Sage Therapeutics, Inc.

SAGE Details

Sage Therapeutics, Inc. (NASDAQ: SAGE) operates as a biopharmaceutical company that develops and markets therapies for treating central nervous system (CNS) disorders. It earns its revenue from the sale of ZULRESSO (brexanolone), an injection for treating postpartum depression (PPD). In addition, it is currently developing a treatment for brain illnesses and disorders, particularly depression, neurology, and neuropsychiatry.

Latest News:

• NDA for Zuralone: On October 19, 2021, SAGE and Biogen Inc. announced that they intend to submit a New Drug Application (NDA) for Zuranolone to the US Food and Drug Administration (FDA) in H2FY22. The filing drug will be used for treating major depressive disorder (MDD). An additional filing for the use of Zuranolone for treating postpartum depression (PPD) is expected in H1FY23.

• Key Recruitments: On September 21, 2021, SAGE announced the appointment of Chris Benecchi as its Chief Commercial Officer. Mr Benecchi will be in charge of its global commercial initiatives, including all its projects, new product planning, strategy, and competitive intelligence in this new role.
• Progress in SAGE-718: On September 15, 2021, SAGE announced that the FDA gave SAGE-718 "Fast Track" designation for development as a potential Huntington's disease treatment (HD). Fast Track is a method for accelerating the development and review of innovative medicines for severe diseases with unmet medical needs, such as HD.

Q2FY21 Results:

• Expansion of Topline: The company reported a YoY surge of 50.87% in total revenues to USD 1.64 million in Q2FY21 (ended June 30, 2021) from USD 1.09 million in Q2FY20, on account of product revenue from ZULRESSO.
• Decline in Net Loss: Its net loss reduced to USD 107.25 million in Q2FY21 vs. USD 136.35 million in Q2FY20.
• Robust Balance Sheet: As of June 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 1.91 billion and no outstanding debt.

SAGE Product Pipeline (Source: Q2FY21 Earnings Presentation, August 03, 2021)

Risks:

• Product Concentration Risk: The success of SAGE's two lead projects, Zuranolone (SAGE-217) and Brexanolone, both in Phase 3 clinical studies, will influence the company's future. It has invested significant resources into their development. As a result, any failure to get the regulatory clearances or set up an efficient manufacturing and distribution mechanism could harm its financials.
• Third-Party Dependence: SAGE relies on third-party suppliers for the production of ZULRESSO, as it doesn't have a manufacturing facility of its own. This could endanger its capacity to meet product demand and harm its business as a whole.

Outlook:

• Cash and Cash Equivalents Guidance: SAGE estimates its cash, cash equivalents, and marketable securities to be over USD 1.7 billion at FY21 end.

FY21 Milestone Forecast (Source: Q2FY21 Earnings Presentation, August 03, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SAGE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SAGE's stock price decreased 48.67% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 39.77 to USD 98.39. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.96. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 49.99.  

Considering the significant decline in the stock price, gaining Fast Track designation for SAGE-718, NDA for Zuralone, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 40.68, up 1.02% as of October 28, 2021, 1.08 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Strattec Security Corp.

STRT Details

Strattec Security Corp. (NASDAQ: STRT) designs, manufactures and distributes automotive access control products, including electronic and mechanical keys and locksets, steering column and instrument panel ignition lock housings, latches, power sliding door systems, and other related automotive products majorly to automotive customers in North America. Attributable to its partnership with WITTE Automotive (Velbert, Germany) and ADAC Automotive (Grand Rapids, Michigan), STRT distributes each partner's products under the brand name of VAST Automotive Group (VAST) globally.

Q1FY22 Results:

• Steep Decline in Revenue: The company reported a YoY decline of 20.51% in net revenues to USD 100.34 million during Q1FY22 (ended September 26, 2021) from USD 126.24 million during Q1FY21 (ended September 27, 2020), attributable to a global shortage for semiconductor chips, leading to shutting down of customer's assembly plants in North America.
• Contraction of Net Income: STRT's reported a steep decline in net income to USD 0.10 million during Q1FY22 vs. USD 8.01 million reported in Q1FY21.

• Cash and Debt Position: As of September 26, 2021, it had cash and cash equivalents of USD 7.02 million, with total debt amounting to USD 17.0 million.

Risks:

• Customer Concentration Risk: In FY21, STRT's three largest customers (General Motors Company, Fiat Chrysler Automobiles, Ford Motor Company) represented 62% and 61% of its net sales and receivables, respectively. Hence, the loss of any of such key customers could harm its financials.
• Competition Risk: STRT operates in a highly competitive automotive component supply industry, where it faces direct competition from larger companies with more significant financial and technological resources. As a result, any advanced innovation or improved product development by its competitors could harm its market share and financial performance.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

STRT Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: STRT's stock price decreased 28.54% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 26.83 to USD 67.28. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 31.31. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 41.39.

Considering the correction in the stock price, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 33.24, down 0.68% as of October 28, 2021, 10:27 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.