Keryx Biopharma (KERX – Analyst Report) has not beat the Zacks Consensus Estimate since 2012 and it is the Bull of the Day? What gives? How can a stock that has only met the Zacks Consensus Estimate or missed it over the last few years be a Bull of the Day? Let’s take a look at why I like this stock to outperform over the coming weeks and months.
KERX met the Zacks Consensus Estimate of a loss of $0.22 when it last reported in late April. The key to me was that the topline has seen sequential growth in each of the last four quarters and that is reason enough for me to make it the Bull of the Day.
Keryx Biophamaceutical, Inc. uses data discovered through the mapping of the human genome to generate drug candidates that target the regulation of protein kinases. Protein kinases play a key role in the way cells communicate.
Normally when a stock makes it to my old “Home Run” screen there is a host of earnings beats. That is not the case for KERX, a company that has missed three of the last six reports. The other three reports were meets, so there hasn’t been a beat of the Zacks Consensus Estimate in a few years.
At the same time I am drawn to the sequential revenue growth over the last year or so. The March 2015 revenue was $1M, and followed by $3M, $4M, $6M and $7M in the most recent quarter. These are very small numbers, but the idea here is that there is good sequential growth. We expect to see more of the same as the consensus estimate for next quarter is $8M.
The company is slated to report earnings again on or around July 28.
Normally I see earnings estimates move higher with a Zacks Rank #2 (Buy) and almost certainly with a Zacks Rank #1 (Strong Buy). This situation is different as estimates for this year are moving from a loss of $0.80 to a loss of $0.99 and have remained there for three and a half months.
The 2017 numbers recently moved higher, but that penny move from last month doesn’t seem like it would be enough to alter the rank. I should also note that I don’t know everything about the rank, but I have a great handle on how it works. There are times when small moves in estimates are just enough to lift a stock from a #3 to a #2 and could also imply that there is not a lot of recent revisions as we head into earnings season.
With negative EPS, the PE numbers are thrown out the window. Price to book of 15x is more than double the 7x industry average and the price to sales multiple of 40x is absurd when you look at the industry average of 3.5x.
What we are looking for here is massive revenue growth. 200% revenue growth is expected this year and another 136% is slated for next year. Earnings are set to improve significantly as well, and if that happens, the stock will continue to appreciate.
On July 8, Maxim Group raised their target price on the stock to $9 from $7 as the sales outlook brightened. We like seeing that style of development.
Back on the first of June, we see a 13G filing with Baupost Group showing at 42.5% stake in the company. This came after the company increased the authorized share capital by 50M shares and the conversion of notes into stock. There were $125M worth of notes held by Baupost and they converted them into stock, which is a very bullish indicator. At the time the stock was $6, so with the increase over $7 the 33.4M shares that were acquired have already proven to be a good move.
I like this stock for the long haul despite some big valuation numbers and a lack of earnings beats. Stocks that come up on the Home Run screen have often produced big winners, so I look forward to this stock doing the same.
Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of theZacks Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.
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