Another earnings season has arrived, and this time the bar is set seriously low. The upcoming reports will shed some light on the extent of the damage inflicted by COVID-19. Expectations are low, and while there’s plenty of room for disappointments, Oppenheimer’s Chief Investment Strategist John Stoltzfus believes that there’s also an opportunity for some upside.
“COVID-19 resurgences notwithstanding the equity markets stateside have thus far shown persistent resilience that continues to confound bears and skeptics. It could be that their memory is lacking when it comes to previous recoveries from market events that have led us to the proverbial brink only to have the resilience of the of the U.S. economy save the day,” Stoltzfus commented.
Putting the S&P 500’s rebound from its March 23 low into context, the index has clawed its way back, giving the strategist hope that the unprecedented levels of stimulus will get the market out of the mess the pandemic created. Even though the market is waiting for a catalyst to determine its direction, Stoltzfus points out that historically, “progress not perfection” is what drives a turnaround, noting that evidence indicates serious progress is in fact being made.
Putting the strategist’s advice into concrete recommendations, Oppenheimer’s analysts point to two stocks in particular that could take off in the next twelve months. The firm, which lands among the top three on TipRanks’ list of Top Performing Research firms, sees over 80% upside potential in both. After using TipRanks’ database, we found out that each ticker has also received enough support from other Wall Street analysts to earn a “Strong Buy” consensus rating.
GrowGeneration Corporation (GRWG)
Taking its place as the largest hydroponic equipment supplier in the U.S., GrowGeneration owns and operates specialty retail hydroponic and organic garden centers. Given its strong long-term growth narrative and its $6.95 share price, it’s no wonder GRWG recently earned a thumbs up from Oppenheimer.
Covering the stock for the firm, 5-star analyst Brian Nagel likes what he’s seeing, to put it lightly. “GRWG represents a leading, yet still early stage, up-and-coming retail chain within the rapidly expanding and dynamic market for hydroponic and organic gardening supplies,” he noted.
Speaking to its footprint, the company operates 27 stores in ten states. That said, over the next few years, Nagel estimates that new store additions, including acquisitions and greenfield expansions, could approach more than 20 units per year, putting its total number of locations at over 90 stores by 2023.
To help it reach its targets, the company is putting advanced infrastructure in place. As part of these efforts, GRWG implemented a new ERP system, and in June, the stores were connected to its website, allowing for BOPUS and other functionality.
Expounding on this, Nagel stated, “Key to our initial positive outlook for GRWG is our view that the GRWG business model is now approaching a point of increased sustained underlying scalability… Our initial analysis suggests that, as GRWG accelerates further acquisition and organic expansion efforts, the company should increasingly capitalize upon scale-related synergies and over time deliver even better profit and cash generation.”
Additionally, after an all-primary, secondary equity offering, GRWG’s cash position lands at over $52 million, with only $314,000 in short- and long-term debt. Based on this, Nagel thinks that the company should be able to fund its near- and longer-term expansion objectives.
With the analyst projecting that through 2023, adjusted EBITDA will reach roughly $55 million on total company revenue of more than $400 million, Nagel doesn’t believe GRWG’s full value has been built into the share price.
To this end, Nagel rates GRWG a Buy along with a $15 price target. This target indicates shares could skyrocket 110% in the next year. (To watch Nagel’s track record, click here)
Turning now to the rest of the Street, other analysts are on the same page. Only Buy ratings, 5, to be exact, have been issued in the last three months, so the consensus rating is a Strong Buy. The $10.20 average price target puts the potential twelve-month gain at 42%. (See GrowGeneration stock analysis on TipRanks)
Relmada Therapeutics (RLMD)
Bringing extensive drug development capabilities to the table, Relmada Therapeutics is working to address the unmet needs in depression, central nervous system (CNS) and ophthalmological disorders. Based on the strength of its lead development candidate, REL-1017, Oppenheimer is getting on board.
Looking more closely at the asset, REL-1017 (dextromethadone) is an oral NMDA-receptor antagonist designed for use in major depressive disorder (MDD). According to firm analyst Jay Olson, what makes the therapy stand out is that “as the d-stereoisomer of methadone, REL-1017 is devoid of opioid activity while preserving affinity for the ketamine-binding site on NMDA receptors, which are hyperactive in MDD neuropathology.” On top of this, it can also generate BDNF expression, and this in turn improves synaptic plasticity. The analyst added, “Based on its novel MOA, REL-1017 should provide rapid and durable antidepressant effects with clean safety/tolerability.”
During the Phase 2a 202 trial in an MDD 2L+ adjunctive setting, the therapy showed statistical significance on all efficacy endpoints, including MADRS improvement, with the results supporting a differentiated profile, in Olson’s opinion.
Going forward, a pivotal Phase 3 program is set to initiate in the fourth quarter of 2020, with the FDA stating that two positive trials with a primary endpoint of 28-day MADRS improvement and 52-week safety data would support an NDA filing in the chronic MDD 2L+ adjunctive setting. Adding to the good news, in 1H21, the company might kick off a Phase 2 trial in a 2L+ monotherapy setting. “We expect REL-1017 to be a schedule IV/V drug and widely prescribed,” Olson noted.
Speaking to the market opportunity, the analyst told clients, “MDD occurs in ~7% of adults and remains a large unmet medical need despite multiple SOC treatments. SSRIs/SNRIs are predominantly prescribed but have slow onset and adverse side effects… REL-1017 would enter the treatment paradigm as an adjunctive to SSRIs/SNRIs in 2L+ patients.” The product could launch in 2023, with “total peak un-risk-adjusted sales for REL-1017 in MDD of $3.7 billion comprised of $3 billion and $700 million in 2L+ adjunctive and monotherapy settings, respectively, in 2035.”
To this end, Olson rates RLMD a Buy along with a $75 price target. Shares could appreciate by 87%, should the analyst’s thesis play out in the coming months. (To watch Olson’s track record, click here)
Looking at the consensus breakdown, the rest of the Street agrees with Olson’s assessment. With 3 Buys and no Holds or Sells, the word on the Street is that RLMD is a Strong Buy. At $72.67, the average price target implies shares could rise 82% in the next year. (See Relmada stock-price forecast on TipRanks)
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