CVS: Walking Away - Amazon Effect Proving Too Great

Noah Kiedrowski - Contributor - Biotech


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.
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IBB - A Clearer Runway Ahead

Noah Kiedrowski - Contributor - Biotech


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"

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Hasbro - Future Catalysts Post Sell-Off

Noah Kiedrowski - Contributor - Biotech

The Backdrop

Hasbro Inc. (NASDAQ:HAS) is the third largest toy marker in the world and develops many household brands and games such as the iconic Monopoly board game, G.I. Joe figurines, Play-Doh, and My Little Pony. Hasbro also has exclusive contracts with major movie studios such as Disney and Universal to develop and distribute toys. Hasbro develops toys for many of the multi-billion dollar movie franchises such as Marvel Universe, Star Wars, Disney Princesses, Frozen, Transformers and Jurassic World. Throughout 2017, Hasbro has witnessed a bullish run, up nearly 27% year-to-date however the stock sold off from its 52-week high of $116 to $93 or a 20% slide after reporting it most recent quarterly results. Hasbro has many catalysts in the near term with major movie franchises coming into the fray with upcoming Disney releases: Thor: Ragnarok and Star Wars: The Last Jedi to round out 2017. In 2018, Black Panther, Avengers: Infinity War, Star Wars Han Solo spinoff and Ant-Man and The Wasp to highlight a few major movies. Taking into account Hasbro’s growth, back-half of the year catalysts, trading at a P/E of ~20, boasting a 2.4% yield and initiatives within Hasbro Studios to propel growth further presents a compelling buy after this recent sell-off.

Major Disney Catalysts Ahead

With Q3 well under way and Q4 on the horizon (historically Hasbro’s strongest quarters), I think Hasbro can produce strong quarters moving into the back half of the year. It’s noteworthy to point out that Hasbro has exclusive rights with Disney to produce Marvel Comics and Star Wars toys which last through 2020 and Hasbro is also the licensed doll maker for the Disney Princess line (Moana and Frozen are included) which started on January 1st, 2016 (Figure 1). Continue reading "Hasbro - Future Catalysts Post Sell-Off"