Bull Of The Day: Penumbra

Penumbra (PEN) is the $10 billion innovator of neurovascular treatments for stroke using catheter aspiration technologies.

After a solid beat-and-raise Q2 reported in early August, upward estimate revisions by six Wall Street analysts moved PEN to a Zacks #1 Rank. And Wells Fargo raised their PT from $320 to $337.

PEN is on its way to a 980% EPS growth surge this year, topped off by a 25% jump in the topline to cross $1 billion.

 

Shares Tank After Earnings

But the stock suffered a perplexing drop of over 15% and Truist analysts, who lowered their PT from $370 to $345, identified the culprit right away on the evening of the August 1 report...

"PEN shares are likely to see pressure largely due to a 12-month Thunderbolt approval/launch delay (now expected late '24/'25)."

The Truist team also noted the "4Q-weighted 2H guide" as a possible selling catalyst. But overall, they think PEN is a name towards which investors will continue to gravitate to on pullbacks, especially with estimates increasing.

They believe the profit outlook is at an inflection point, and a "multi-year new product cycle story is still very much intact."

 

The PEN is Mightier Than the Scalpel

For years I've profiled Penumbra for its remarkable technology that was launched in 2007. The company takes its name from the dark shadow that is created in brain tissue when a person has a stroke.

Their mission is to provide physicians with efficient emergency tools to remove the blood clot and save as much neurological function as possible.

The Penumbra story was of particular interest to me since my father was a commercial airline pilot who had a mild heart attack in 1980. He was lucky to be selected for the newish angioplasty procedure to widen a partially blocked artery.

Catheter technologies for cardiovascular issues were still experimental in the late 1970s.

But we were thankful he didn't need to have open heart surgery, which would have been certainly scary and definitely ended his flying career.

Not only was the angioplasty successful, it made him the first pilot to have the procedure and return to full aviation capabilities. He went on to perform another 20 years of duty as a United (UAL) captain of 747s and 767s flying to Japan and Germany.

You can learn more about my hero, who flew to that great hangar in the sky in 2021, here...

It's a fun and funny (jokes on me) piece as I describe his early exploits with flying and how his belief in me -- after he took me in as a potential foster kid -- was the #1 factor in finally getting my pilot's license at 17.

If you want to learn more about my efforts to bring aviation to those less fortunate, check out my essay series...

 

Jumping Back Into the PEN

When the stock was still hanging out near $250 in mid-August, I saw a great opportunity to add shares in my Healthcare Innovators portfolio. And we were quickly rewarded with a ride back to $300.

Here's what I told my group of investors on September 8...

Shares of Penumbra are on track for a +10% gain this week after adding 5% last week.

Things got started this week on Wednesday after Penumbra CEO Adam Elsesser gave a bullish presentation about the company’s growth trajectory at the Wells Fargo Healthcare Conference.

According to a RBC Capital note by Shagun Singh released Wednesday, Penumbra management was "very bullish" about a "huge second wave of launch" and demand for their cardiovascular devices Lightning Flash and Lightning Bolt 7.

RBC added that Penumbra now sees delivering revenue growth of +20% year-over-year in 2024, "suggesting +$30M or 3% growth vs. consensus currently at 17% at the midpoint of their 2023 guidance."

RBC reiterated their outperform rating on the stock with a price target of $349.

Meanwhile, Morgan Stanley initiated coverage of the company on Wednesday with an equal weight rating and a significantly lower price target of $265.

Morgan Stanley said that while the company looked ready to expand its presence in both the vascular and neurovascular markets with some "heavily anticipated" product launches, it regarded near-term Street estimates as "sensible" and valuation "justifiable at present."

It seems clear right now the majority of investors are siding with the optimistic outlook of RBC. And so our favorable timing to scoop shares under $255 is being rewarded quickly.

(end of Healthcare Innovators commentary from 9/8)

Unfortunately, PEN has slid back down the stock market water slide this week after closing the gap above $300.

So the 20% open gain we had in Healthcare Innovators inside of 3 weeks has now evaporated.

And I think it's a big buying opportunity. While larger competitors like Medtronic (MDT) may move into the neurovascular turf, I still believe that Penumbra is the primary innovator to follow and at a $10 billion market cap, it could easily be on the M&A short lists of several MedTech and BioPharma giants.


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