Earnings season is in full swing. And that means, as always, there are winners and losers. But positive earnings news wasn't the only catalyst driving some stocks higher.
Three big healthcare winners this week were STAAR Surgical (STAA 1.90%), Tenet Healthcare (THC -4.09%), and Portola Pharmaceuticals (PTLA). Each of these stocks jumped more than 24% over the last few days. Are STAAR Surgical, Tenet, and Portola smart picks for investors after the stocks' huge gains?
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1. STAAR Surgical: Stars in the eyes
STAAR Surgical stock surged 36% higher this week. On Wednesday, STAAR reported great first-quarter results that were even better than Wall Street expected.
The company makes implantable lenses and companion delivery systems for the eye-care market. STAAR reported record-high sales in the first quarter thanks largely to strong demand for its Implantable Collamer Lens, or ICL, products. These lenses are implanted through a small incision and allow patients to reduce or even eliminate the need for wearing eyeglasses or contact lenses.
STAAR's Q1 results were so good that the company upped its full-year 2018 revenue outlook. The company previously projected sales growth in 2018 in the low double-digit percentages but now expects 20% year-over-year growth. STAAR Surgical is especially benefiting from tremendous demand in Asian markets.
2. Tenet Healthcare: Healthy profits
Tenet Healthcare stock jumped 28% this week. The hospital operator announced better-than-expected Q1 results on Monday.
Although Tenet's revenue fell from the prior-year period, the decline stemmed largely from divestitures. The company reported a nice Q1 profit, with adjusted diluted earnings per share (EPS) of $0.57 compared to a loss of $0.27 in the first quarter of 2017. Wall Street analysts expected Tenet to post a loss of $0.03 per share, so the hospital chain's profit was a nice surprise.
Like STAAR Surgical, Tenet boosted its full-year 2018 guidance based on its strong Q1 performance. The company continues to expect revenue this year between $17.9 billion and $18.3 billion. However, Tenet now projects adjusted diluted EPS between $1.36 and $1.70, well above its previous guidance range of $0.73 to $1.07.
3. Portola Pharmaceuticals: Second time's the charm
Portola Pharmaceuticals' share price moved nearly 25% higher this week -- but not because of an earnings release. The biotech announced on Thursday that the U.S. Food and Drug Administration (FDA) had approved Andexxa as an antidote for patients treated with anticoagulants Eliquis and Xarelto when reversal of the effects of these drugs is needed due to life-threatening or uncontrolled bleeding.
The FDA approval was huge for Portola. Andexxa was turned down for approval by the FDA in 2016. And earlier this year, the FDA requested more information and delayed its decision on Andexxa from the original date of Feb. 3, 2018. This created considerable doubts about whether Portola could have yet another rejection on its hands.
Now, though, the company is set to launch Andexxa under an Early Supply Program in June. A bigger commercial launch, however, won't happen until early 2019 pending FDA approval of Portola's "Generation 2" manufacturing process for the drug.
Are they buys?
STAAR Surgical appears to be in great shape to enjoy a great year in 2018. However, the stock has a nosebleed valuation. I don't think the faster growth the company should experience is enough to justify STAAR's hefty price tag.
You have to give Tenet Healthcare credit for turning things around. The company's efforts to increase efficiency appear to be paying off. However, it looks like the stock's big jump stemmed in part from a short squeeze with short-sellers covering their positions. I'm not a fan of trying to hop on board when momentum is driven by this kind of scenario and instead prefer waiting for the dust to settle.
Beyond that, running hospitals remains a tough business to consistently make profits, especially with high costs of uncompensated care still hurting the industry. I'm glad that Tenet is improving, but I think there are better stocks to buy.
What about Portola? The biotech stock is intriguing. Portola already has one approved product, anticoagulant Bevyxxa. The company launched the drug in January 2018. Between Bevyxxa and Andexxa, Portola could generate annual sales of between $1 billion and $2 billion within a few years. That kind of revenue potential makes the biotech's current share price look attractive.
There are still risks for Portola. Bevyxxa and Andexxa might not be as successful as expected. However, I think a small position in Portola could pay off, even after the biotech's huge gain this week.
