Earnings season is here. That means most public companies have reported or will soon report operating results for the quarter ended Dec. 31. For many, the next report will include full-year 2019 operating results and full-year 2020 guidance. The stakes are higher for some than for others.
For instance, investors are worried once again about the late-stage pipeline of Incyte (NASDAQ:INCY), which started the year by announcing that an important drug candidate failed a clinical trial. Can the company calm anxious investors?
Meanwhile, bioprocessing leader Repligen (NASDAQ:RGEN) has delivered impressive growth in recent years thanks to a bevy of completed acquisitions. Will the release of full-year 2020 revenue guidance suggest similar growth in the year ahead and help investors look past the pharma stock's premium valuation?
And finally, Alliance Resource Partners (NASDAQ:ARLP) already announced full-year 2019 operating results and issued guidance for the current year. It didn't go well, but it could get worse when an important data set is released later this month. Here's what to watch for each of these three companies in February.
Can Incyte redirect the attention of investors?
On the very first trading day of 2020, shares of Incyte tumbled on news that a combination of itacitinib and corticosteroids did not meet its primary endpoint in a phase 3 study evaluating its potential benefit to treatment-naive individuals with acute graft-versus-host disease (GVHD). It wasn't the best way to begin the year. It also cranked up the pressure on the company to generate revenue from another asset besides Jakafi, currently the company's only revenue-generating asset.
That makes the upcoming fourth-quarter and full-year 2019 earnings report scheduled for Thursday, Feb. 13, an important one. While investors will be eager to learn how management views the pipeline in light of the itacitinib failure, there's reason to think the pharma stock's 15% drop since the beginning of 2020 might be a little overdone.
Consider that Jakafi generated $1.28 billion in product revenue in the first nine months of 2019. That marked a year-over-year increase of 20% and helped Incyte generate $307 million in operating income in the first three quarters of last year. In other words, the company might be a one-trick pony at the moment, but it's a profitable one-trick pony.
When the company reports operating results this week, investors will be watching to see how Jakafi performed last year and how management expects the asset to perform in 2020. They'll also be watching for an update on the pipeline (especially in dermatology and bladder cancer).
Can the growth engine remain red-hot?
Repligen doesn't develop drug candidates. Instead, it makes various bioprocessing products required to develop and manufacture biologic drugs, such as chromatography columns, special filtration devices, and measurement sensors.
While selling picks and shovels to biopharmaceutical customers is a pretty sweet gig in 2020, investors also have to admit that the stock is trading at a premium valuation. The growth stock trades at 92 times expected future earnings, 20 times sales, and 5 times book value. Therefore, when Repligen reports fourth-quarter and full-year 2019 operating results on Thursday, Feb. 20, investors will be eagerly awaiting guidance for the year ahead.
The most recent full-year 2019 guidance expected revenue to grow at least 38% from 2018. That certainly makes it easier to explain the company's valuation, especially as operating profits pile up. But how will full-year 2020 revenue guidance compare? Can the business really keep growing at over 30% per year?
It might be possible given the wealth of opportunities in biopharmaceuticals right now. In fact, considering Repligen ended September with a record cash balance of $513 million and doesn't offer any great solutions for customers going all-in on gene therapies or cellular therapies, investors might not be surprised if the company announces another acquisition soon.
A closely watched data report could tank investor morale
Coal miner and transporter Alliance Resource Partners has been an investor favorite for years thanks to its high yield, which currently sits at nearly 18%. Unfortunately, the business has been unable to escape the ferocious headwinds facing the American coal industry. Case in point: Even when distributions are included, the high-yield stock has delivered a five-year total return of negative 58%.
Alliance Resource Partners is actively investing in oil and gas assets in an attempt to diversify its business, but the reality is that roughly 90% of total revenue was derived from coal sales in 2019. That percentage climbs to 95% when transportation revenue, mostly generated from shipping coal, is factored into the mix.
Investors have already been fretting over the company's reliance on coal, and anxiety levels could increase in the near future. For one thing, China's efforts to contain the novel coronavirus outbreak is likely to have significant negative consequences on domestic industrial output. Considering the importance of international markets to coal producers such as Alliance Resource Partners, that could force the company to lower full-year 2020 guidance in the coming months.
For another, the U.S. Energy Information Administration (EIA) will publish two reports in the coming weeks. On Feb. 11, the next iteration of the short-term energy outlook will be published. Will the EIA update its weak outlook for the pace of coal-fired power plant retirements (coal is already expected to fall to just 21% of total electricity demand in 2020, less than renewables) or demand for exports (domestic coal production is expected to fall 14% year over year)?
Then, at the end of February, the EIA will publish electricity data for 2019. Numbers through November suggest that the United States produced less than 1,000 gigawatt-hours of electricity from coal-fired power plants last year, which would mark the lowest annual level since the late 1970s.
The two reports probably won't do much good for the sour morale surrounding coal stocks such as Alliance Resource Partners, but if coal markets deteriorate faster than expected, the stock could be in for a rotten 2020.