I follow quite a lot of companies, so the usefulness of a watchlist for me cannot be overstated. Without my watchlist, I'd be unable to keep up with my favorite sectors and see what's really moving the market. Even worse, I'd be lost when the time came to choose which stock I'm buying or shorting next.
Today is Watchlist Wednesday, so I'm discussing three companies that have crossed my radar in the past week and at what point I may consider taking action on these calls with my own money. Keep in mind that these aren't concrete buy or sell recommendations, and I don't guarantee I'll take action on the companies being discussed. But I promise that you can follow my real-life transactions through my profile and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
The results are in for weight control management company VIVUS in the first quarter, and while better than expected, they're not exactly what investors wanted to see.
For the quarter VIVUS's revenue rose nearly nine-fold to $36.7 million while its loss shrank by 71% to just $15.6 million, or $0.15 per share. VIVUS recognized a number of one-time benefits, including $19.4 million in licenses and milestone revenue, as well as $7.4 million in supply revenue tied to the launch of erectile dysfunction drugs Stendra and Spedra. The good news here is this ED therapy could help stem VIVUS's losses moving forward, though investors would be wise not to count on this quarter's milestone revenue again.
Overall, though, it was just more of the same for VIVUS' fan base with Qsymia sales more than doubling to $9.1 million from $4.1 million in the prior-year period, but total prescriptions falling to 121,000 from 124,000 in the sequential fourth quarter. VIVUS can try and blame the weather or the seasonal stocking habits of pharmacies, but it appears pretty obvious that Qsymia's growth prospects are already stalling.
Part of this could have to do with growing levels of competition from the likes of Arena Pharmaceuticals' (NASDAQ:ARNA) Belviq, which presented a more favorable safety profile in clinical trials. It could also have to do with VIVUS's struggles with getting new insurance coverage for its anti-obesity drug. VIVUS really shouldn't have too many excuses here with Arena noting in its quarterly report that 60% of all Americans are covered in some way to receive Belviq. Qsymia has been on the market for a year longer than Belviq, implying that it should be at least on par if not ahead of Belviq in this respect.
Another problem for VIVUS is the probable emergence of Orexigen Therapeutics' (NASDAQ:OREX) Contrave. While Contrave didn't knock the socks off of investors with its clinical data, it has completed a substantial cardiovascular outcomes trial known as the Light Study, which could lead to its approval in the U.S. and potentially Europe, and may give the drug the upper hand over both its peers in terms of long-term safety.
Without Qsymia sales dramatically picking up, there's not a lot for optimists to latch onto. I would suggest any major rallies could be an intriguing opportunity for short-sellers to take a position.
World Wrestling Entertainment (NYSE:WWE)
I'm just going to get the puns out of the way early. World Wrestling Entertainment, or WWE, was tombstoned, suplexed, drop-kicked, and thrown through a table last week after announcing what it deemed a less-than-stellar long-term content deal with NBC Universal.
Investors and Wall Street had clearly been hoping for a huge bump higher in the terms of the announced deal, but as you can tell based on its price action, that didn't materialize. Even the WWE admitted that it was a bit disappointed with the negotiations, but it still feels confident that the new long-term contract will be lucrative for the company and investors.
Which corner do I stand in here? I'm with the optimists, though it wouldn't take much for me to turn heel. One of the greatest allures of WWE is its hefty quarterly dividend of $0.12, which, based on its tumbling share price, represents a yield in excess of 4%. If sustainable, this is quite the pretty penny for income-seeking investors to collect. But that's the big question: Is this sustainable? If the dividend gets halved or taken away altogether, WWE could easily fall further, at least until it delivers more consistent profits.
For now WWE is sticking by its forecasts and anticipates that operating income before depreciation and amortization, or OIBDA, will surge to $125 million-$200 million in 2015 from a loss of $45 million-$52 million in 2014. Much of this boost comes on the heels of its February launch of the WWE Network, which, as of April, had just over 667,000 subscribers paying $9.99 a month. Basically, the WWE has figured out how to emulate Netflix in order to put its premium content, including previous pay-per-view shows, within the reach of the millions of die-hard wrestling fans. Per Fool contributor Andres Cardenal, WWE looks on pace to reach the 1 million person subscriber mark by the end of the year.
Ultimately, I believe WWE could rise from the mat before the three-count if it can meet or exceed its subscriber estimate for the WWE Network -- and if investors bring their expectations back down to Earth. It's a company that could easily climb to the top rope, but it'll take time.
J.C. Penney (NYSE:JCP)
Congratulations short-sellers, I'm giving you not one but two companies to keep your eyes on this week with struggling department store chain J.C. Penney!
Shares of J.C. Penney absolutely soared on Friday after the company reported better-than-expected first-quarter results that highlighted a rare improvement in its same-store sales of 6.2%, as well as a 27% reduction in its net loss to $1.16 per share. Penney's seems pretty content with sticking to Mike Ullman's turnaround plan of chopping costs and forging tight-knit relationships with its vendors in order to improve efficiency and signal to cost-conscious consumers that their old Penney's is back.
Call me skeptical, but I just don't see why investors should be rewarding these "less bad" results, even with the company expected to end the year with more than $2 billion in liquidity.
The way I look at it, this is a simple numbers game and Penney's is on pace to see it's losses shrink -- but based on Wall Street's projections, not to turn a full-year profit any time in the next five years. According to these estimates, the company could be on pace to burn through $1.7 billion in cash through 2018 even with its cost-cutting efforts and steep discounts. By then its debt could potentially top $6 billion in my estimations and the company would be in even worse shape.
The main problem with J.C. Penney is that it lacks any brand identity. It used to be the discount stop for shoppers, but they've migrated to other stores whose pricing policy has been more consistent. In other words, there's just no allure from Penney's to bring consumers into its stores other than deeply discounting items on its clearance racks, which only serves to further erode its already weak margins. With this vicious circle in place I have a hard time understanding if Penney's is going to break and get ahead. With that being said, I'd still suggest investors consider a short-sale on Penney's stock during any major rally.
Is my bullishness or bearishness misplaced? Share your thoughts in the comment section below and consider following my cue by using these links to add these companies to your free, personalized watchlist to keep up on the latest news with each company:
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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