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OPKO Stock Had a Great Q2 and the Future Looks Even Better

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With shares nearly double where they were in May, OPKO Health, Inc. (NASDAQ: OPK ) needed a strong second-quarter earnings report to justify the gains in OPKO stock. After the market closed Aug. 7, it did just that. What, then, is the company worth after OPKO reported earnings and revenue that beat consensus estimates?

OPKO reported an EPS of -$0.01, beating estimates by a solid $0.06. Revenue fell 9.9 percent to $263.7 million, which beat analyst expectations. Though the market views the results as good news, the revenue decline year-over-year for a small biotech company having a new product is concerning.

Management could probably do a better job in growing revenue and thereby generating profits. Drilling down on the results, revenue from the Services segment fell $216.1 million, down 7.6 percent. Product sales fell just slightly, down 1.7 percent from last year to $28.5 million.

Rayaldee sales totaled $4.8 million . The product for the treatment of secondary hyperparathyroidism in adults, is still in the early phases of achieving strong sales.

In its filing, the company warned that it expects expenses from selling, general and administrative to rise as it expands its sales, marketing, and administrative staff. It needs to add infrastructure to its business to support the launch of Rayaldee in the coming quarters.

OPKO launched Rayaldee in the U.S. through its dedicated renal sales force in November 2016.

OPKO Stock and the Balance Sheet

OPKO ended the quarter with cash and cash equivalents of around $80.4 million. It spent $52.6 million through to June 30, 2018. Most of the expenses are due to SG&A activities, commercializing Rayaldee, and regular corporate operations. The company increased its cash levels through financing activities.

The $55 million 2023 convertible notes issued in February covered the negative cash flow from operations. Management forecasts the company will have enough cash beyond the next twelve months. With the way OPKO stock rallied in the last few months, markets are not pricing in any share issuance or debt sale.

OPKO's Future Product Line

During the second quarter, the company advanced its Phase 2b trial for its SARM selective androgen receptor modulator) to treat benign prostatic hyperplasia (BPH). Enrollment will continue as OPKO studies the dosing range for the orally-administered drug. If the drug works, subjects will have a reduced prostate size, increased muscle mass, bone strength, and lower body fat.

The company completed enrollment of 225 subjects for the Phase 3 study of hGH-CTOP, which studies growth hormone, deficient children. OPKO will have results when the study ends in 52 weeks. The primary endpoint of this trial is height velocity. The secondary endpoints are safety and pharmacodynamic endpoints.

Other products under study include oxyntomodulin, which treats type 2 diabetes and obesity, Rayaldee in dialysis patients with SHPT, and OPKO's NK-1 antagonist to treat pruritus (itching) in Stage 5 CKD patients undergoing dialysis.

Valuation

Of the two analysts offering a price target on OPKO stock, the average target is a whopping $13.50, which implies upside of 140 percent from the Aug. 7 $5.62 closing price. Tipranks reports the price target range is between $7.00 and $20:

Investors may apply a 5-year DCF Revenue Exit model to come up with a more conservative and reasonable fair value.

Assuming a terminal revenue multiple of around 3.9 times, a discount rate of 13.5 percent (to price in future unknowns), and revenue growth beginning in FY 2019, the fair value for OPKO stock is $7.49 (click on link to open finbox.io model).

Final Word on OPKO Stock

OPKO Health is not yet profitable, so investors still need to treat the company as a speculative investment with the potential for future growth.

If management delivers on new products and increase sales of Rayaldee, OPKO stock will hold its value and move steadily higher as investors get more confident with the company.

The author does not own OPKO shares.

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The post OPKO Stock Had a Great Q2 and the Future Looks Even Better appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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