Which mega-cap has benefited the most from COVID-19? Amazon? Netflix? Nope. Nvidia (NVDA) is the answer. Shares are up 50% since the turn of the year as the GPU leader has surfed the waves of a global crisis that has inadvertently played to its core strengths.
Ahead of Nvidia’s first quarter earnings report on Thursday, Susquehanna analyst Christopher Rolland points out the key areas to focus on. Naturally, these are Nvidia’s two main revenue segments - Datacenter and Gaming.
Based on Intel's DCG and strong results from Mellanox, which was recently acquired by NVDA, Rolland anticipates a strong showing from its Datacenter segment. The analyst’s contacts in Asia have suggested that heading into the quarter’s final stretch, enterprise demand remained healthy and most supply issues were resolved by the end of March
As far as Gaming goes, Rolland says “data points were mixed,” as a result of a small market share loss to rival AMD in aftermarket GPUs and the impact of lower average selling prices, although GPU attach rates should act as a counter to these “modest declines.”
COVID-related supply constraints also played a part in February, “adding a wild card to the print,” although these issues, like in Datacenter, were worked out by March.
Looking ahead, Q1’s long awaited closing of the Mellanox deal should play its part as the year progresses. Rolland anticipates the new addition “should contribute ~$400 million of revenue and a 50-plus bps tailwind to GMs to NVIDIA’s C2Q20 guidance.” This should set the stage for overall July revenue guidance of $3.6 billion.
In conclusion, the 5-star analyst said, “We expect NVIDIA to fare better than most this earnings season. Slower consumer demand from China could weigh, but strong DC results are likely to overcome… Overall, we expect generally in-line (to slightly better) results and guidance as stronger demand for DC likely offsets any weakness in consumer (potentially hindered by early supply chain constraints).”
Rolland keeps his Positive (i.e. Buy) rating as is and gives the price target a $55 bump, with the new target landing at $410. Investors stand to pocket a 14% gain, should the target be met over the next year. (To watch Rolland’s track record, click here)
The rest of the Street isn’t betting against Nvidia, either. 3 Holds and a Sell are trounced by 17 Buys. A Strong Buy consensus rating comes with a $327.18 average price target. Although the figure implies shares could decline by 7%, it is likely analysts will retune Nvidia models shortly. (See Nvidia stock analysis on TipRanks)
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Wall Street has been looking at Novavax (NVAX) of late, and investors clearly like what they see. Over the past 5 months, Novavax stock skyrocketed over 1000% (that's not a typo) and remains relatively close to its 52-week high. The company’s speedy development of a possible COVID-19 vaccine has been behind the stock’s dazzling performance.
Acting as a catalyst for Novavax’s latest round of share price appreciation was last week’s announcement that the coalition for Epidemic Preparedness Innovations (CEPI) will provide Novavax with up to $388 million to further the development of its experimental COVID-19 vaccine, NVX-CoV2373.
According to B.Riley FBR analyst Mayank Mamtani, there are a number of reasons for the CEPI’s vote of confidence.
First of all, the analyst believes Novavax’s response to previous viral outbreaks played a major part in the CEPI’s decision to provide funding. The company developed vaccines against coronaviruses such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS), for which preclinical testing demonstrated strong immunogenicity and 100% protection. This was also the case for Ebola, with the NVAX vaccine candidate proving effective in primate studies.
The last point is important, as management thinks NVX-CoV2373’s positive results in preclinical trials involving baboons, which displayed an “immune response comparable to convalescent plasma in humans”, also played a significant part in the CEPI’s funding decision.
Therefore, Mamtani argues that Novavax’s background could separate it from the pack and increase its candidate’s chance of success.
The 5-star analyst said, “We believe NVAX not only offers a clinically validated adjuvanted recombinant nanoparticle platform but, also, demonstrates the ability to elicit a potent immune response at extremely low doses, boding favorably for both safety and scalability, with management guiding to 100 million doses by YE20 and >1 billion during 2021. And, with a regulatory path becoming relatively clearer, likely on the basis of Ph. IIb results by leveraging Emergency Use Authorization (EUA), we increase the '2373 probability of success, from 25% to 40%.”
As a result, Mamtani reiterated a Buy rating on Novavax and boosted his price target from $43 to $53. However, Novavax’s latest surge has already left the figure in the rear-view mirror, with the new target suggesting a modest upside of 0.5%. (To watch Mamtani’s track record, click here)
The rest of the Street agrees with Mamtani’s call. Solely Buy ratings – 5, in fact - add up to a Strong Buy consensus rating. Novavax’s recent gains mean that the average price target of $47.60 implies possible downside of 12%. Expect the analysts to readjust their Novavax models shortly. (See Novavax stock analysis on TipRanks)
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The narrative around Gilead Sciences (GILD) has taken a turn. From February through April, the stock surged as excitement built over the company’s antiviral drug remdesivir, which a study found reduced COVID-19 patients’ recovery time.
However, after receiving Emergency Use Authorization (EUA) from the FDA for the drug on May 1, Gilead received a host of downgrades from Street analysts who argued the stock is fully valued. They also questioned remdesivir’s commercial potential.
Following a talk with members of Gilead’s management team, Oppenheimer analyst Hartaj Singh reminds investors that “GILD is still the only company with an approved COVID-19 therapy and first-mover advantage.”
So, where does progress currently stand? Remdesivir is currently making its way through clinical trials in various locations, both in the US and China, with updates expected by the end of June or early July.
On top of the EUA, remdesivir has already received the go ahead from the EMA (European Medicines Agency) for compassionate use, and the company has signed non-exclusive licensing deals with five generic pharmaceutical manufacturers to produce and sell the drug in 127 countries.
Remdesivir’s availability could also increase “by a factor of 3x to 4x”, with a potential inhaled (nebulized) version currently being developed. This version will require “only one-third as much drug product,” and data is slated for release in 2H20.
Concerning remdesivir’s commercial opportunity, earlier this month, Gilead said it will donate its entire remdesivir supply to the federal government. While the move has been commended, it has also raised concerns among investors, which, according to Singh, Gilead is ready to address.
The 5-star analyst said, “On our call, management indicated that shareholder concerns have been heard and that after the initial donation of remdesivir, a thoughtful yet robust business model is being developed. Investors should expect an update in the next few weeks, perhaps with the moderate COVID-19 Phase 3 readout next few weeks.”
To this end, Singh has an Outperform rating on GILD shares and a price target of $90, which implies nearly 22% upside from current levels. (To watch Singh’s track record, click here)
As mentioned above, Singh’s colleagues aren’t quite as confident. TipRanks analysis of 28 analyst ratings shows a consensus Hold rating, with 8 analysts recommending Buy, 15 suggesting Hold, and 5 saying Sell. The average price target among these analysts stand at $79.39, representing an 8% rise. (See Gilead stock analysis on TipRanks)
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