Zacks Equity Research highlights AMAG Pharmaceuticals Inc. (Nasdaq: AMAG) as the Bull of the Day and Overstock.com (Nasdaq: OSTK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Humana Inc. (NYSE: HUM), TC PipeLines, L.P. (Nasdaq: TCLP) and Smith Micro Software Inc. (Nasdaq: SMSI).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.
Here is a synopsis of all five stocks:
Bull of the Day: AMAG Pharmaceuticals Inc. (Nasdaq: AMAG)
AMAG Pharmaceuticals develops superparamagnetic iron oxide nanoparticles for use in pharmaceutical products. The company's focus is on developing IV iron replacement therapy for anemia in chronic kidney disease and an imaging agent to aid in diagnosis.
The company filed the NDA [new drug application] for its lead drug, Ferumoxytol, in December 2007, and we expect the FDA approval to come in late 2008 or early 2009. Clinical data in over 1,700 patients indicate an excellent safety profile for the drug, with lower incidents of heart problems.
Clinical results, and eventual approval, for additional indications should ensure strong growth in the coming years. We maintain our Buy rating on the shares of Amag with a target price of $55.
Bear of the Day: Overstock.com (Nasdaq: OSTK)
Overstock.com’s results were essentially in-line with our estimates. Sales matched our forecast, while net loss per share was $0.10 better than our estimate after backing out a one-time gain from the retirement of convertible debt. The company also announced that it was going to restate its financials for the last five years due to a glitch in its accounting systems.
Looking ahead, we expect sales trends to worsen because consumers will continue to spend fewer dollars on discretionary items. Overstock.com will try to cut costs where it can. Unfortunately, the weak economic environment will make the already competitive online retail space even more cutthroat.
Increasing competitive pressures will put additional pressure on profit margins, and Overstock.com is not in a position to handle a contraction in its profit margins. We reiterate our Sell rating and $7.50 target price.
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Humana Inc. (NYSE: HUM)
Humana Inc. is one of the largest publicly traded health benefit companies in the U.S. and Puerto Rico. The company reported 3Q08 net income of $183M (down 39.5% y/y), or EPS of $1.09, compared with net income and EPS of $302.4M and $1.78 respectively in 3Q07. Adjusted EPS, excluding realized losses associated with other-than-temporary investment impairments and sales of distressed financial institution securities during 3Q08, was $1.48.
We have adjusted our price target following management's lowered FY08 EPS guidance and maintain a Buy recommendation at current levels. We have valued Humana on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the managed care sector. Our $47 price target is derived using a P/E multiple of 11 times (x) FY08 EPS of $4.25.
TC PipeLines, L.P. (Nasdaq: TCLP)
TC PipeLines, L.P. reported better-than-expected third quarter earnings of $28.3 million or $0.72 per common unit (our estimate was for $0.64 per common unit), compared to $24.6 million or $0.64 per common unit in the year-earlier quarter.
This reflected improved Tuscarora transmission results, lower financial charges, and increased equity income from Northern Border, partially offset by a fall in equity income from the Great Lakes. Importantly, the partnership maintained its third-quarter 2008 cash distribution at $0.705 per unit (or $2.82 per unit annualized).
Our new $33 price objective, reduced from $40 before, reflects a target distribution of $2.91 (reduced from the $3.07 estimate before) and a target yield of 9%, reflecting a 450 bps spread over our 10-year Treasury bond yield expectation of 4.5% over the next 12 months. We retain our Buy recommendation on TC PipeLines shares.
Smith Micro Software Inc. (Nasdaq: SMSI)
Smith Micro Software is a developer of wireless communications software and utility software for multiple OS platforms. It has significant relationships with several large cellular providers and OEM cellphone manufacturers.
Third quarter 2008 results were mixed, with revenue below our estimate while the EPS was above our expectations. We are encouraged by the company's growing top-line as well as bottom-line. We maintain our estimates for 2009, though the company did not provide guidance for it.
Our rating remains a BUY with a target price of $12. The stock is currently selling at below the group averages. Since future earnings will be taxed, we feel that the PEG ratio should be closer to the group average.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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