Below is a brief excerpt from a complementary research note written by our Healthcare Team of Tom Tobin, William McMahon, and Justin Venneri. We are pleased to announce our new Sector Pro Product Health Care Pro. Click HERE to learn more.
Good morning! It’s one of those crazy days for a research team, with 19 relevant events on the calendar to keep an eye on. The votes continue to roll in across the few states that will determine the election, and positive COVID cases reached another record level in the U.S.
We’re doing some field work on hospital/health system capex trends, and thus far it’s clear that PPE (personal protective equipment) is absorbing a good chunk of budgets and shelf space, and priorities have shifted for ’21 (implications for HRC, MASI, SYK, STE, and ISRG, among others on our radar).
If you have questions that we can help check/vet as we conduct interviews, or if there are Microquad (MQ) charts you’d like to see, always happy to work them in (we just can’t cover everything in this note): HealthCareTeam@hedgeye.com.
Earnings to Watch:
USPH: As of this moment, we’re waiting on its earnings release. As a reminder, we highlighted its potential upside into the 3Q20 print and MQ2 setup (positive expected performance). Given the trends we were observing back in October for PT and same facility growth (-12% for USPH), we liked the setup. PT is more of a necessity (like chiropractic care) and there’s a practical telehealth/virtual visit story.
Both AMN (rotated to Long Bench and better trading idea long than risk being short into the print) & GH (Best Idea Long) report today after the close.
- We think employment trends (demand and pricing/hour for ICU nurses) underpin AMN’s potential upside.
- For GH, we think revenue can beat by ~$10MM (and 4Q early ’21) as lab activity picked up and capital flows into the space.
HOLX reported Q4 EPS $2.07 ex-items vs FactSet $1.23 on revenue of $1.35B vs FactSet $1.12B and adjusted EBITDA $748.5M vs FactSet $458.3M.
- Q1 Guidance: EPS $2.10 - $2.25 vs FactSet $1.23; Revenue $1.350 - $1.425B vs FactSet $1.13B.
PODD reported Q3 EPS $0.17 vs FactSet $0.08 on revenue of $234.0M vs FactSet $221.7M and adjusted EBITDA $42.3M vs FactSet $26.2M. #DiabetesTech has been one of the hottest niches of the U.S. Medical Economy, period - can it continue?
- Revenue 7-11%
- FactSet $229.4M
- Total Omnipod of 10-14%
- Drug delivery decline 17-23%
- FY Guidance (Dec 2020): Reaffirms adjusted EBITDA as percentage of revenue 13-17%, closer to low end of range
- FactSet $110.1M
The activity in HOLX today is worth watching. There was/is COVID testing upside, but they are sensitive to office visits with Pap and HPV testing, as well as the capex side of mammo and biopsy tables. We are assuming it remains in MQ3, but there could be a COVID comp trade emerging: short the beneficiaries and long the recovery. Hologic seems unlikely to slip into MQ4 at least in the short term, but it’s just as unlikely to return to MQ2.
STE – Steris plc - provided color on trends in hospital capex during its 3Q20 call. The setup for 2021 looks negative with the short-term impact(s) stemming from COVID-19 and the economy, and longer-term impact from policy changes including telemedicine.
The bottom line is that demand for fixed assets to support in-person care is likely to be much lower in 2021 and beyond.
- Regarding a new and higher level of PPE purchasing post pandemic: SVP& COO Daniel Carestio said, “I think it's been more governed by supply than it has been demand at this point. And as the suppliers have ramped up on the raw material, we're seeing similar levels that we saw in Q1, maybe a slight uptick. We do believe there'll be sustained increased demand at some level for PPE on to the future as the requirements for those products for certain procedures have changed even with or without the pandemic.”
News Related to Position Monitor & Microquad Names or Trends & Companies We Track:
- Telehealth (link to 5-year plan included – very outcomes and integration-focused): HHS’ plans for health IT through 2025: 4 key goals
- This news for BIIB is huge: FDA reviewers appear to endorse Biogen's Alzheimer's drug. If the FDA has really come around on aducanumab, it’s great for BIIB and patients (hopefully!). The investment community has been deeply negative and skeptical about its prospects for FDA approval.
Have a great day out there!