Economic contraction for two consecutive quarters due to high inflation and aggressive policy tightening make many analysts believe that a recession is unavoidable. However, better-than-expected corporate earnings and an expansion of the services sector at an accelerated rate in July are expected to offset the impact of fears over a potential recession on the market.
The sector's activity, which accounts for 80% of GDP growth, expanded in July for the 26th month in a row. The stock market responded positively to the favorable economic data. The S&P 500 jumped 1.6%, while the Dow Jones Industrial Average and tech-heavy Nasdaq Composite gained 1.3% and 2.6%, respectively.
However, House Speaker Nancy Pelosi’s visit to Taiwan is raising tensions between the United States and China, which could pressure the market in the near term. Also, the recession fears are expected to keep the market volatile.
Therefore, quality stocks Exelixis, Inc. (EXEL) and AutoNation, Inc. (AN), which are currently trading at significant discounts to their peers, could be solid investments now.
Exelixis, Inc. (EXEL)
EXEL is an oncology-focused biotechnology company focused on discovering, developing, and commercializing new medicines to treat cancers. The company’s platform also provides therapies to cancer patients with additional treatment options.
On July 11, 2022, EXEL announced that COSMIC-313, an ongoing phase 3 pivotal trial evaluating the combination of cabozantinib, nivolumab, and ipilimumab versus the combination of nivolumab and ipilimumab in patients with renal cell carcinoma (RCC) demonstrated significant improvement in progression-free survival (PFS) at the primary analysis.
EXEL intends to discuss the results with the U.S. FDA to determine the next steps toward a potential regulatory submission, which, if approved, would help it gain expanding market reach.
For the fiscal 2022 fourth quarter ended March 31, 2022, EXEL’s total revenues increased 31.7% year-over-year to $355.98 million. The company’s income from operations came in at $83.24 million, compared to a loss of $4.61 million in the year-ago period.
While its non-GAAP net income increased 194.7% year-over-year to $83.89 million, its non-GAAP EPS grew 188.9% to $0.26. As of March 31, 2022, the company had $723.27 million in cash and cash equivalents.
Analysts expect an EPS estimate of $0.88 for fiscal 2022 ending December 31, 2022, indicating a rise of 22.2% from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters.
The consensus revenue estimate of $1.59 billion for the same fiscal year represents an 11.1% year-over-year improvement. EXEL’s EPS is expected to grow at a rate of 46% per annum over the next five years.
Its 96.5% trailing-12-month gross profit margin is 75.8% higher than the 54.9% industry average. The company’s trailing-12-month EBITDA margin of 25.6% is 474.1% higher than the industry average of 4.5%.
The stock’s 15.06x forward EV/EBIT is 13.7% lower than the 17.46x industry average. In terms of forward Price/Sales, EXEL is trading at 4.33x, 9.3% lower than the 4.77x industry average. Over the past week, the stock has gained 2.3% to close the last trading session at $21.40.
EXEL’s POWR Ratings reflect this promising outlook. It has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and Quality and a B for Sentiment. Click here to see the additional ratings for EXEL’s Growth, Stability, and Momentum. EXEL is ranked #13 of 399 stocks in the Biotech industry.
AutoNation, Inc. (AN)
AN operates as an automotive retailer that offers a range of new and used vehicles, wholesale parts, repair, maintenance, and collision services. It also provides automotive finance and insurance products that comprise vehicle services and other protection products and arranges finance for vehicle purchases through third-party finance sources.
AN’s gross profit for its fiscal 2022 second quarter ended June 30, 2022, increased 2.7% year-over-year to $1.36 billion. Its operating income came in at $519 million, indicating a 5.3% rise from the prior-year period.
AN’s adjusted EPS rose 35.6% year-over-year to $6.47. As of June 30, 2022, the company had $336.50 million in cash and cash equivalents.
Analysts expect the company’s EPS to come in at $23.66 billion for its fiscal 2022 ending December 31, 2022, representing a 30.4% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters.
The consensus revenue estimate of $27.55 billion for the same fiscal year indicates a 6.6% year-over-year improvement. Its EPS is expected to grow at a 24.7% rate per annum over the next five years.
Its 57.4% trailing-12-month ROE is 248% higher than the 16.5% industry average. The company’s trailing-12-month ROA margin of 16% is 192.2% higher than the industry average of 5.5%.
The stock’s 5.51x forward EV/EBIT is 54.1% lower than the 12x industry average. In terms of forward Price/Sales, EXEL is trading at 0.24x, 75.1% lower than the 0.95x industry average. Over the past week, the stock has gained 1.1% to close the last trading session at $120.08.
AN’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see AN’s Stability, Sentiment, and Momentum ratings here. AN is ranked #3 of 23 stocks in the B-rated Auto Dealers & Rentals industry.
EXEL shares were unchanged in premarket trading Thursday. Year-to-date, EXEL has gained 17.07%, versus a -11.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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