Visa's Growth Slowdown Has Begun

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

Final FY2017 numbers have been reported for Visa Inc. (NYSE:V) and FY2018 is now underway. I previously wrote an article proposing my thesis that growth will slow (not stop) starting with Q1 FY2018 numbers and now that FY2017 is in the books, I’ll be taking a clinical approach into this thesis as we approach Q1 FY18 numbers. As expected, Visa just recently reported another great quarter for Q4 FY2017 with beats on both the top and bottom line to round out the fiscal year. EPS and revenue estimates were beaten by $0.05 and $230 million, respectively. Visa had set new to all-time highs of ~$110 per share leading into the earnings report. Despite these beats on both the top and bottom line numbers, the stock responded in a relatively muted fashion. Investors have been accustomed to year-over-year quarterly growth in the double digits over the past year, specifically post Visa Europe acquisition and integration. For year-over-year revenue comparators post-Visa Europe integration, FYQ4 2016 growth was 19% followed by FY2017 revenue growth with FYQ1 at 25%, FYQ2 was 23%, FYQ3 was 26%, and FYQ4 was 14%.

FYQ4 2017 is a far departure from the previous four quarters of growth. Visa’s management is now forecasting revenue growth in the high single digits with EPS growth in the mid-teens, artificially high due to share buybacks. This forward-looking revenue growth rate is a shape divergence from the past year-plus revenue growth numbers investors were enjoying yet appears to be the new normal moving forward. As I posited previously, Visa’s growth rate will be slowing, now confirmed by Visa’s management and is thus misaligned with the stock’s 41% YTD appreciation, P/E ratio, PEG ratio and overall growth prospects. Continue reading "Visa's Growth Slowdown Has Begun"

Covered Calls and Covered Puts - Empirical Results and Lessons Learned

Noah Kiedrowski - INO.com Contributor - Biotech


Leveraging Options

I’ve written numerous articles on options trading and how one can leverage options over the long-term to mitigate risk, generate income and accentuate returns. Leveraging options to supplement portfolio returns can make a meaningful impact on overall returns, especially over the long-term. Here, I’ll focus on covered calls and covered puts with corresponding lessons learned over the course of the past year with empirical data.

Covered calls are intended to leverage a stock position while extracting value on a consistent basis via selling option contracts against that position and collecting premium income in the process. I liken this to a landlord renting a room for monthly income, however, in this case, one is renting the stock. The option contract is structured with the option seller (stock owner) collecting a premium in exchange for the right for the option buyer to purchase the shares of interest at an agreed upon price by an agreed upon date for a premium (income that the option seller will receive). In this scenario, the stock owner doesn't believe that the shares will appreciate beyond the agreed upon price and thus be able to collect income while retaining the shares and dividend rights. The option buyer believes that the shares will appreciate beyond the agreed upon price and be able to buy the shares at a lower price than the market currently trades.

Covered puts involve leveraging a cash position that one currently has on hand and collecting a premium in exchange for the obligation to purchase one’s shares at an agreed-upon price prior to an agreed upon date. If the stock falls below the agreed-upon price prior to the agreed upon date, then the individual that bought the contract from you will force the obligation (that you agreed to) for you to purchase the shares. In this case (when the stock falls throughout the contract lifespan), the shares can be sold to you (the put option seller) at a higher price than the market. However, if the shares rise in value then the shares will remain with the owner and the put option seller will keep the premium income and the cash earmarked for the potential purchase of the shares will be freed. Why exercise the contract and sell the shares to you (option seller) at a lower price when one can sell the shares on the open market at a higher price? Continue reading "Covered Calls and Covered Puts - Empirical Results and Lessons Learned"

CVS: Walking Away - Amazon Effect Proving Too Great

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

I finally had to throw in the towel on CVS Health Corporation (NYSE:CVS) and walk away from the stock. Since its all-time highs in 2015, several headwinds have negatively impacted its growth, and the changing marketplace conditions have plagued the stock. Exacerbating this downward movement from the factors above, Amazon (AMZN) has entered the fray and has resulted in another leg down for the stock. The latter half of 2015 and throughout 2016 the political backdrop was a major headwind for the entire pharmaceutical supply chain from drug manufacturers to pharmacies/pharmacy benefit managers (i.e., CVS and Walgreens (WBA)) and the drug wholesalers in-between (i.e. McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC)). Marketplace trends forced CVS to cut guidance for Q4 2016 and the full-year 2017 numbers. CVS stated that “unexpected marketplace actions that will have a negative impact on our Q4 2016 results and a more meaningful impact on our outlook for 2017”. CVS suffered a self-inflicted wound and lost a contract with the Department of Defense which carries tens of millions of prescriptions on an annual basis. A new restricted network relationship between Prime Therapeutics and Walgreens impacts CVS Pharmacy’s participation in selected fully-insured networks in several key states, and many cases make CVS Pharmacy a non-preferred provider for Medicare Part D as well. These prescriptions tend to be the most profitable prescriptions as well. Lastly, Amazon’s purchase of Whole Foods and behind the scenes moves in the healthcare space has incited rumors that Amazon is looking to gain entry into the pharmacy space via leveraging the Whole Foods physical footprint of storefronts. I’ve written several articles contending that CVS presents a compelling investment opportunity in the ever-expanding healthcare space. My investment thesis was based on an aging population, growth in long-term care facilities and the pharmacy benefit management segment. All of this in a backdrop of CVS being highly acquisitive, continuing to deliver earnings growth, revenue growth, growing dividends and has an aggressive share buyback program in place. The wildcard may be the Amazon threat with its first real pivot after acquiring Whole Foods with subsequent potential in entering the pharmacy space as well.
Continue reading "CVS: Walking Away - Amazon Effect Proving Too Great"

IBB - A Clearer Runway Ahead

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

The Biotechnology cohort has finally made up much of the lost ground during the pummeling from both sides of the political aisle during the 2016 presidential race. Tweets and excerpts during the campaign trail from Hillary Clinton, Bernie Sanders and Donald Trump put the biotech cohort through the wringer via aiming for drug pricing. The sustained sell-off lead to the entire cohort to sell off from all-time highs of $400 to $240 or 40% in only 6 months as measured via the iShares Biotechnology Index ETF (NASDAQ:IBB). From February of 2016 through June of 2017 IBB traded in a tight range from $250 to $300 while Donald Trump continually fired shots against the healthcare sector. Any healthcare related stocks became volatile on the heels of any statement or tweet from Donald Trump. Shortly after the inauguration, Trump stated that drug companies are “getting away with murder” when speaking to the drug pricing issue. As the proposed healthcare legislation appears to be dead as of now, a level of certainty has entered the picture, and the drug pricing threats are not perceived to be as bad as initially feared. Recently the index has had a resurgence moving to a 52-week high of $335 with a much clearer runway ahead as the political headwinds continue to abate. As the confluence of abating political threats, drug pricing certainty, and continuity of the current healthcare backdrop, I feel the index has room to continue its upward trend and retrace its 2015 level of $400. Continue reading "IBB - A Clearer Runway Ahead"