Author: The INO.com Team

Is There Surprising Money to Be Made in Mobileye Global (MBLY)?

Posted on by The INO.com Team

Intel Corporation (INTC) CEO Pat Gelsinger acquired 3,600 shares of Mobileye Global Inc. (MBLY) stock at an average per share price of $27.75 on January 29, according to Form 4 filing dated January 31. The transaction was worth $99,915 in total. After this purchase, Gelsinger now owns around 129,095 shares through his trust.

Pat Gelsinger has purchased MBLY’s shares four times separately since the company became publicly traded in October 2022. Excluding the most recent one, his last purchase was on October 27, 2023, when he acquired 2,845 shares at an average per-share price of $35.18.

Meanwhile, Director Saf Yeboah-Amankwah recently reported an insider buy. As per Form 4 filling, on February 1, Yeboah-Amankwah bought 940 shares at an average per-share price of $25.67, bringing his total stake in MBLY to 48,459 shares. The recent transaction marks Yeboah-Amankwah’s second purchase of MBLY stock since it started trading publicly.

On October 28, 2022, Yeboah-Amankwah acquired 47,519 MBLY shares at an average per share price of $21.

Overall, during the past year, Mobileye insiders have sold $1.57 billion worth of shares while purchasing $1.32 million worth of shares. In June 2023, Intel sold about $1.5 billion from its MBLY stake. Even after the sale, Intel owned 98.7% of Mobileye’s voting shares, a decline from 99.3%.

Market participants closely watch insider activity, as the transactions can reflect existing sentiment around the prospect of the business. Typically, investors get a confidence boost in the stock when there are signs of solid insider buying. Even Mobileye’s short-term challenges didn’t stop Pat Gelsinger from making the recent purchase, as he could be confident about the company’s long-term outlook.

Moreover, Goldman Sachs analyst Mark Delaney has maintained his bullish stance on MBLY stock, giving it a Buy rating despite the company’s bleak 2024 guidance. He pointed out that management’s lower outlook for 2024 is due to supply chain-related customer inventory adjustments and specific production levels from Original Equipment Manufacturers (OEMs).

Delaney looks beyond the near-term challenges and focuses on Mobileye's long-term potential. He remains optimistic about future growth and cash generation prospects. The shift toward high-value solutions such as SuperVison and Chauffeur would position MBLY for growth in the long run.

However, despite attractive insider buying lately, MBLY’s shares are down more than 15% over the past month and have declined nearly 31% over the past six months.

Now, let’s take a closer look at several factors that could impact the stock’s performance in the near term:

Latest Developments

On January 22, 2024, HiRain Technologies, a system provider of intelligent driving solutions to automakers in China, announced the mass production of the first Mobileye EyeQ™6 Lite-based ADAS system, scheduled to debut in China in the second quarter of this year.

The newest member of MBLY’s systems-on-chip portfolio, EyeQ6, is engineered to redefine performance and efficiency in core and premium ADAS offerings. EyeQ6 Lite features Mobileye’s vision-based sensing technology and excels in real-time detection and analysis of its surroundings. The company’s partnership with HiRain reflects its shared vision for high-quality automotive innovations.

Also, on January 9, MBLY expanded its existing relationship with Mahindra & Mahindra Ltd. (M&M), an Indian-based leader in automotive, farm and services businesses. Mobileye will collaborate with M&M to introduce several solutions based on Mobileye’s next-gen EyeQ™6 systems-on-chip and sensing and mapping software, including an intent to develop a full-stack autonomous driving system.

“As more advanced models emerge, we see great opportunities for growth in India and look forward to executing with Mahindra to bring Mobileye SuperVision-based services to one of the most challenging driving environments in the world,” said Mobileye CEO Prof. Amnon Shashua.

Robust Last Reported Financial Results

For the fourth quarter that ended December 31, 2023, MBLY reported revenue of $637 million, beating analysts’ estimate of $633.79 million. This compared to the revenue of $565 million in the same quarter of 2022. The company’s adjusted gross profit was $439 million, an increase of 5.5% year-over-year.

The company’s adjusted operating income rose 13.8% from the prior year’s quarter to $247 million. Its adjusted net income rose 260.3% year-over-year to $228 million. It posted adjusted earnings per share of $0.28, compared to the consensus estimate of $0.27, and up 3.7% year-over-year.

Furthermore, Mobileye’s cash and cash equivalents stood at $1.21 billion as of December 30, 2023, compared to $1.02 billion as of December 31, 2022. The company’s current assets were $2.07 billion versus $1.52 billion as of December 31, 2022.

“Our fourth quarter performance was very strong across the board but is understandably overshadowed by the inventory build-up at our customers which will impact our growth in 2024,” said MBLY’s CEO Amnon Shashua.

Inventory Issues Prompt Revenue Warning

Mobileye, an Israel-based autonomous driving technology company, warned that customer orders for auto chips would fall dramatically short of the prior year’s quarter.

The company said that automakers built up on Mobileye’s chips to avoid part shortages after the global supply glut crisis that persisted through 2021 and 2022 hampered manufacturing.

“As supply chain concerns have eased, we expect that our customers will use the vast majority of this excess inventory in the first quarter of the year,” MBLY said in its preliminary full-year outlook. The excess inventory reflects a pullback in demand from so-called Tier 1 customers, as they will not be placing orders for new chips at the same level they did in last year’s quarter.

For the first quarter of 2024, MBLY expects revenue to be down about 50%, as compared to the 459 million of revenue reported in the first quarter of 2023. Also, the company currently thinks that over the remainder of the year, the revenue will be impacted by inventory drawdowns to a much lesser extent.

The self-driving technology company anticipates lower-than-expected volumes in the EyeQ® SoC business, which will temporarily impact its profitability. Like revenue, MBLY’s first-quarter profit levels are expected to be considerably below the subsequent quarters.

Mobileye expects its first-quarter 2024 operating loss to be in the range of $257 million to $242 million. Excluding amortization of intangible assets and stock-based compensation, the company’s adjusted operating loss is projected to be in the range of $80 million to 65 million.

For the fiscal year 2024, MBLY expects revenue to be between $1.83 billion and $1.96 billion. Its full-year operating loss is anticipated to be in the range of $468 million to $378 million. Also, the company's adjusted operating income will be in the range of $270 million to $360 million.

Mixed Analyst Estimates

Analysts expect MBLY’s revenue for the first quarter (ending March 2024) to decline 49.6% year-over-year to $230.71 million. The company is expected to report a loss per share of $0.06 for the ongoing quarter. However, Mobileye has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year ending December 2024, Street expects Mobileye’s revenue and EPS to decrease 8.5% and 51.9% year-over-year to $1.90 billion and $0.39, respectively. However, the company’s revenue and EPS for the fiscal year 2024 are expected to increase 42.4% and 102.6% from the previous year to $2.71 billion and $0.80, respectively.

Extremely Stretched Valuation

In terms of forward non-GAAP P/E, MBLY is currently trading at 69.15x, 337% higher than the industry average of 15.82x. The stock’s forward EV/Sales of 10.90x is 793.5% higher than the industry average of 1.22x. Similarly, its forward EV/EBITDA of 53.76x is 444.2% higher than the industry average of 9.88x.

Moreover, the stock’s forward Price/Sales multiple of 11.52 is significantly higher than the industry average of 0.90. Also, its forward Price/Cash Flow of 47.56x is 367.8% higher than the industry average of 10.17x.

Decelerating Profitability

MBLY’s trailing-12-month gross profit margin of 50.36% is 42.1% higher than the 35.44% industry average. However, the stock’s trailing-12-month EBIT margin and net income margin are negative 1.59% and negative 1.30% compared to the industry averages of 7.68% and 4.66%, respectively.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 0.18%, negative 0.14% and negative 0.17% unfavorably compared to the respective industry averages of 11.73%, 6.15%, and 4.12%. Also, its trailing-12-month asset turnover ratio of 0.13x is 86.4% lower than the industry average of 0.99x.

Bottom Line

MBLY beat earnings and revenue analysts’ estimates in the fourth quarter of fiscal 2023. However, the self-driving technology company issued a revenue warning as it deals with excess inventory.

As per the company, its Tier 1 customers stocked up on chips following the global supply chain crisis that persisted in 2021 and 2022 and are now opting to work with excess inventory, resulting in a significant pullback in demand for its Advanced Driver Assistance Systems (ADAS) products.

Mobileye forecasted first-quarter 2024 revenue to be down nearly 50%, although the company believes inventory drawdowns will impact the revenue to a lesser extent over the balance of the year.

The near-term concerns didn’t stop Intel CEO Pat Gelsinger from purchasing around 3,600 shares of MBLY stock, with Mobileye Director Saf Yeboah-Amankwah joining along. When we notice any attractive insider activity, we shouldn’t react by impulsively buying the stock.

Given MBLY’s significantly elevated valuation, declining profitability, and bleak near-term prospects, as excess inventory concerns would cause declining revenue, it could be wise to avoid this stock for now.

Is ABBV a Long-Term Growth Stock Buy With a $27 Billion Sales Projection?

Posted on by The INO.com Team

Pharma company AbbVie Inc. (ABBV), with a market cap of over $300 billion, has recently unveiled its fourth-quarter earnings report. Its revenue for the quarter amounted to $14.30 billion, down 5.4% year-over-year, while its adjusted EPS declined 22.5% from the year-ago quarter to $2.79. But both figures surpassed analysts’ estimates.

Following its 2013 spinoff from Abbott Laboratories, ABBV, under the leadership of CEO Richard Gonzalez, was confronted with the challenge of preventing sales dips amid increasing competition to its top-performing drug, Humira – which at the time accounted for roughly $9 billion in annual sales, making up over half the company's total sales.

Humira achieved staggering success, hitting its peak with $21.23 billion in annual sales in 2022 and accumulating more than $200 billion in lifetime revenue – shattering even the most optimistic Wall Street projections. Market analysts praised Humira's impressive growth trajectory, but the looming patent expirations provoked investor anxiety. Humira's impressive results equipped ABBV with additional resources and time to adapt to a post-Humira future.

Sales of Humira dropped 40.8% year-over-year to $3.30 billion worldwide in the fiscal fourth quarter that ended December 31, 2023. This decline notably outpaced the full-year sales downturn of 32.2% year-over-year, a trend the drug maker attributes to the emergence of biosimilar drugs on the market.

ABBV believes that Humira's fiscal 2023 revenue remains strong at $14.40 billion despite the introduction of biosimilars. As competition from these copycat medications is projected to surge in the upcoming year, ABBV forecasts that sales for Humira will drop to $9.6 billion.

ABBV foresaw the impending loss of exclusivity and strategically diversified its product line. ABBV's strategic plan, upon the entry of Humira biosimilars, aims to weather the initial financial impact in 2024 before regaining momentum in 2025.

To cushion against this looming loss of exclusivity – the most significant event of its kind across the industry to date – ABBV planned to leverage sales of its rapidly growing products, including Humira’s immunology heirs, Rinvoq and Skyrizi. ABBV's two innovative anti-inflammatory medications, Skyrizi and Rinvoq, are used to manage conditions like Crohn’s disease and arthritis.

ABBV's acquisition of Allergan in 2020 and the creation of these new drugs, however, did not entirely abate investors' apprehensions about the long-term viability of ABBV’s products or its ability to maintain sales and earnings growth as consistently as it did during Humira's reign. This residual anxiety has seen the stock oscillating between $134 and $175 over the past two years. Nonetheless, concerns were substantially eased following the company's strong fourth-quarter financial report.

Revenue from Skyrizi and Rinvoq climbed 51.9% and 62.9% year-over-year, respectively. This propelled their combined revenue contribution to $3.65 billion. The company projects the two drugs to generate an impressive $16 billion in sales revenue. In 2027, these medicines could amass $27 billion, thereby outperforming peak earnings from Humira.

Upon detailed examination, Skyrizi could accumulate over $17 billion by 2027, underpinned by increased market share in psoriasis treatment and its growing use in inflammatory bowel disease (IBD).

Rinvoq is also slated for success, with projections suggesting it will reach over $10 billion in revenue in 2027 across rheumatology, IBD, and atopic dermatitis applications. Rinvoq's forecast includes moderate additions from several new treatment areas, onto which ABBV hopes to introduce the drug during the latter half of this decade. These new indications have a combined peak sales capability equivalent to several billion dollars.

ABBV maintains a robust competitive stance with high capture rates, as confirmed by Chief Commercial Officer Jeffrey Stewart. While currently on the lower end of the prescription share spectrum, Stewart remains optimistic about potential growth opportunities. He states there remains significant scope for boosting patient uptake of Rinvoq and Skyrizi, particularly within their existing treatment applications.

Moreover, the company has submitted its Skyrizi application for use in treating ulcerative colitis, with approval anticipated by 2024. Rinvoq is concurrently undergoing Phase 3 trials for additional treatment indications, indicating an avenue for growth in the future. Potential applications for Rinvoq include conditions such as vitiligo, hidradenitis suppurative (HS), and lupus.

Beyond Skyrizi and Rinvoq, there is also ongoing development of next-generation drug options. Lutikizumab, for example, recently displayed beneficial outcomes in a Phase 2 trial in adults experiencing moderate to severe HS and is set to advance to Phase 3.

ABBV's proficiency spans beyond immunology, despite its Oncology division recording a 7.4% year-on-year decrease to $1.51 billion, attributed to competitive pressures on Imbruvica. This trend is expected to prevail for a few more years. Imbruvica's U.S. market share has dwindled in favor of other BTK inhibitors and is among the initial 10 drugs that will be subject to price negotiation for Medicare coverage.

Nevertheless, ABBV's $10 billion ImmunoGen acquisition deal is projected to bolster the company's presence in the solid tumor space – beginning with the already-approved Elahere, a second-line therapy for specific ovarian cancer types. The deal is anticipated to result in R&D synergies across multiple treatments in this area.

ABBV's aesthetics segment has demonstrated resilience, marking a 6.4% year-on-year appreciation, primarily driven by an 11.8% annual increase from Botox cosmetics. Given Botox's impressive market penetration, the aesthetics segment is envisaged to continue trending upwards.

In addition, ABBV's neuroscience division reported a substantial 22.6% year-over-year growth, fueled by successful launches of migraine medications and an extended indication for Vraylar for major depression treatment. Migraine medications Ubrelvy and Qulipta are projected to attain combined peak revenues of $3 billion.

A paramount development in this segment was the $8.7 billion Cerevel Therapeutics acquisition. ABBV's prevailing neuroscience portfolio, in conjunction with its combined pipeline with Cerevel, epitomizes a substantial growth prospect stretching into the next decade.

For the fiscal year 2024, ABBV anticipates its revenue to be $54.2 billion and adjusted EPS between $11.05 and $11.25. This guidance includes a $0.32 per share dilutive impact tied to the proposed ImmunoGen and Cerevel acquisitions, slated for completion around mid-2024.

Analysts predict ABBV's revenue for the same period will reach $54.53 billion, while EPS is projected to hit $11.25 billion.

Following an optimistic quarterly earnings report, a surge was noted in ABBV shares. Eliciting this rise were the post-earnings price target escalations by analysts tracking the trajectory of the pharma company. Wall Street analysts expect the stock to reach $176.53 in the next 12 months, indicating a potential upside of 3.1%. The price target ranges from a low of $135 to a high of $200.

Wells Fargo maintains an overweight rating on ABBV shares, raising the firm's price target to $200. The financial institution highlighted an improving growth narrative for ABBV, as its products – Skyrizi and Rinvoq – are positioned to surpass Humira.

Bottom Line

Global medicine expenditure grew 35% over the past five years, and it is anticipated to surge around 38% by 2028, underlining the increasing demand for medicinal products. Moreover, the escalation in autoimmune diseases, now the third most frequent reason for chronic afflictions in the U.S., has instigated an ascending demand for next-generation immunology drugs. The next-generation immunology drugs market is poised to grow at a 6.1% CAGR by 2029.

Pharma firm ABBV is taking considerable strides to foster investor confidence, exhibiting its ability to succeed Humira, the primary growth engine since its inception as an independent entity. Furthermore, robust sales of Skyrizi and Rinvoq, along with significant oncology and neuroscience acquisitions, have fortified its operational pipeline and enhanced portfolio balance.

Considering market dynamics and drug trajectory, ABBV's projected growth appears feasible. While Humira sales are projected to temper due to escalating biosimilar competition from 2024, consistent gains are expected for the company's immunology franchise post-2024. The adept transition after Humira's exclusivity termination played a pivotal role in the recent upgrade.

In the pipeline, ABBV will require bolstering phase 3 assets, although an improved phase 2 pipeline and recent acquisitions of ImmunoGen and Cerevel enhance the company's long-term outlook. With the ImmunoGen acquisition, optimism surrounds the cancer drug Elahere. Late 2024 or early 2025 should see promising phase 2 data for several Alzheimer’s drugs, potentially paving the way for major new blockbusters.

Moreover, the need for debt to finance acquisitions could potentially impact the company’s predicted net margin. However, improving bottom lines could be seen as the debt diminishes.

Investors relish substantial portfolio returns, especially income investors who prioritize consistent cash flow from liquid investments. ABBV pays an annual dividend of $6.20 per share, yielding 3.68%, far exceeding the industry average of 1.59% and the S&P 500's yield of 1.34%. ABBV's dividend has seen an 8.68% CAGR over the past five years.

Future dividend growth will be contingent on earnings growth and the payout ratio. ABBV's present payout ratio stands at 53.92%, signifying that over 53% of its trailing 12-month EPS was disbursed as dividends.

Additionally, the company has maintained an impressive track record, with a decade-long streak of increasing dividends. Over the past 10 years, its dividend payments grew at a 14.1% CAGR. Its trailing-12-month levered FCF margin of 43.65% notably exceeds the industry average. Moreover, as of September 30, 2023, ABBV had cash and equivalents of $13.29 billion. The overall scenario supports the notion that dividend hikes over the past decade have not impeded cash accumulation.

Moreover, its notable reserve could act as a buffer against unforeseen circumstances. Therefore, this stock presents a solid prospect for passive income generation, reinforcing investors' rationale for the inclusion of ABBV in their portfolios.

Understanding Meta's 0.4% Yield and Its Growth Potential

Posted on by The INO.com Team

Dividend-loving investors worldwide woke up with exciting news on Friday, as Facebook parent Meta Platforms, Inc. (META) announced its first-ever quarterly dividend and authorized a $50 billion share buyback program.

The company will pay a cash dividend of 50 cents per share on March 26 to shareholders of record as of February 22, joining other peers, including Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Oracle Corporation (ORCL), which have regular payouts. META’s board intends to issue a cash dividend on a quarterly basis.

“Introducing a dividend just gives us a more balanced capital return program and some added flexibility in how we return capital in the future,” Meta’s Chief Financial Officer Susan Li told analysts on its earnings call.

META’s annual dividend of $2 translates to a yield of 0.4% at the prevailing share price. The stock finished nearly 20% higher to $474.99 on Friday after reporting better-than-expected fourth-quarter and full-year 2023 earnings.

The average yield for a dividend-paying stock in the S&P 500 is nearly 2%. Meta’s dividend payout is lower than that rate; however, companies generally start small. Now, investors can look forward to its dividend growth and stock gains.

Looking at Microsoft, the company initiated its cash dividend on January 16, 2003. Its annual dividend was $0.08 per share, which resulted in a yield of about 0.3%. A year following the dividend declaration, MSFT’s stock was up 10%, and the annual dividend for 2024 was raised to $0.16. Currently, the company pays a quarterly dividend of $0.75.

Talking about Apple, it stopped paying cash dividends in 1995 but then declared again in January 2013. Adjusting for all the splits, cash dividends in 2013 translated to an annualized yield of nearly 1.4%. A year after the dividend restart, AAPL’s stock was approximately 24% up as the company continued payouts. Since the restart, Apple has paid a total of around $34 per share.

Dividends are typically welcomed by shareholders and signal management’s confidence about the company’s future growth. Moreover, initial dividend payouts open up to investors who only hold stock in dividend payers.

Further, Meta’s recently released report marked the fourth quarter of the company’s self-described “year of efficiency,” which founder and CEO Mark Zuckerberg announced in February 2023. The company’s turnaround strategy involved layoffs and other cuts to spending, which in turn ended up being a successful effort to reverse the previous year’s revenue declines and share price weakness.

Outstanding Last Reported Financials

For the fourth quarter that ended December 31, 2023, META reported revenue of $39.17 billion, an increase of 24.7% year-over-year. The revenue surpassed analysts’ estimate of $40.11 billion. The company’s revenue from the Advertising segment grew 23.8% year-over-year, and its revenue from the Family of Apps segment rose 24.2%.

Meanwhile, META’s total costs and expenses reduced by 7.9% year-over-year to $23.73 billion. Its operating margin more than doubled to 41%, a clear sign that several cost-cutting measures are boosting profitability.

Facebook parent Meta’s income from operations rose 156% from the prior year’s period to $16.38 billion. Its net income increased 201.3% from the year-ago value to $14.02 billion. The company posted earnings per share attributable to Class A and Class B common stockholders of $5.33, compared to the consensus estimate of $1.76, and up 202.8% year-over-year.

As of December 31, 2023, META’s cash and cash equivalents stood at $41.86 billion, compared to $14.68 billion as of December 31, 2022. The company’s total assets were $229.62 billion versus $185.73 billion as of December 31, 2022.

Family daily active people (DAP) came in at 3.19 billion on average for December 2023, up 8% year-over-year. Family monthly activity people (MAP) was 3.98 billion as of December 31, 2023, an increase of 6% year-over-year.

Also, Facebook daily active users (DAUs) and Facebook monthly active users (MAUs) were 2.11 billion on average and 3.07 billion as of December 31, 2023, up 6% and 3% year-over-year, respectively.

As of December 31, 2023, the tech giant completed the data center initiatives and the employee layoffs, along with the facilities consolidation initiatives. META’s headcount was 67,317 at the end of the year 2023, a decline of 22% year-over-year.

“We had a good quarter as our community and business continue to grow,” said CEO Zuckerberg. “We’ve made a lot of progress on our vision for advancing AI and the metaverse.”

Fiscal 2024 Outlook

For the first quarter of 2024, META expects total revenue to be in the range of $34.50-37 billion. For the full year 2024, the management expects total expenses to be in the range of $94-99 billion, unchanged from the previous outlook.

The company anticipates full-year capital expenditures to be in the range of $30-37 billion, an increase of $2 billion in the high end of its prior range. Meta expects growth to be driven by investments in servers, including AI and non-AI hardware and data centers, and it plans to ramp up construction on sites with its previously announced new data center architecture.

META’s updated outlook reflects its evolving understanding of its AI capacity demands as the company anticipates what will be needed for the next generations of foundational research and product development.

Ramping up Efforts in AI and Metaverse

Meta is making consistent efforts to secure its place in the increasing AI arms race. Last month, CEO Mark Zuckerberg announced that META plans to build its own artificial general intelligence, known as AGI, which is artificial intelligence that meets or exceeds human intelligence in almost every area. He added that the company further plans to open it up to developers.

In a video posted to Meta’s social network Threads, Zuckerberg said building the best AI for chatbots, creators, and businesses requires enhanced advancement in AI across the board. “Our long term vision is to build general intelligence, open source it responsibly, and make it widely available so everyone can benefit,” he said in a post on Threads.

The tech giant announced building out its infrastructure to accommodate this push to get AI into products, and it planned to have about 350,000 H100 GPUs (graphics processing units) from chip designer NVIDIA Corporation (NVDA) by the end of this year. In combination with equivalent chips from other suppliers, Meta will have around 600,000 total GPUs by the end of the year, Zuckerberg said.

He added that the company plans to grow and bring its two major AI research groups – FAIR and GenAI – together to accelerate its work. He further said he believes that Meta’s vision for AI and the AR/VR-driven metaverse are connected.

“By the end of the decade, I think lots of people will talk to AIs frequently throughout the day using smart glasses like what we’re building with Ray Ban Meta.”

Mark Zuckerberg’s recent announcement is one of the company’s biggest pledges to double down on AI. Earlier last year, after the viral success of OpenAI’s ChatGPT, Zuckerberg announced that Meta is creating a new “top-level product group” to “turbocharge” the company’s work on AI tools.

Since then, Meta has introduced tools and information aimed at assisting users understand how AI influences what they see on its apps. The company has launched a commercial version of its Llama large language model (LLM), ad tools that can generate image backgrounds from text prompts, and a “Meta AI” chatbot that can be accessed directly via its Ray-Ban smart glasses.

In his posts last month, Meta CEO said the company is currently training a third version of the Liama model.

Impressive Historical Growth

Over the past three years, META’s revenue and EBITDA grew at CAGRs of 16.2% and 15%, respectively. The company’s net income and EPS rose at respective CAGRs of 10.3% and 13.8% over the same timeframe. Its levered free cash flow improved at 25.6% CAGR over the same period.

Moreover, the social networking company’s total assets increased at a CAGR of 13% over the same timeframe.

Favorable Analyst Estimates

Analysts expect META’s revenue for the first quarter (ending March 2024) to grow 25.3% year-over-year to $35.88 billion. The consensus EPS estimate of $4.25 for the ongoing quarter indicates a 93.3% year-over-year increase. Moreover, Meta has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.

Furthermore, Street expects Meta’s revenue and EPS for the fiscal year (ending December 2024) to grow 17.3% and 32.4% year-over-year to $158.20 billion and $19.69, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to increase 11.2% and 15.3% from the previous year to $175.98 billion and $22.70, respectively.

Solid Profitability

META’s trailing-12-month gross profit margin of 80.72% is 64.5% higher than the 49.07% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 36.33% and 28.98% are considerably higher than the industry averages of 8.47% and 3.50%, respectively.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 28.04%, 17.84% and 17.03% favorably compared to the respective industry averages of 4.09%, 3.52%, and 1.43%. Also, its trailing-12-month levered FCF margin of 23.52% is 202.7% higher than the industry average of 7.77%.

Bottom Line

Facebook parent META recently reported a big beat on earnings and revenue for the fourth quarter of fiscal 2023. The company, which owns Facebook, Instagram, and WhatsApp, also announced its first-ever dividend of $0.50 per share and authorized a $50 billion share buyback program. Dividends generally signal management’s confidence about the company’s future growth.

Moreover, Meta’s market capitalization last month surpassed $1 trillion. The company last exceeded this mark in the market cap in 2021, when it was still known as Facebook.

Meta’s “year of efficiency” and several cost-cutting measures paid off in a significant way and offered a sweetener for investors, sending its shares higher. The stock is up nearly 38% over the past month and has gained more than 150% over the past year.

2023 was a pivotal year for the social networking giant, where it raised its operating discipline, delivered solid execution across its product priorities, and significantly improved ad performance for the businesses that rely on its services. In 2024, the company further seems well-positioned to build on its progress in each of these areas while advancing its ambitious efforts in AI and Reality Labs.

Given META’s robust financials, accelerating profitability, dividend initiation, and solid growth outlook, primarily as it seeks to strengthen its position in AI, it could be wise to invest in this stock now.

Buy Alert: Merck's AI Revolution and the Role of Generative AI in Drug Research

Posted on by The INO.com Team

Advancements in Artificial Intelligence (AI) have yielded remarkable progress in technological and operational efficiencies across various sectors. Yet, AI's noteworthy penetration into the healthcare field is raising propositions of transformation.

Pharmaceutical companies have been capitalizing on AI long before the recent surge in interest – the utilization of intricate AI models to decipher disease mechanisms serving as a prime example. AI-facilitated applications like AlphaFold2, ESMFold, and MoLeR offer novel insights into protein structures that unravel numerous diseases.

While the most advanced AI-centric medicine entities have Phase 2 clinical trial drugs, the unlocking of AI-healthcare collaboration power, especially in fashioning potential cures for lethal diseases, will witness compelling progression in the upcoming years.

Researchers today regard AI as a pioneering tool offering an expedited analysis of vast data quantities, surpassing human capabilities. Presently, drug development demands a decade or more in research and development, compounded by the escalating production costs over the past decade – a conundrum existing despite technological advancement.

With AI's intervention, the feasibility of expediting this process, slashing developmental timeframes and drug production costs by up to 30%, emerges. There is also a reduction in failure risk, given the current approximately 90% attrition rate, depending on the therapeutic domain.

GenAI (a subset of deep learning) embarks on a fresh leap in AI evolution and imbues computers with transformative abilities. Its arrival challenges us to envision its implications within the healthcare sphere, particularly drug discovery.

While most ongoing projects are in their infancy stages, the merger of GenAI and drug discovery might instigate not only novel treatments but also breakthroughs potentially outpacing nature. GenAI is revolutionizing several facets of the pharmaceutical realm, from speeding up drug discovery, enhancing procedural efficiency in clinical trials, accelerating regulatory approvals, and ultra-targeting marketing to facilitating in-house medical materials production. GenAI's potential to unlock billions in industry value is imminent.

By expediting drug compound identification processes and their corresponding development, approval, and efficient marketing, this technology could generate an economic value between $60 to $110 billion annually for the pharma and medical-product industries.

The looming GenAI-steered transformation in life sciences lends immeasurable advancements to human health and quality of life. An accelerated drug discovery process, for instance, aids in combating diseases swiftly, freeing up resources for underserved areas such as orphan diseases.

GenAI’s capability to derive patterns and insights from extensive patient data will ignite more personalized treatments, hence improving patient outcomes and streamlining patient care by minimizing discrepancies in therapeutic manufacture and delivery.

Lastly, by automating mundane tasks like document creation and record-keeping, GenAI carries significant potential to augment productivity within the medical research field and enables researchers and medical liaisons to devote more time to patient-centered tasks. In turn, this holds promise for improved service to both clinicians and patients.

Pharmaceutical powerhouse Merck & Co., Inc. (MRK) has set sights on exploring GenAI platforms. The company's interest comes on the heels of the Merck Research Labs collaboration announcement with Variational AI, supported by the CQDM Quantum Leap program.

At the core of this innovation is Variational AI, a trailblazer in optimizing drug discovery and development through the efficient employment of GenAI. This potent technology called Enki offers a novel approach to drug discovery. Drawing parallels with AI software like DALL-E and Midjourney, which can translate text prompts into visual images, Enki generates small molecular structures in response to target product profiles (TPPs). The user picks the desirable attributes, selecting the targets they aim to affect alongside those they seek to avoid; then, Enki produces molecules tailored to meet the TPP specifications.

Constructed as a fundamental model for small molecule drug discovery, Enki serves to hasten and mitigate risks attached to the early stages of discovery. The startup believes that a series of prompts about the TPP is all that stands between users and innovative, selective, and lead-like structures ready for synthesis. Utilizing experimental data, Variational trained Enki to generate molecules based on TPPs, thereby handing researchers the tool to canvas a broader scope of chemical space.

Thanks to the Enki Platform, chemists can bypass the complex process of developing their own GenAI models. They can input their TPP and receive an array of innovative, diverse, selective, and synthesizable lead-like structures within days, facilitating a swift transition into lead optimization. With this dynamic start, it is evident that MRK, the leading purveyor of pharmaceuticals, aims to make a significant splash in the new year.

Several other factors present an optimistic outlook for MRK in 2024.

MRK's flagship oncology drug, Keytruda – the highest-grossing prescription medication worldwide – is slated to gain approval for additional uses. In 2023 alone, Keytruda grossed a remarkable $25.01 billion, equating to 45.2% of MRK's fourth-quarter sales. Forecasters project Keytruda to yield over $30 billion in sales by 2026.

MRK has already seen the tangible effects of its 2023 transactions, substantially boosting the company's future revenue projections. The pharma giant now anticipates garnering $20 billion from fresh oncology products in development by the mid-2030s, almost doubling its earlier pipeline forecast of just over $10 billion.

However, as Keytruda approaches its patent expiration in 2028, MRK is already searching for strategic acquisitions within $15 billion, preparing to weather the ensuing patent erosion. This effort is to ensure continuous growth through novel lucrative ventures, replacing the revenue stream provided by Keytruda upon losing its exclusiveness.

MRK's proactive approach comes on the heels of its recent $680 million acquisition of Harpoon Therapeutics, following the larger purchases of Prometheus Bio ($10.8 billion) and Acceleron Pharma ($11.5 billion).

MRK, buoyed by solid fourth-quarter performances backed by strong Keytruda sales, has secured several deals over the past year. Notably, this includes a notable $5.5 billion agreement with Japan's Daiichi Sankyo, granting co-development rights for three antibody-drug conjugate cancer treatments. This partnership has contributed to MRK's non-GAAP R&D expenses, increasing them to $9.63 billion in the fourth quarter of 2023 and $30.53 billion for fiscal 2023.

Aside from its dominant presence in the oncology sphere, MRK is also targeting the weight loss medication market. The company is developing Efinopegdutide, a GLP-1 class drug for weight management that has demonstrated promising trial results.

After securing only 1% year-over-year sales growth in fiscal year 2023, analysts project a 5.3% year-over-year increase in the fiscal year ending December 2024. This predicted growth is expected to propel the company’s EPS to $8.49, a 462.1% year-on-year increase.

MRK estimates its global sales between $62.70 billion and $64, while non-GAAP EPS is expected to be between $8.44 and $8.59.

Furthermore, MRK boasts an impeccable dividend history, with the annual dividend currently at $3.08 per share, yielding 2.55%. In an impressive display of consistency, MRK has increased its dividend for 13 consecutive years and holds a four-year average yield of 2.97%. Also, over the past three and five years, its dividend grew at a CAGR of 7.8% and 9.3%, respectively.

MRK’s shares have gained over 15% year-to-date to close the last trading session at $126.38. Moreover, it trades above the 50-, 100-, and 200-day moving averages of $110.53, $107.39, and $109.24, respectively. If this upward trajectory persists, the company is poised for a notable performance in 2024.

Bottom Line

With the employment of GenAI, the pharma industry has made a considerable stride forward, leading to significant operational enhancements and quicker benefit realization, especially in drug discovery. The GenAI in drug discovery market is projected to surpass around $1.13 billion by 2032, growing at a CAGR of 27.1%.

MRK has swiftly evaluated and addressed the potential impact of GenAI, demonstrating commendable adaptability in deploying the most appropriate tool for each specific use case. This technology holds great promise for MRK's research, trials, manufacturing, and commercialization endeavors.

Partnerships formed between MRK, AI technology firms, and research institutions could catalyze innovation in GenAI for drug discovery and bolster the company's product pipeline in the future. MRK, with an abundant oncology pipeline, is utilizing advanced technology for drug research. Furthermore, MRK shares are compelling due to robust shareholder returns, growth prospects, solid profitability, and an optimistic outlook.

However, the stock is priced at a premium compared to its competitors. In addition, despite displaying consistency in its dividend payment, its yield of 2.55% sits not only below the U.S. consumer inflation rate but also under that of its healthcare counterparts, potentially rendering MRK a less appealing proposition for conservative investors.

Further complicating matters, government regulations and the Inflation Reduction Act might unfavorably affect MRK's operations. Modifications such as negotiations with Medicare, implementation of medication discounts covered under Medicare Part B and D, and enforced penalties for escalating drug prices pose potential financial risks. MRK's Januvia ended up on this list, jeopardizing the financial stability of MRK's diabetes franchise.

Sales for the Januvia/Janumet (diabetes) franchise declined 13% year-on-year to $787 million in the fiscal fourth quarter of 2023. The drug's sales suffered due to dwindling demand in the U.S. and generic competition in certain international markets. Such regulatory restraints could decelerate MRK’s future revenue growth, pressuring management to reassess its R&D approach.

Therefore, investors are advised to weigh both the positive and negative factors prudently before investing in this stock.

Risk and Reward: Amplify High-Income ETF (YYY) and Its More Than 12% Dividend Yield

Posted on by The INO.com Team

After a sustained stretch of escalations, the U.S. Federal Reserve has placed a hold on its trajectory of interest rate hikes. It has maintained the status quo on the federal funds rate without changes since July 2023. Investors anticipate a rate reduction in May, which diverges from earlier projections of March made at the year's start. As a result, credit markets are recalibrating to this shift.

The 10-year U.S. Treasury yield surpassed 5% in October last year. The soaring yield on long-term bonds had negatively impacted stocks – most significantly those of dividend stocks. Nonetheless, the surge was decidedly unsustainable.

The 10-year Treasury yield dipped below 4% for the first time in approximately two weeks as investors anticipated the latest interest rate policy and monetary directives from the Fed. Treasuries are often the safe haven for investors in times of perceived impending concerns, and the recent withdrawal from bank stocks could be inducing flashbacks of the banking crisis experienced last spring.

Moreover, a gradual cooling within the labor market was recently revealed, which was evident from the employment cost index and the ADP payrolls report. These indicators further catalyze market optimism concerning a potential interest rate cut by the Fed, which could further lower yields.

Lastly, the Treasury Department’s quarterly refunding report indicates that the supply of longer-term bonds is unlikely to exceed expectations. A limited supply assuages concerns about the market’s capacity for debt absorption and pushes yields in a downward direction.

Simultaneously, investors eagerly watch for insights into the Fed's strategy for halting the drawdown of its balance sheet, a process dubbed quantitative tightening. Approximately $1.3 trillion in bonds has been eliminated from the Fed's balance sheet, which peaked near $9 trillion in mid-2022, leading to overall liquidity contraction in the market. Many in markets have been expecting the central bank to wind down quantitative tightening this year.

Given this backdrop, investors are increasingly turning their focus toward high-dividend ETFs in their quest for profitable, reliable income streams and diversification.

Amplify High Income ETF (YYY) is a specialty ETF that's known as a "fund of funds". Rather than purchasing individual stocks, bonds, or REITs or engaging in the selling of covered calls like many other ETFs, YYY operates by investing in and holding other income-generating funds. It aims to amass dividends from these funds and then distribute them to its shareholders. YYY has been operational since 2013, and since then, it has succeeded in drawing significant investment capital.

YYY operates by creating a portfolio of closed-end funds (CEFs) based on a rules-based index. The selection of holdings is driven by quantitative metrics, which allows for a certain degree of objectivity in investment decision-making as it eliminates some human element. YYY's sophisticated algorithmic system is programmed to pinpoint the most lucrative CEFs that meet three important criteria – yield, liquidity, and discount to net asset value (NAV).

This strategy has been beneficial so far, as demonstrated by the fund's impressive current yield of 12.4%. Acquiring ETFs below their NAV is considered a discount. There is scope for capital appreciation if the CEFs under YYY's portfolio manage to reduce their discounts to NAV. As of January 31, 2024, YYY had an average CEF discount of 8.20%, which suggests that YYY's market pricing was more economical compared to the NAV of its underlying CEFs, indicating a potential value proposition for investors.

As of January 31, YYY reported $428.22 million in Assets Under Management (AUM) and an NAV of $11.78. The ETF also seeks to deliver high monthly income to its investors. YYY boasted a distribution rate of 12.41% and a 30-day SEC yield of 10.58% as of January 31, 2024. This is notably higher than the yield on a 10-year treasury bond, underscoring YYY's efficacy as a high-yield investment mechanism.

Its net inflows were $92.28 million over the past year and $50.62 million over the past six months.

Moreover, YYY has gained 12.3% over the past three months and 1.2% over the past month to close the last trading session at $11.76.

YYY’s Holdings

YYY maintains a diversified stance, holding 45 different positions, with its top 10 holdings contributing to 32.1% of the entire assets.

No single holdings exceed the 3.62% that PIMCO Dynamic Income Fund (PDI) accounts for. The amassed holdings mostly emerge from esteemed investment firms' CEFs, including the Eagle Point Credit Company (ECC) with 3.46% of the weightage in the fund and Oxford Lane Cap Corp. (OXLC) at 3.45%. Though the top holdings like PDI and OXLC offer alluring dividend yields, their performance over the preceding decade was underwhelming.

Fees

While YYY's diversified nature and attractive yield, complemented by a portfolio trading at a discount to NAV, present an enticing proposition, it should be considered that the fund constitutes other funds imposing their fees. Hence, its expense ratio is relatively high, standing at 2.72% against the category average of 0.91%.

Given that it holds CEFs, which levy their management fees, YYY also incorporates "acquired fund fees" of 2.22%. With the addition of YYY's own 0.5% management fee, one is looking at a total of 2.72% management fee.

Bottom Line

Investor interest is frequently piqued by ETFs like YYY, boasting exceptional dividend yields. Currently offering an enticing 12.4% yield, YYY does possess a few redeeming features. However, investors need to look under the hood before endorsing any commitments to this sort of ETF.

CEFs often encounter a 10% or greater disparity to NAV, and while YYY’s bundle of CEFs trading at an 8.2% dip to NAV might appear attractive, there's no guarantee of shrinkage in this gap. Investment giant Fidelity stresses that “a CEF’s discount or premium tends to persist. If the CEF typically trades at a large discount, it will tend to stay at a large discount, barring any corporate actions from the board of directors.”

Hence, although NAV discounts potentially generate value, lacking a definitive catalyst, this discount may remain.

CEFs are actively managed and thus tend to incur higher fees and regularly employ leverage to augment returns, which simultaneously amplifies risk. Consequently, YYY's substantial fee poses a significant disadvantage, accumulating over time.

These elevated costs might be justifiable if YYY was significantly outstripping the broader market. Its impressive 12.4% yield may suggest thriving returns; sadly, long-term performance paints a different picture. YYY experienced a one-year total price return of negative 7.4%. Over the past two years, its total return plummeted by 25.8%. Although 2022 proved difficult across the market, pardoning YYY that particular year. However, over a five-year period, its returns still fell by 32.6%.

Despite providing investors with dividend gains in this timeframe, YYY substantially trails the broader market. For instance, the SPDR S&P 500 ETF Trust (SPY), an accurate S&P 500 representation, advanced by 78.9% in the same five-year duration while only levying a 0.09% fee. Similarly, the Invesco QQQ Trust ETF (QQQ), investing widely in the Nasdaq 100, yielded 148.1% over the identical timeframe with a nominal 0.2% fee.

Choosing investment strategies like SPY or QQQ could have significantly boosted potential earnings, thus creating a substantial opportunity cost.

Summing up, YYY holds appealing elements, such as its high yield and portfolio’s NAV discount, but it would be wise if investors proceed with caution and wait for a more favorable entry point in this ETF.