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Here's Why You Should Retain OPKO Health in Your Portfolio

Zacks Equity Research

OPKO Health, Inc. OPK is gaining traction on progress with RAYALDEE and a robust R&D pipeline. However,stiff competition has been offsetting the positives to some extent.

The company, with a market capitalization of $1.14 billion, is the leading provider of diagnostics and pharmaceuticals. The company anticipates earnings improvement of 10% for the second quarter of 2020. However, this Zacks Rank #3 (Hold) company has a trailing four-quarter negative earnings surprise of 22%, on average.

In the past three months, the stock has rallied 4.5% against the 9.8% decline of its industry.

Let’s delve deeper into the factors working in favor of the company.

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RAYALDEE Gains Prominence: Within the pharmaceutical business, RAYALDEE has been OPKO Health’s leading renal product in the U.S. market for the last two years. RAYALDEE is the first and only therapy approved by the FDA for the treatment of secondary hyperparathyroidism (SHPT) in adults with stage 3 or 4 chronic kidney disease. RAYALDEE has been witnessing a decent momentum, courtesy of successful efforts from the sales team.

Per the fourth-quarter 2019 earnings call, the company expects European approval for RAYALDEE and its first commercial launch later in 2020. Further, the open-label Phase 2 trial for RAYALDEE in hemodialysis patients is in progress, with initial data anticipated in first-quarter 2020. The company is optimistic about expanding RAYALDEE’s label and bolstering its market presence post which it will become a meaningful contributor to sales and earnings.

 

4Kscore Test Holds Promise: OPKO Health offers the 4Kscore test through BioReference, the company’s clinical service laboratory platform. In fourth-quarter 2019, 4Kscore test utilization was strong, with around to 18,000 tests performed. In December 2019, the FDA accepted a premarket approval submission for the 4Kscore test.

In November 2019, 4Kscore test received a final local coverage determination (LCD) from Novitas Solutions, which was effective Dec 30, 2019, with respect to reestablishing reimbursement for the important Medicare patient populations. This is also expected to continue driving growth for the company in the long term.

R&D Focus Solid: OPKO Health’s strong focus in research and development (R&D) is a positive. The company’s strong commitment toward innovation led to the introduction of several products, improvement in existing products and expansion of product lines as well as enhancements and new equipment in R&D facilities.

Per management, the company will continue to make solid investments in R&D programs throughout 2020. OPKO Health projects R&D expenses of $23-$28 million in first-quarter 2020 and $85-$125 million in 2020.

However, there is a concerning factor marring growth.

Cut-throat Competition in the Niche Space: The medical instrument industry is highly competitive. The industry calls for extensive research for technological innovation. In fact, there are several companies that have been trying to outpace OPKO Health in terms of cost efficiency and diverse portfolio. Per management, major pharmaceutical bigwigs, specialty pharmaceutical companies and specialized biotechnology companies are direct competitors of OPKO Health’s pharmaceutical business.

Competitors of the diagnostics business include major diagnostic companies, reference laboratories, molecular diagnostic firms, universities and research institutions.

Estimates Trend

The company is witnessing a negative estimate revision trend for fiscal 2020. Over the past 60 days, the Zacks Consensus Estimate for its loss per share has widened from 27 cents to 36 cents.

The Zacks Consensus Estimate for the company’s first-quarter 2020 revenues is pegged at $215.9 billion, suggesting a 2.9% fall from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, DexCom DXCM and Surmodics SRDX.

ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DexCom’s long-term earnings growth rate is estimated at 36.7%. The company presently carries a Zacks Rank #2.

Surmodics’ long-term earnings growth rate is estimated at 10%. It currently carries a Zacks Rank #2.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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DexCom, Inc. (DXCM) : Free Stock Analysis Report
 
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Zacks Investment Research