There are two conflicting trends in the markets today – the bearish macro trend that has seen the S&P fall 19% so far this year, and has seen the tech-heavy NASDAQ get stuck in a true bear market, with a 30% year-to-date loss – and periodic rallies that have overlaid local gains on that background.
Looking for winners in this kind of environment, investment firm Raymond James has come round to rate two stocks highly. These are equities that have overperformed so far this year, posting overall gains even in the bearish market environment, and the firm’s analysts give them Strong Buy ratings.
Running the tickers through the TipRanks database, it’s clear Raymond James is not alone in thinking these stocks have plenty to offer investors; both are also rated as Strong Buys by the analyst consensus. Let’s take a closer look.
Mirum Pharmaceuticals (MIRM)
We’ll start with Mirum Pharmaceuticals, a clinical and commercial stage biopharma company dedicated to the treatment of rare diseases of the liver. These are conditions that typically have small patient bases and high unmet medical needs that cause strong negative effects on patients’ quality of life. Mirum is working on a series of novel medications to treat a variety of conditions, including progressive familial intrahepatic cholestasis (PFIC) to intrahepatic cholestasis of pregnancy (ICP).
On the commercial side, in September of last year the company received FDA approval for its first medication, maralixibat, now branded as Livmarli, in the treatment of Alagille syndrome (ALGS) for children ages one and up. The medication has also been submitted for approval in Europe.
Having a drug approved and on the market is the ‘holy grail’ for research-oriented biopharmas, and Mirum has ridden that approval to a 41% share price gain in 2022. In addition, the company has started to see rising revenues this year, with Q1’s top line hitting $12.9 million and Q2’s, the last reported, reaching $17.5 million.
Also in the second quarter of this year, Mirum changed its relationship with Satiogen Pharmaceuticals. Mirum had formerly had a licensing relationship, and paid royalties to Satiogen; it has now acquired Satiogen outright as a wholly-owned subsidiary, and reduced its royalty and milestone obligations.
In October of this year, Mirum released several updates on Livmarli, and its progress in testing the new drug as a treatment for additional liver conditions. These further clinical trials aim to expand the patient base of the approved medication, to drive revenues. In particular, the company released Phase 3 data from the MARCH study, showing efficacy in the treatment of PFIC. The drug met the primary endpoint, and the company plans to make further submissions to regulatory agencies for label expansion.
Mirum has four additional clinical trials ongoing for Livmarli in the treatment of Biliary Atresia, and three for another drug candidate, volixibat. The volixibat studies are at the Phase 2b stage, and are testing the drug in the treatment of Primary Sclerosing Cholangitis, Intrahepatic Cholestasis of Pregnancy, and Primary Biliary Cholangitis. Results from these studies are expected to start rolling in next year.
In covering this stock for Raymond James, analyst Steven Seedhouse sees the recent Phase 3 data on Livmarli/maralixibat as the key point. He writes, “We expect a potential label at least as broad as ODX’s given the all-PFIC treated group in MARCH had numerically higher pruritus/sBA responses than ODX in PEDFIC 1. MRX, in our view, has the potential to eventually meet or even exceed ODX’s penetration in PFIC given 1) the reasonable conclusion that higher dosing is the driver of MRX’s efficacy across a broad range of PFIC subtypes (vs. the lack of pruritus dose response and max dosing at 120μg/ kg for ODX), and 2) more kid-friendly administration of liquid vs. powder sprinkled on food for ODX.”
“The market’s relatively muted reaction to the positive MARCH readout and undervaluation of MIRM’s PFIC program in general provides a good entry opportunity,” the analyst summed up.
To this end, Seedhouse rates MIRM a Strong Buy, and his $88 price target implies an impressive one-year upside potential of 290%. (To watch Seedhouse’s track record, click here)
Wall Street must agree with the bullish view here, as all five of the recent analyst reviews are positive, for a unanimous Strong Buy consensus rating on the shares. Mirum is trading for $22.55 per share, and its $57.25 average price target suggests ~154% upside on the one-year horizon. (See MIRM stock forecast on TipRanks)
Encompass Health Corporation (EHC)
Next up is Encompass Heath, a company with an important niche in the US healthcare system. Encompass is the country’s largest owner and operator of inpatient rehabilitation hospitals, with 153 facilities in 36 states plus Puerto Rico. Encompass provides compassionate, high-quality care for patients during recovery from major injuries, illnesses, or surgeries, and boasts that patient outcomes typically beat the national standards.
Health care is big business, worth over $800 billion in the US alone last year, and Encompass holds a significant piece of that business. The $5.43 billion company controls 24% of the licensed inpatient rehab beds available in hospitals, and serves 31% of Medicare patients. Overall, Encompass sees approximately 203,600 annual inpatient discharges.
The company released its 3Q22 financial results on October 26, and showed $1.09 billion at the top line. This was down from $1.33 billion in Q2, but was up 7.8% from the $1.01 billion reported in 3Q21. From this, the company derived a net income of $45.5 million for the quarter, or 45 cents per share. The net and comprehensive income, at 67 cents per share, beat the 64-cent forecast although it was down 35% year-over-year.
Overall, Encompass shares have outperformed the broader markets this year, rising 6%.
5-star analyst John Ransom covers this stock for Raymond James, and he sees a clear path forward for the company.
“While we are disappointed that revenue upside did not translate EBITDA upside, the de novo delays are a transitory issue and contract labor metrics are improving. That paired with strong volume trends and a solid Medicare rate update bodes well for 2023 results. We believe EHC is one of the biggest winners from our ‘peak labor’ thesis, and we are now modeling $920M of 2023 adj. EBITDA (up $20M), which implies only 3% organic growth off the annualized 4Q run rate after adjusting for $20M of de novo costs, and a $21M improvement in contract labor off the 4Q run rate. At 8x 2024 EBITDA, EHC screens as one of the most attractive buys in our coverage universe,” Ransom opined.
Based on the above, Ransom rates EHC a Strong Buy along with a $72 price target, indicating his confidence in a one-year gain of 32% for the stock. (To watch Ransom’s track record, click here)
A solidly performing healthcare company is sure to get attention from the Street – and Encompass has 10 recent analyst reviews, all positive, supporting its Strong Buy consensus rating. With the shares trading at $54.44 and the average price target coming in at $64.10, the company’s stock has a one-year upside potential of ~18%. And as a small bonus, the stock also pays a dividend that yields 1.1%. (See EHC stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
