The broad market was mostly flat last week, but not for a few members of the healthcare sector. Shares of these three companies zoomed higher last week and investors want to know if they can climb any higher.
To see where these stocks are going, let's start by looking at what these companies did recently to deserve the price gains.
|Company (Symbol)||Price Change During Week Ended Sep. 25, 2020||Market Cap|
|Owens & Minor (NYSE:OMI)||44%||$1.3 billion|
|Exact Sciences (NASDAQ:EXAS)||26%||$14.7 billion|
|American Well (NYSE:AMWL)||21%||$6.4 billion|
1. Owens & Minor: Guidance update
It's been a roller-coaster year for Owens & Minor, a healthcare solutions company that sells personal protective equipment (PPE) to providers in the U.S. and around the world. The stock jumped last week after the company revised expectations for the second time since the COVID-19 pandemic began driving demand for PPE to unprecedented levels.
In 2019, Owens & Minor disappointed shareholders with adjusted income that fell 51% year over year to $0.56 per share. In early March, when issuing forward guidance for 2020, Owens & Minor effectively told investors not to expect a swift recovery. At the time, the company guided 2020 adjusted net income to a range between $0.50 and $0.60 per share.
On Sept. 24, the company raised its guided range for adjusted net income to between $1.75 and $1.90 per share. That puts the stock's recent price at around 11.2 times the company's latest earnings outlook or 37.0 times the forward earnings expectations the company delivered in early March.
2. Exact Sciences: Pan-cancer screening
In 2019, this cancer diagnostics company made a bold bet on the future of cancer screening for the masses with the $2.8 billion acquisition of Genomic Health. The stock jumped last week because the company sent up some encouraging signals of success with a blood-based pan-cancer screen that hasn't been cleared by the FDA yet.
Across six forms of cancer, including pancreatic, the test Exact Sciences is developing correctly identified 86% of samples as positive. That's much better than a sensitivity rate of around 60% reported over the summer by Grail regarding a pan-cancer screen that detects 12 different malignancies.
The COVID-19 pandemic hasn't been easy for Exact Sciences' colon cancer screening segment or its new precision oncology segment. In the second quarter, Exact Sciences reported precision oncology sales that were 20% lower than during the first quarter. Cologuard sales that came in at $131 million were 34% lower than during the previous year period.
3. Amwell: Digital health platform
This new company's growing a digital health platform that has powered 5.6 million telehealth visits for 55 different health plans that represent more than 80 million covered lives. Usage of the Amwell platform is growing fast, the company's been around since 2006 but a majority of the telehealth visits it's facilitated so far took place in the first half of 2020.
On Sept. 21, this digital health start-up closed one of the most successful initial public offerings of the year and raised a whopping $922 million in gross proceeds. Investors encouraged by the rapid pace of growth and a key partnership have already driven the stock 56% higher than its initially offered price of $18.00 per share.
In the first half of 2020, Amwell reported revenue that climbed 77% higher than the previous year period to $122 million. Unfortunately, costs associated with producing that revenue soared 113% over the same timeframe, to $77 million. In the same period, sales, general, and administrative expenses rocketed 152% higher to $122 million, leaving Amwell investors with a $111 million loss in the first half of the year.
More gains ahead?
Usage data around Amwell's platform is moving in the right direction, but investors probably want to avoid this healthcare stock until they see signs the company is moving toward profitability instead of running from it.
Owens & Minor is reporting impressive growth at the moment, but we're still in the middle of a global pandemic. Once the demand for PPE settles down to normal levels, this company will probably start reporting top- and bottom-line figures that slide in the wrong direction again.
Exact Sciences' operations have never been profitable, but the company will probably have the market for non-invasive colon cancer screening all to itself for years to come. That means this stock can probably outperform with, or without success in the race to develop a blood-based pan-cancer screen.