed for a recovery, others offer investors a unique buying opportunity, with their current share prices reflecting an attractive entry point.
So, how are investors supposed to know when it’s time to buy the dip? TipRanks' Stock Screener tool helped us zero in on 3 compelling stocks, specifically in the healthcare industry, by filtering our search results by sector, analyst consensus and price target upside. While these names have taken a beating, each has generated substantial bullish sentiment from the analysts and boasts massive upside potential from current levels. Let’s dive right in.
Sientra, Inc. (SIEN)
First up, we have Sientra, a company that is best known for producing implants and other products for breast augmentation or reconstruction procedures. While the healthcare name has started off 2020 down 25%, Wall Street analysts see better days on the horizon.
The recent weakness actually follows a relatively solid preliminary fourth quarter revenue announcement. On January 13, the company told investors that miraDry’s better-than-expected performance drove a modest revenue beat. However, the breast segment missed the mark and there are still some concerns regarding its balance sheet as its cost restructuring efforts won't generate cash flow benefits until 2021.
That being said, Leerink Partners analyst Richard Newitter points out that the breast segment still achieved 20%-plus growth, and his conversation with SIEN management actually implies that its breast implant business accelerated. Additionally, he stated that if one-time events are excluded, cash burn improved.
As a result, he argues that the pullback is “too excessive.“ “We've seen SIEN's stock react unexplainably negative in the past to otherwise solid results (i.e., initially after a 2Q19 beat) only to recover shortly thereafter. We think this will prove to be one of those situations and reiterate our OP rating as we continue to believe SIEN's valuation discount is disconnected from an over 20% top-line growth profile,” he explained.
With Newitter anticipating that its OPUS implant launch and miraDry sales growth will also help fuel a recovery, it makes sense that he still sides with the bulls. To this end, the five-star analyst reiterated an Outperform recommendation and $13 price target. Should this target be met, shares could be in for a 93% twelve-month gain. (To watch Newitter’s track record, click here)
What does the rest of the Street think? Based on 100% Street support, or a total of 6 bullish calls assigned in the last three months, the consensus rating is a unanimous Strong Buy. The $13.20 average price target puts the upside potential above Newitter’s forecast at 96%. (See Hercules Capital’s stock analysis at TipRanks)
ViewRay, Inc. (VRAY)
ViewRay is focused on giving clinicians new and more effective ways to treat cancer using radiation. Its approach uses MRI-based technology to provide real-time imaging that clearly defines the targeted tumor from the surrounding soft tissue and other critical organs during radiation treatment. With this groundbreaking offering, why have shares dipped 25% year-to-date?
The share price decline comes on the heels of its preliminary Q4 results. VRAY announced that it expects quarterly sales of $17 million, landing very close to the consensus estimate. However, new orders largely disappointed, with this figure coming in at $21 million. As this is down from $49 million in the prior-year quarter, it’s no wonder investors have been concerned. It also didn’t help that VRAY burned through about $3 million in cash.
That isn’t to say investors should give up on the healthcare name. Piper Sandler’s Matthew O'Brien did acknowledge the result was unexpected “as momentum in the order book appeared to have been building with eight orders (three upgrades) last quarter.” However, he argues that the soft order figure is indicative of “standard lumpiness capital equipment sales”, which should improve in the coming quarters.
“Although we do not expect this to be the last bump in the road, we remain highly confident in the utility of the MRIdian as the best technology to treat cancer patients, and we believe it will yield significant share-taking over the next couple of years,” O’Brien commented. He added, “We believe today’s dip represents a buying opportunity to investors willing to weather some quarterly volatility...”
As recent investments from heavyweights Medtronic and Elekta boosted its capital, VRAY should be able to improve system install times as well as access potential hospital targets for the MRIdian system. Based on all of these factors, the five-star analyst maintained an Overweight rating and $6 price target. At this target, shares could soar 89% in the next twelve months. (To watch O’Brien’s track record, click here)
Like O’Brien, other Wall Street analysts are staying on board. 6 Buys and a single Hold issued in the last three months add up to a Strong Buy analyst consensus. In addition, the $6.71 average price target implies 112% upside potential. (See ViewRay stock analysis on TipRanks)
Evolus, Inc. (EOLS)
Evolus is giving people a reason to smile, offering an FDA-approved injectable medicine to improve the appearance of frown lines. Despite shedding 19% of its value since the beginning of 2020, one analyst believes that EOLS will be able to turn investors’ frowns upside down.
Marc Goodman of Leerink Partners wrote in a recent note that he suggests “aggressive buying of EOLS shares” after the stock’s tumble. Shares set off on a downward trajectory after it pre-announced its fourth quarter results. Total sales could land within the range of $18.5 million to $19.5 million, compared to the $16.1 million consensus estimate. In addition, the amount of purchasing accounts is expected to increase substantially from about 2,000 in the third quarter to almost 3,500 in the fourth quarter.
“We are baffled by the weakness today and view as a great buying opportunity. In our view, commercial execution by this management team has been excellent so far and the sales ramp is very encouraging. From a ‘back of the envelope’ view we simplistically say that if this is just a $250 million peak sales product, these types of aesthetics assets trade for at least 5x sales, and thus that implies a valuation at least 3x where the stock currently trades,” Goodman noted.
Even though the four-star analyst points out that investors have been worried about the lockup period for Alphaeon, which owns 26%, and the ITC litigation, he doesn’t think that either hampers its long-term growth prospects.
Bearing this in mind, he kept his Outperform rating and $25 price target as is. This target conveys his confidence in Evolus’ ability to climb 154% higher in the twelve months ahead. (To watch Goodman’s track record, click here)
Looking at the consensus breakdown, 6 Buys, 1 Hold and 1 Sell make the consensus rating a Moderate Buy. It should be noted, though, that the average price target of $26.88 indicates a whopping 173% potential twelve-month gain. (See Evolus stock analysis on TipRanks)
