Screener A – December 6, 2024

1 Biogen Inc (BIIB) – remains on list

First appearing on the list in July 2019 (Y190717), Biogen Inc. is a global biopharma company with drug products that treat neurodegenerative diseases and autoimmune disorders. Headquartered in Cambridge, MA, their current focus is on non-Hodgkin’s lymphoma, multiple sclerosis (MS), Alzheimer’s, and rheumatoid arthritis. Revenues have grown over 10% annually on average looking at the past 10 years, while earnings have expanded slightly less at ~8% annually on average. The company does not pay a dividend or repurchase a material amount of stock. More recently however, within the past ~4 year period, sales have consistently decreased as multiple flagship products have aged off patent protection windows and the company’s broader portfolio appears mature or in the phase of decline.

2 Humana (HUM) – remains on list

First appearing on the list in March 2024 (Y240310), Humana is headquartered in Louisville, Kentucky and is one of the largest health benefit providers in the U.S. The company has more than tripled top line and EPS from 2013 to 2023, pays a dividend, and has outstanding shares trending in the right direction (down). As of Dec 2023, Humana had ~17mm members on medical benefit plans and ~5mm members in specialty products. During 2023, 84% of total premiums and services revenue were derived from contracts with the U.S. federal government.

COMMENT: Being dependent on government healthcare reimbursement rates, Humana and the broader healthcare industry has faced material headwinds. Further, COVID related shocks and the cascading economic aftereffects, particularly for healthcare related companies, continues to present uncertainty.

3 Intel (INTC) – remains on list

Intel is one of the world’s largest semiconductor companies that designs and manufactures computer CPUs and related technology. Headquartered in Santa Clara, CA the company has recently been the primary beneficiary of the CHIPS and Science Act and is the central component on Washington’s big re-think on semiconductor manufacturing. Spurred by the perceived over-dependence on Taiwan for cutting edge chip manufacturing, the U.S. Federal Government has rolled out capital programs and incentives to entice chip manufactures to make more chips in the continental U.S. Intel’s net revenue (2023A) outside the United states was 74%. Top line and EPS are trending sharply down. The dividend has been cut and share repurchases are expected to be nonexistent. The company is facing gigantic headwinds as their customers have found substitutes for their core CPU technology / architecture. New market entrants have begun successfully designing their own purpose-designed chips. 

COMMENT: From our perspective, Taiwan’s TSMC has likely fundamentally shifted the operating model, with their fab-as-a-service approach. The capital intensity of the industry has put Intel in a severe bind (debt / EBITDA approaching ~5.5x in June 2024). This appears to be a moment in time for Intel when tectonic realignment is required, but the execution risks are immense. With Pat Gelsinger no longer the ship’s captain, we feel the immediate future for the company is likely to be very challenged.

4 Moderna (MRNA) – remains on list

Intermittently on and off the list throughout 2023 and 2024. Moderna is a biotechnology company that researches and develops drugs. Headquartered in Cambridge, MA the company’s drugs are based on Messenger RNA (mRNA) – a key component studied within the field of molecular biology and used to deliver vaccine solutions for the COVID-19 pandemic. The company’s revenue is purely from their COVID-19 vaccine although they have recently gained FDA approval for a vaccine intended to treat RSV (respiratory syncytial virus). The company went public in December 2018 and has only achieved profitability on a GAAP basis for FY 2021 and 2022. Revenues have collapsed sharply since their 2022 high. Some believe mRNA can be used to create new medicine classes and drugs with the potential to materially improve human lives and open entirely new markets.

COMMENT: Because biotechnology company valuations can vary widely, often spiking and plunging on news related to regulatory approval or perceived drug performance results, we remain very hesitant on the sector broadly.

5 Nike Inc (NKE) – new to list

First appearing on the list in July 2022 (Y220703), Nike is a designer, developer, marketer and global retailer of footwear, apparel and sporting equipment for men, women and kids. Nike also owns the Jordan & Converse brands and sells to retail accounts (wholesale), through Nike-owned stores and website (DTC), and through a mix of independent distributors and licensees. This Dow member has shown impressive top line and bottom line growth over the past 10 years, excluding 2018 and 2020. COVID shook Nike particularly hard and the company has seen their market capitalization fall by ~60% since it’s 2021 high. With a recent strategy realignment to pivot back towards wholesale partners and a new CEO at the helm, Nike is looking to regain shelf space and revive their well-recognized styles. The company pays a consistent dividend and has repurchased a cumulative ~$38bn in common stock, net of SBC, since 2014.

COMMENT: We like Nike’s long term strategy and positioning. Further, they have historically exercised good judgement with capital allocation and have supported consistent distributions to shareholders via dividends and repurchases. Very low leverage, strong cash position, and the swoosh (one of the most recognized brands globally) holds a GAAP book value of zero ($0) dollars. See our full investment memo here.

6 Symbotic Inc (SYM) – remains on list

First on our screen in August 2024 (Y240802) Symbotic Inc (SYM) is a supply chain optimization company focused on developing, building, and deploying automated distribution centers. The company’s customized warehouse product is designed around a palletized system that handles inbound freight (from trucks) and dynamically stores and retrieves the cases / pallets / items with a proprietary mobile robot. Rick Cohen is current Symbotic CEO (and CEO of C&S Wholesale Grocers) which was originally founded in 2006 to develop advanced technologies with the vision ‘to make the supply chain work better for everyone’. Cohen’s foundation holds 69% of shares outstanding. Since taking Symbotic public via SPAC merger in 2022, Cohen has remained the dominant shareholder with other major backers (Walmart Inc. and SoftBank) further increasing their equity contribution. Symbotic has no debt, over $700mm of cash on the balance sheet and a backlog over $23bn at the end of 2023. Walmart first began partnering with Symbotic in 2017 and by 2021 had signed on to introduce the company’s automated systems to an additional 25 regional distribution centers (out of 45 total). The substantial growth in the past few years for the company has not come without bumps along the way. By mid-2024 management disclosed construction delays and increased implementation costs which had squeezed profit margins, and spurred Cohen and his team to warn that fixing the issues might temporarily slow revenue growth. On November 27, Symbotic disclosed it had “identified errors in its revenue recognition related to cost overruns on certain deployments that would not be billable, which also affected system revenue recognized in the second, third, and fourth quarters of fiscal year 2024.” Symbotic management restated Q2-Q4 2024 in just a few business days, well within the 15 calendar day limit allowed by the extension filing. System revenue was reduced by $34mm (-2.0% for FY 2024) inline with prior guidance ($30-$40mm).

COMMENT: Symbotic is a very closely held company (less than 7% of total shares trade). Mr. Cohen’s family business is one of the largest privately held companies in the U.S. and is over 100 years old. Since a few short seller reports were circulated in August of 2024, coinciding with Symbotic’s first entry to this list and when the stock was previously in the $40-$45 per share area, there has been substantial shorting of the stock. We view the company’s future, under Rick Cohen’s leadership and with support from Walmart, SoftBank and C&S Wholesale Grocers, as extremely promising. It is challenging to put a hard value on a company growing so quickly, however we think the story gets materially brighter than the recent accounting hiccups illustrate. Read the full investment thesis here.

7 Roku Inc (ROKU) – lost this week

Roku is off the list this week as the last 52 week performance is no longer a decrease of 30.0% or more. Common shares of ROKU have recovered a bit and are now changing hands in the $84 area.

First on our screen in March 2022 (Y220311) Roku Inc (ROKU) is a home streaming platform providing access to movies, TV, sports, music, and news. As of Q2 2024, the company had ~85mm global users. The California based company, streams content to users from YouTube, Netflix, DirecTV, Amazon Video, Google Play and others. Revenues have consistently increased since going public in 2017, yet profitability has been very challenging. Roku has only posted one year of GAAP profitability, does not pay a dividend and is a net issuer of common stock. The company has no debt however and a strong cash position of over $2.0bn. Roku has recently generated positive FCF for the most recent quarters but is not expected to be profitable on a operating margin for several years ahead.

Interpreting results

Broadly, this is an output of U.S. companies with a current market equity value above $10bn with a (30)% decrease in price per share over the last 52 week period. While the circumstances that push a company to meet these criteria are virtually infinite, typically the company is facing heightened profitability risks, competitive challenges, legal or regulatory risks, or other circumstances directly endangering the probability of future profits.

Every so often, we find a company that is facing temporary challenges and / or circumstantial headwinds. These instances warrant timely investigation and review.

Why this screen can be helpful

We find watching this output over time, allows us to quickly identify potential companies or situations to investigate further, augments the weekly Value Line publication well, and keeps us informed on the less-loved corners of the public markets without having to watch misleading charts or spin our wheels on short-term market movements.  We like to observe new entrants and subsequent exits to the list, over time, and share with our trusted readers.