Why Analysts Are Bullish on SoundHound's Long-Term Growth Potential

Posted on by The INO.com Team

The enthusiasm surrounding SoundHound AI, Inc. (SOUN) is palpable. With solid revenue growth and strategic collaborations underlining its long-term potential, the stock has gained immense traction among investors. In this piece, we will evaluate why analysts are bullish about SOUN’s growth prospects.

SoundHound is at the forefront of voice-based conversational AI technology, offering solutions that enable seamless interactions across numerous languages. Its AI system is deployed in various sectors, including customer service call centers, restaurant ordering platforms, and automotive systems. With a market cap of $1.62 billion, SOUN falls within the mid-cap category, making it an attractive option for investors seeking growth opportunities in the AI sector.

SOUN’s shares have delivered an outstanding performance, gaining nearly 150% year-to-date and more than 135% over the past three months. Excellent, isn’t it? Moreover, despite recent pullbacks, the stock is comfortably above its 200-day moving average of $3.05, indicating an upward trend.

SoundHound’s Strategic Partnerships and Acquisitions

On May 9, SOUN partnered with Perplexity, the conversational AI-powered answer engine. This partnership is geared toward enhancing voice assistant functionality across several devices, such as cars and IoT devices, by integrating online LLMs (Large Language Models), making it the most advanced voice assistant on the market.

Moreover, the company closed the previously announced acquisition of SYNQ3 Restaurant Solutions in the March quarter, becoming the largest provider of voice AI for restaurants in the U.S. With more than 10,000 signed locations and significantly more in the pipeline, this acquisition expands SOUN's presence in this sector.

Impressively, the restaurant segment now contributes approximately 30% of the company's total revenue, surpassing initial forecasts set for FY24 by a significant margin.

Additionally, SoundHound has forged collaborations with major brands such as Applebee’s and Church’s Chicken, augmenting its market presence and revenue streams. Furthermore, the company has secured agreements to integrate its voice assistant technology into the luxury vehicle lineup of a leading Asian electric car manufacturer and a major U.S.-based EV maker’s entire fleet later this year.

SOUN's partnership landscape remains vibrant, as demonstrated by its recent collaboration with NVIDIA Corporation (NVDA) on March 18, 2024. Under this partnership, the company would deliver in-vehicle voice-enabled generative AI responses that operate seamlessly without needing connectivity.

In light of these advancements, SOUN experienced a surge in demand for its voice AI solutions across the automotive and restaurant sectors. By securing significant brand partnerships, the company propels its growth trajectory and solidifies its position in the competitive conversational AI market.

Solid Financial Performance and Growth Outlook

In the first quarter that ended March 31, 2024, SOUN reported strong top-line performance, with a remarkable 73% year-over-year growth in revenues to $11.59 million, beating analyst expectations of $10.10 million. The company's three-pillar strategy, focusing on AI for customer service, in-car systems, and IoT devices, fueled its performance with notable expansions in its drive-thru AI service and Smart Ordering offering.

The company’s non-GAAP profit increased 56.8% year-over-year to $7.59 million. Meanwhile, its cumulative subscriptions and bookings backlog grew 80% to $682 million, driven by solid product royalties and a robust automotive segment. Moreover, it witnessed a 60% year-over-year increase in the annual run rate of queries, which was over 4 billion in the first quarter.

Keyvan Mohajer, CEO and Co-Founder of SoundHound AI remarked, “Voice AI is rapidly becoming indispensable for customer service, as evidenced by the growing demand for subscriptions.”

However, on the bottom line, the company continued to grapple with profitability issues, reporting a non-GAAP net loss of $19.88 million or $0.07 per share, alongside an adjusted EBITDA loss of $15.40 million.

Despite these setbacks, SOUN revised its full-year revenue guidance upward (on the lower end), projecting a range of $65 to $77 million. It also aims to achieve adjusted EBITDA profitability by 2025, where the company anticipates even greater growth, with revenue exceeding $100 million (more than double the $45.9 million it reported in 2023).

Mixed Analyst Expectations

Street expects SOUN to generate a revenue of $13.75 million for the second quarter (ending June 2024), indicating a 57.1% year-over-year increase. Yet, the company is expected to report a loss per share of $0.08 for the ongoing quarter.

Furthermore, for the fiscal years 2024 and 2025, analysts anticipate a revenue surge of 53.7% and 45.6% on a year-over-year basis, reaching $70.52 million and $103.35 million, respectively. However, earnings per share is predicted to remain in negative territory at least over the next two years.

Additionally, the company has surpassed consensus revenue estimates in three of the trailing four quarters, suggesting a strong likelihood of continuing its growth trajectory in the upcoming quarters.

Bottom Line

SOUN’s first quarter establishes the tone for 2024 as another year of solid growth for the company. The growing necessity of voice AI in customer services is reflected in the increasing demand for its subscription services. Leveraging over two decades of technology innovation and billions of customer interactions, SoundHound, as an AI company, excels in delivering top voice AI technology in the market.

Across automotive and customer service, renowned global brands are turning to the company for unparalleled experiences.

Wedbush analyst Daniel Ives reaffirmed an “Outperform” rating for SOUN, setting a price forecast of $9. After the first quarter results, the analyst stated that the company continues to witness robust demand for its voice AI products within the automotive and restaurant sectors. This growth is driven by securing major brand partnerships, thereby grabbing market share in the conversational AI market.

Also, analysts at Cantor Fitzgerald upgraded SOUN stock to “Neutral” from “Underweight.” In a separate development, Cantor Fitzgerald analyst Brett Knoblauch upgraded the stock from Sell to Hold.

Although the stock shows potential for growth driven by the booming interest in AI technologies, it is currently plagued by profitability issues. SOUN’s trailing-12-month EBITDA margin, net income margin, and levered FCF margin of negative 125.2%, negative 186.2%, and negative 58.2% compare to the industry averages of 9.82%, 2.48%, and 10.05%, respectively.

Looking at valuation, we believe that the stock is trading at a premium compared to its peers. SOUN’s forward EV/Sales of 23.05x is 715.4% higher than the industry average of 2.83x. Likewise, in terms of forward Price/Sales, the stock is trading at 24.74x, higher than the industry average of 2.88x.

Nevertheless, SoundHound AI's intrinsic value lies in its technological advancements and market positioning, particularly in conversational AI technologies.

Considering these factors, SOUN presents a potentially lucrative yet volatile investment profile. Therefore, investors should carefully monitor future earnings reports and corporate developments before making investment decisions.

Fiserv (FI): The Hidden Blue Chip Gem in Fintech

Posted on by The INO.com Team

With a $90.21 billion market cap, Fiserv, Inc. (FI) provides payments and financial technology services globally. Over the past few years, the broader fintech sector has struggled due to banks’ reluctance to experiment and interest rate hikes impacting payment volumes.

However, Fiserv stands out as a strong performer as the company has long-standing contracts with major banks. FI’s stock has surged more than 80% over the past five years. Moreover, the stock has gained nearly 25% over the past six months.

Further, the fintech company has secured significant attention from institutions lately. Institutions own around 92.5% of FI. JPMorgan Chase & Co, Vanguard Group Inc, Nuveen Asset Management, LLC, Charles Schwab Investment Management Inc, Envestnet Asset Management Inc, Scharf Investments, LLC, DSM Capital Partners LLC, and UBS Group AG bought more FI stock. 

Institutional investors generally conduct in-depth research and analysis before investing, which can be viewed as a vote of confidence in FI’s potential. They are known to have the resources and specialized knowledge for extensively researching investment opportunities that are not open to retail investors.

So, the increasing buying activity from several institutions reflects an optimistic sentiment toward FI’s performance and growth outlook.

Let’s analyze FI’s latest earnings report and other factors driving institutional interest in this payment processing company.

Robust First-Quarter 2024 Results

For the first quarter that ended March 31, 2024, FI’s revenue increased 7.4% % year-over-year to $4.88 billion. The company’s processing and services revenue rose 8.9% year-over-year. Its adjusted operating income was $1.63 billion, up 13.4% from the previous year’s quarter.

In addition, Fiserv’s adjusted net income and earnings per share came in at $1.12 billion and $1.88, increases of 12% and 19% year-over-year, respectively. Further, as of March 31, 2024, the company’s total current assets stood at $37.09 billion, compared to $34.81 billion as of December 31, 2023.

During the first quarter, the company repurchased 10.2 million shares of common stock for $1.5 billion.

Regarding outstanding financial performance, Frank Bisignano, Chairman, President, and Chief Executive Officer of Fiserv, added, “We continued to execute on our resilient business model by improving productivity, delivering innovative products and services, and cross-selling into our diverse and high-quality client base.”

Upbeat Full-Year 2024 Outlook

For the fiscal year 2024, FI affirmed the organic revenue growth outlook of 15% to 17%. The company also raised its earnings per share guidance to $8.60 to $8.75, representing a growth of 14% to 16% for 2024.

“Fiserv remains committed to our virtuous cycle of investment, revenue growth, operating leverage, capital return and re-investment for further growth, reinforced with a focus on clients, operational excellence, and a strong balance sheet,” stated CEO Frank Bisignano.

He added, “This proven model, along with our strong first quarter results, led us to raise our 2024 adjusted earnings per share outlook for the full year.”

Favorable Analyst Estimates

Analysts expect FI’s revenue to increase 8.2% year-over-year to $4.88 billion for the second quarter ending June 2024. The consensus EPS estimate of $2.10 for the ongoing quarter indicates an improvement of 16% year-over-year. Moreover, Fiserv has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Furthermore, FI’s revenue and EPS for the fiscal year (ending December 2024) are estimated to grow 7.5% and 15.6% year-over-year to $19.39 billion and $8.70, respectively. For the fiscal year 2025, Street expects the company’s revenue and EPS to increase 8.7% and 16% from the previous year to $21.08 billion and $10.09, respectively.

Recent Strategic Partnerships and Product Launches

On May 8, FI announced that WaFd, Inc. (WAFD) selected its CashFlow CentralSM to bolster its small business banking offerings. This move will allow WaFd Bank small business customers to access a full range of capabilities to handle incoming and outgoing payments through their digital banking relationship, streamlining their financial management and saving them time.

CashFlow Central, developed by Fiserv in collaboration with prominent B2B payments-as-a-service platform provider Melio, is a unified digital payment and cash flow management platform. This solution enables small businesses to send electronic invoices, accept payments via ACH transfers or credit cards, digitize supplier invoices, and make payments to billers and suppliers via bank accounts or credit cards.

Also, on April 17, FI launched the Clover Kiosk and an enhanced Clover Kitchen Display System to enable restaurants to streamline operations and improve the customer experience. Designed for seamless integration with each other and additional Clover software and hardware, these solutions facilitate end-to-end order management with up to 40% lower cost of ownership than competitive offerings.

In February, Fiserv partnered with Genesis Bank, one of the two diverse multiracial Minority Depository Institutions (MDIs) in the nation, to boost economic empowerment and create an optimistic impact in local communities. Under this collaboration, small businesses, mainly in low-to-moderate income (LMI) communities served by Southern California-based Genesis Bank, will have access to customized technology packages.

These bundles, specifically designed to tackle these businesses' challenges, offer access to select Clover point-of-sale (POS) technology from Fiserv with no or low entry costs and discounted subscription fees.

Solid Profitability

FI’s trailing-12-month EBITDA margin of 42.20% is 85.2% higher than the 22.80% industry average. Similarly, the stock’s trailing-12-month levered FCF margin of 20.34% is 15.7% higher than the industry average of 17.58%. Its trailing-12-month CAPEX/Sales of 7.56% is significantly higher than the industry average of 1.94%.

Additionally, the stock’s trailing-12-month ROCE and ROTA of 11.01% and 3.50% favorably compared to the industry averages of 10.58% and 1.05%, respectively.

Bottom Line

FI extended its robust revenue growth and margin expansion into 2024, resulting in a 19% year-over-year earnings per share growth during the first quarter. Following an outstanding financial performance, the company raised its adjusted EPS outlook to $8.60-$8.75 for 2024.

Fiserv maintains its resilient business model by enhancing productivity, introducing innovative products and services in areas such as account processing and digital banking, payments, and merchant acquiring and processing, and expanding sales opportunities within its diverse and high-quality client base.

Moreover, FI was named one of Fortune® America’s Most Innovative Companies for the second consecutive year. This designation highlights organizations leading the way in innovation in the U.S. Each pillar, including product innovation, process innovation, and innovation culture, contributed equally to the overall innovation score.

According to Statista, the digital payments market’s total transaction value is expected to reach $3.07 trillion in 2024. Digital Commerce will be the market’s largest segment, with a projected total transaction value of $2.26 trillion this year. Further, the total transaction value is estimated to show a CAGR of 10.7%, resulting in a total of $4.62 trillion by 2028.

The digital payments industry’s promising outlook should bode well for FI.

In addition, analysts are bullish about Fiserv’s growth trajectory. Citigroup analysts raised the price target for FI stock from $171 to $180 while maintaining a Buy rating. Also, TD Cowen adjusted the price target to $175 from $167, reaffirming a Buy rating on the stock. In line, analysts at UBS Group maintained a Buy rating while increasing the price target from $170 to $185.

Several factors, such as solid financial performance, leading position in the fintech industry, and bright growth prospects, have driven a strong level of institutional interest in FI, as reflected by the fact institutions own more than 92% of the stock.

Given this backdrop, it could be wise to invest in this stock for substantial gains.

DOGE's Bullish Signal Amidst Crypto Market Volatility

Posted on by The INO.com Team

With a market cap of over $20 billion, Dogecoin (DOGE), the world’s leading meme cryptocurrency, appears poised to replicate the bullish “golden cross” technical pattern that presaged its surge in early January 2021.

DOGE has shown impressive performance, with a price increase of more than 62% year-to-date, surpassing the nearly 46% surge in Bitcoin (BTC), the largest cryptocurrency by market cap. Moreover, DOGE has gained approximately 80% over the past three months, while BTC has surged around 24%.

Is the Golden Cross a Bullish Signal for Dogecoin?

A golden cross is a technical chart pattern where a shorter-term moving average, like the 50-day simple moving average (SMA), crosses over a longer-term moving average, such as a 200-week SMA. This crossover indicates that short-term price momentum is faster than long-term momentum, potentially signaling the beginning of a prolonged uptrend.

Traders often rely on moving average crossovers as part of a systematic approach to identifying entry and exit points in the market. The upcoming golden cross on DOGE’s chart, the first in over three years, could potentially trigger a significant price rally, as historical data suggests.

The path to the impending golden cross began when Dogecoin price crossed over its 200-week SMA In March 2023, with a more than 70% rise within a week. Since then, the cryptocurrency has managed to maintain a foothold above this key average, further reinforcing the bullish sentiment surrounding DOGE.

Dogecoin’s Historical Golden Cross

The previous golden cross for DOGE was seen in January 2021, resulting in a remarkable surge in its price. Dogecoin surged from $0.0096 to an all-time high of more than $0.73 by May 2021, a staggering increase of nearly 8,000%. If history repeats itself, a similar surge could occur in the future.

However, the last golden cross in 2021 resulted in significant volatility. Following a massive surge, there was a 90% decline in the subsequent months. Afterward, Dogecoin stabilized and traded within the range of $0.05 to $0.10 from May 2022 to February 2024.

This underscores the highly volatile nature of cryptocurrency investments, particularly in meme tokens such as DOGE, which are highly vulnerable to market sentiment and speculative trading.

Current Macro Conditions and Analysts’ Views

During Dogecoin’s early 2021 run, interest rates were either near or below zero, leading to increased risk-taking across all corners of the financial market. However, the current scenario is different, as interest rates in the U.S. are at a multi-year high of 5.25% to 5.5%.

So, in contrast to the favorable macroeconomic conditions in 2021, the current financial environment presents higher interest rates and escalating geopolitical tensions, which could impact speculative investments differently.

Despite these macro challenges, well-known crypto analyst World of Charts indicates that DOGE is approaching a critical descending trendline, a breakout that could lead to a strong bullish rally in the range of $0.27 to $0.30 in the upcoming days.

According to CoinDCX, Dogecoin’s price in 2024 and beyond will vary, with expectations of a bullish momentum that could help it reach highs of $0.5 by the end of the year.

Although the upcoming golden cross presents a positive outlook for Dogecoin, the volatile history after such events advises caution.

Bottom Line

The golden cross, where the short-term SMA crosses above the long-term SMA, is viewed as a potential reversal of the previous bearish trend and the start of a new upward trend in DOGE’s price. It indicates that new buyers are gaining ground more quickly than long-term holders.

Golden crosses typically lead to increased trading activity as investors react to the bullish signal. This heightened activity may result in higher trading volumes and liquidity in Dogecoin markets, offering more opportunities for traders to enter or exit positions.

The path to the impending golden cross, which would be the first in over three years, began when Dogecoin surpassed its 200-week SMA in March 2023 with a dramatic 70% price surge in just one week. The previous golden cross, which occurred in January 2021, presaged a remarkable price rally where DOGE surged by more than 8,000% to an all-time high exceeding $0.76 by May.

However, the last 2021 run, which resulted in a massive price surge in Dogecoin, was followed by a 90% decline in the subsequent months before stabilizing, highlighting the volatile nature of the cryptocurrency.

As meme coins like DOGE primarily rely on speculation, they are susceptible to fiat liquidity, interest-rate expectations, and other macroeconomic conditions. Unlike the favorable macro environment of 2021, the current financial landscape is characterized by elevated interest rates and growing geopolitical tensions, potentially affecting speculative investment differently.

While the golden cross validates a bullish signal in Dogecoin from a technical analysis perspective, investors should exercise caution and consider other factors, including fundamental analysis, market conditions, and risk management strategies, before making any decisions.

Understanding the Bearish Signals in This Chipmaker's Stock Chart

Posted on by The INO.com Team

Intel Corporation’s (INTC) shares plunged nearly 31% in April, marking their worst month in more than two decades, as the prominent chipmaker continues to grapple with executing a turnaround. Moreover, the stock has dropped approximately 40% year-to-date.

Most of INTC’s sell-off occurred after its recent financial results, which included a bleak forecast, indicating that the company’s turnaround efforts will require more time and investment. Further, Intel’s factory operations faced challenges in March, adding to investor concerns.

Mixed First-Quarter Earnings and Weak Forecast

During the first quarter that ended March 30, 2024, INTC’s net revenue increased 8.6% year-over-year to $12.72 billion. However, that missed analysts’ estimate of $12.78 billion. Also, the company’s Foundry business reported $4.40 billion in revenue, down 10% year-over-year.

The chipmaker’s gross margin rose 30.2% from the prior year’s quarter to $5.22 billion. Its operating loss was $1.07 billion, compared to $1.47 billion in the previous year’s period. However, Intel Foundry posted a $2.50 billion operating loss during the quarter. In 2023, this unit reported a hefty operating loss of $7 billion.

Furthermore, INTC’s net income came in at $437 million versus $2.77 billion in the same quarter of 2023. Also, the loss per share attributable to Intel was $0.09, compared to $0.66 in the prior year’s quarter. That surpassed the consensus loss per share estimate of $0.15.

Intel’s primary business remains manufacturing chips for PCs and laptops, categorized as Client Computing Group (CCG). This business unit revenue amounted to $7.50 billion, a 31% increase year-over-year.

In addition, Intel produces central processors for servers and other components and software, which are classified under its Data Center and AI business segment. Sales in this segment rose by 5% year-over-year to $3 billion. However, the chipmaker faces stiff competition in the server market, particularly against AI chips from companies like NVIDIA Corporation (NVDA).

In addition, for the second quarter of fiscal 2024, the company expects its revenue to come between $12.5 billion and $13.5 billion. It projects a loss per share of $0.05 for the current quarter, and its non-GAAP earnings per share are expected to be $0.10.

INTC recently revised its current-quarter revenue guidance after the U.S. Department of Commerce revoked certain export licenses intended to send its chips to the Chinese tech company Huawei.

On May 7, the chipmaker said in an 8-K filing with the SEC that it had received a notification from federal regulators that they were “revoking certain licenses for exports of consumer-related items to a customer in China, effective immediately.”

On Wednesday, Intel announced that due to the Commerce Department's directive, it expects revenue for the second quarter to fall below the midpoint of the original range of $12.5 billion to $13.5 billion. However, the company continues to expect full-year revenue and earnings to be higher than in 2023.

Intel Faces Fierce Competition

INTC, a longstanding leader in the semiconductor industry, has been facing rigid competition from rivals, including Advanced Micro Devices, Inc. (AMD) and Nvidia. Intel remains dominant in the PC chip market, but AMD is gaining ground in server, desktop, and mobile segments, as per the latest figures from Mercury Research.

Intel remains the leading player in the server CPU segment, with a market share of 79.2% during the first quarter; however, this is down from 82% in the year-ago quarter, indicating some erosion in its market share. On the other hand, AMD made gains in this segment, rising from just 18% a year ago to 23.6% in the first quarter of 2024.

Also, Intel's market share in the mobile CPU segment was 80.7% in the first quarter of 2024, compared to 83.8% in the prior year’s quarter. However, AMD’s 19.3% market share in the first quarter was 3.1% up from the same period in 2023. Further, AMD gained on Intel, with its 23.9% desktop share in the fiscal 2024 first quarter, up 4.7% a year ago.

Besides, INTC continues to fight for server market share against competitor NVDA, particularly in AI chips. Nvidia commands around 80% of the AI chip market with its graphics processors (GPUs), which AI builders have favored over the past year.

Earlier in April, Intel introduced its latest AI chip, Gaudi 3, as competition from NVDA intensified. The company claimed the new Gaudi 3 chip is over twice as power-efficient and can run AI models 1.5 times faster than Nvidia’s H100 GPU. Also, it is available in various configurations, such as a bundle of eight Gaudi 3 chips on a single motherboard or a card designed to fit into existing systems.

Intel tested the chip on models like Meta's open-source Llama and Falcon, backed by Abu Dhabi. It highlighted that Gaudi 3 could be instrumental in training or deploying models, including Stable Diffusion and OpenAI’s Whisper model for speech recognition.

Also, Intel is losing market share to rivals such as Arm Holdings PLC (ARM), Samsung Electronics, and Taiwan Semiconductor Manufacturing Ltd. (TSM).

Analysts Lowered Price Targets for Intel Shares

Goldman Sachs analysts slashed their price target for INTC stock from $39 to $34 and lowered their adjusted EPS estimates for the 2024-2026 period by an average of 18%. Also, they reaffirmed their “Sell” rating for the stock, which has been in effect since July 2020.

“We worry the company will continue to cede wallet share within the overall Data Center Compute market to the likes of Nvidia and Arm,” Goldman analysts said.

Meanwhile, Bank of America Corporation (BAC) cut its price objective to $40 from $44, citing higher costs, lower growth, and fierce competition. According to BofA analysts, the bleak second-quarter revenue guidance highlights that “topline growth remains lukewarm on limited AI exposure, while underutilized manufacturing and elevated costs.”

They added that Intel’s “enterprise incumbency, US-based manufacturing assets and weak investor sentiment provide turnaround potential.”

Bottom Line

INTC’s first-quarter 2024 earnings surpassed Wall Street’s expectations for EPS but fell short on sales. The chipmaker also provided a weak forecast for the current quarter.

After the U.S. Department of Commerce recently revoked certain licenses for exports of chips to Huawei in a bid to curb China’s tech power, Intel revised its second-quarter revenue guidance, anticipating below the initial range of $12.5 billion to $13.5 billion.

INTC’s stock fell more than 30% in April, making its biggest decline since June 2002. Moreover, the stock is trading below its 50-day and 200-day moving averages of $38.33 and $39.74, respectively, indicating a downtrend.

Despite INTC’s more than 50 years of dominance in the semiconductor industry, it now faces intense competition from competitors like AMD, NVDA, TSM, Samsung, ARM, and more. Also, the ongoing AI boom has caused a shift in enterprise spending away from Intel’s traditional data center chips.

With limited AI exposure, the intensifying competition raises doubts about Intel’s future dominance in the semiconductor industry.

INTC’s CEO Pat Gelsinger told investors on an earnings call to focus on the company’s long-term potential.

Analysts expect INTC’s revenue to increase marginally year-over-year to $13.06 billion for the second quarter ending June 2024. However, its EPS for the current quarter is expected to decline 18.2% year-over-year to $0.11. For the fiscal year 2024, the chipmaker’s revenue and EPS are expected to grow 3.3% and 4.8% year-over-year to $55.99 billion and $1.10, respectively.

“While 2024 should mark a bottom in many aspects of the business, the pace of the climb back up is unlikely to remain unclear,” Stifel stated in a note to clients.

Given INTC’s disappointing revenue guidance, regulatory issues, and fierce competition, it could be wise to avoid investing in this stock now.

Neurocrine Biosciences (NBIX) Nears Buy Point Amid Rising Enthusiasm

Posted on by The INO.com Team

Neurocrine Biosciences, Inc. (NBIX), a leading neuroscience-focused biopharmaceutical company, approaches the buy point amid growing market enthusiasm. The stock has surged more than 19% over the past six months and nearly 42% over the past year.

One factor fueling this optimism is NBIX's flagship product, INGREZZA®, which targets tardive dyskinesia, a movement disorder associated with certain antipsychotic medications, and its diagnosis rates have been rising. INGREZZA’s launch in 2017 has brought attention to this lesser-known condition.

Moreover, Neurocrine's early-stage initiatives targeting muscarinic receptors in the brain have captured investor interest. This research could potentially lead to new treatments for various movement disorders, schizophrenia, and other central nervous system conditions.

Now, let’s delve deeper into NBIX’s fundamentals and growth prospects:

Promising Recent Developments

On May 8, NBIX announced the initiation of its Phase 1 first-in-human clinical study to assess the safety, tolerability, pharmacokinetics, and pharmacodynamics of investigational compound NBI-1117567 in adult participants. NBI-1117567 is an oral, investigational, M1/M4 (M1 preferring) selective muscarinic agonist for the potential treatment of psychiatric and neurological disorders.

On April 30, NBIX announced that the FDA approved INGREZZA® SPRINKLE capsules, introducing a new oral granules version of INGREZZA® capsules prescribed for treating adults with tardive dyskinesia and chorea linked to Huntington's disease. INGREZZA SPRINKLE offers an alternative option, particularly beneficial for individuals experiencing dysphagia or having difficulty with swallowing.

Also, Neurocrine reported positive topline data for its Phase 2 SAVITRI™ study on April 23. This was a randomized, double-blind, placebo-controlled dose-finding trial designed to evaluate the efficacy and safety of NBI-1065845 in adults with major depressive disorder (MDD).

NBI-1065845 is an investigational alpha-amino-3-hydroxy-5-methyl-4-isoxazole propionic acid (AMPA) positive allosteric modulator (PAM) for the potential treatment for patients with MDD who have not responded adequately to at least one antidepressant during their current episode of depression.

Furthermore, in the same month, NBIX and Sentia Medical Sciences Inc. extended their research collaboration to discover novel, long-acting corticotropin-releasing factor (CRF) receptor antagonist peptide therapeutics.

The partnership will continue to leverage Sentia’s proprietary peptide-based platform and Neurocrine’s drug development expertise in CRF biology to develop, manufacture, and commercialize medicines with the potential to treat various hypothalamic-pituitary-adrenal (HPA) axis-modulated diseases.

In March, Neurocrine announced the initiation of its Phase 1 clinical study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of the investigational compound NBI-1065890 in healthy adult subjects.

NBI-1065890 is a next-generation, highly potent, internally discovered, oral, selective vesicular monoamine transporter-2 (VMAT2) inhibitor for the potential treatment of certain neurological and neuropsychiatric conditions.

Moreover, NBIX is well-poised to become a leader in neuroscience, with the recent New Drug Application submissions for crinecerfont and optimistic Phase 2 results for NBI-'845 (a potential first-in-class medication for major depressive disorder).

Solid First-Quarter 2024 Financial Results

For the first quarter that ended March 31, 2024, NBIX’s revenues increased 22.6% year-over-year to $515.30 million. That surpassed the analysts’ estimate of $512.01 million. Its net product sales rose 22.7% year-over-year to $509 million, and INGREZZA net product sales were $506 million, up 23% from the prior year’s quarter.

The year-over-year growth in INGREZZA product sales was driven by solid underlying patient demand and improvement in gross-to-net dynamics. In addition, Neurocrine’s non-GAAP net income and earnings per share were $124.80 million and $1.20, compared to non-GAAP net loss and loss per share of $49.50 million and $0.51 in the first quarter of 2023, respectively.

Furthermore, as of March 31, 2024, the company’s total cash, cash equivalents and marketable securities came in at $1.91 billion, compared to $1.72 billion as of December 31, 2023.

Optimistic Analyst Expectations

Analysts expect NBIX’s revenue to increase 20.9% year-over-year to $547.13 million for the second quarter ending June 2024. The consensus EPS estimate of $1.49 for the current quarter indicates an improvement of 19.3% year-over-year. Moreover, Neurocrine has topped consensus revenue and EPS estimates in three of the trailing four quarters, which is remarkable.

Additionally, NBIX’s revenue and EPS for the fiscal year (ending December 2024) are expected to grow 17.7% and 54.8% year-over-year to $2.22 billion and $5.98, respectively. For the fiscal year 2025, Street expects the company’s revenue and EPS to increase 14.4% and 22.9% from the previous year to $2.54 billion and $7.34, respectively.

Pharma Industry’s Favorable Trends And Dynamics

The growing population worldwide, aging demographics, and increasing prevalence of chronic diseases are boosting the demand for pharmaceutical products and healthcare services. Furthermore, regulatory agencies are increasingly implementing expedited review pathways and flexible approval processes to accelerate innovation and access to new treatments.

According to Statista, the revenue in the pharmaceuticals market is projected to reach $1.16 trillion in 2024. In global comparison, the U.S. is expected to generate the highest revenue of $636.90 billion this year. Looking ahead, the revenue in this sector is expected to grow at a CAGR of 6.2% from 2024 to 2028, resulting in a market volume of $1.47 trillion by 2028.

Moreover, biopharmaceutical advancements, growing adoption of precision medicine approaches, increasing investments in specialty drugs targeting specific diseases or patient populations, and orphan drugs for rare diseases are key trends shaping the pharma sector.

As per IQVIA, U.S. medicines spending is projected to grow 4 to 7% through 2028. This growth will be fueled by the adoption of newly launched innovative products, with an average of 50-55 new medicines launching per year over the next five years, such as those in oncology or with orphan status, alongside a few traditional therapies in diabetes, neurology, and obesity.

Accelerating Profitability

NBIX’s trailing-12-month gross profit margin of 68.54% is 21.7% higher than the 56.34% industry average. Likewise, the stock’s trailing-12-month EBIT margin and levered FCF margin of 23.73% and 36.29% are significantly higher than the industry average of 0.53%, respectively.

Moreover, the stock’s trailing-12-month net income margin of 18.65% compared to the industry average of negative 5.52%. Its trailing-12-month ROCE, ROTC, and ROTA of 18.16%, 12.36%, and 10.65% favorably compared to the respective industry averages of negative 40.87%, negative 20.89%, and negative 29.54%.

Bottom Line

Neurocrine reported outstanding first-quarter 2024 results, with revenue exceeding analyst expectations. The neuroscience-focused biopharmaceutical company’s INGREZZA® net product sales were a significant contributor, posting a 23% year-over-year growth, driven by solid patient demand and improvements in gross-to-net-dynamics. 

NBIX’s CEP, Kevin Gorman, Ph.D., highlighted the continued need for treatment for patients with tardive dyskinesia, expressing confidence in the company's lead product, INGREZZA.

For the fiscal year 2024, the company expects INGREZZA net product sales to range from $2.10 to $2.20 billion.

Moreover, Neurocrine is actively pursuing strategic initiatives to develop medicines to alleviate the burden of debilitating diseases and disorders. This includes their ongoing research and development (R&D) efforts to create new effective treatments for neurological, neuroendocrine, and neuropsychiatric conditions.

Wells Fargo analyst Mohit Bansal maintained a Buy rating on NBIX, with a price target of $170. Mohit Bansal has given a Buy rating due to several factors indicating a solid business foundation and bright future developments for Neurocrine. The company’s flagship product, INGREZZA, has been a robust performer, contributing to operating margin expansion and serving as a solid base for the business.

Furthermore, according to the analyst, Neurocrine is actively preparing to launch crinecerfont, its upcoming new drug, with management expressing confidence in its chances for priority review by the FDA. Bansal also highlights the company's proactive approach to ensuring study quality, which bodes well for future clinical trials.

Considering these factors, it could be wise to scoop up shares of NBIX for potential gains.