Sage Therapeutics, Inc.

SAGE Details

Sage Therapeutics, Inc. (NASDAQ: SAGE) is a biopharmaceutical company that develops and commercializes medicines to treat central nervous system (CNS) disorders. It derives its revenue from the sale of ZULRESSO (brexanolone), an injection for treating postpartum depression (PPD). The company is presently focused on developing therapies for brain illnesses and disorders, primarily related to depression, neurology, and neuropsychiatry. As of August 17, 2021, the company’s market capitalization stood at USD 2.50 billion.

Progress in Phase 3 Waterfall Study for Zuranolone: On June 15, 2021, SAGE and Biogen Inc. reported that the Phase 3 study for Zuranolone 50 mg showed significant improvement in depressive symptoms in Major Depressive Disorder (MDD) patients compared to placebo at Day 15. Patients improvement by Zuranolone at Day 15 was retained by ~86% even after four weeks of dose administration. The Waterfall study was conducted on adults aged 18 – 64 years with MDD, which was well-tolerated with a safety profile comparable to prior clinical studies and had a 90.3% trial completion rate.

Q2FY21 Results: The company reported YoY growth of 50.87% in total revenues to USD 1.64 million in Q2FY21 (ended June 30, 2021) compared to USD 1.09 million in Q2FY20, attributable to product revenue from ZULRESSO. Net loss for the company reduced to USD 107.25 million in Q2FY21 vs. USD 136.35 million in Q2FY20. 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)

Key Risks: SAGE's prospects are dependent on the success of its two lead projects, Zuranolone (SAGE-217) and Brexanolone, which are in Phase 3 of clinical trials.  It has invested significant resources in their development. If it fails to obtain regulatory approvals or cannot set up an efficient manufacturing and distribution mechanism, its results of operations could be adversely impacted. Further, the company is dependent on third-party suppliers for the production of ZULRESSO and does not have a manufacturing facility of its own. This may hamper its ability to meet product demand and hence, the business as a whole.

Outlook: For FY21, SAGE estimates its cash, cash equivalents, and marketable securities to be more than USD 1.7 billion. Also, it does not expect to receive any milestone payments from its collaborations in FY21.

(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 41.44% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 40.82 to USD 98.39. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 37.99. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 51.12.  Considering the significant decline in the stock price in the past three months, progress in the clinical trial of Zuranolone, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 42.74, up 0.68% as of August 17, 2021.

* 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.

Lincoln Educational Services Corp.

LINC Details

Lincoln Educational Services Corp. (NASDAQ: LINC) offers post-secondary education to high-school graduates and working adults. LINC operates 22 schools in 14 states under four brands: Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Science. Its operating segments are 1) Transportation and Skilled Trades, which delivers academic programs in the disciplines of transportation and skilled trades, and 2) Healthcare and Other Professions (HOPS), which offers academic programs in the areas of hospitality, healthcare, business, and information technology.

Catering to Growing Demand for Automotive Technicians: On July 12, 2021, LINC introduced the Mazda Automotive Student Training (MAST) program at its Columbia campus of Maryland. Automotive technology students now choose to add the Mazda option to their program and develop skills specific to Mazda technologies. This program will open new career avenues for its graduates and cater to the needs of Mazda’s dealers in the region.

Q2FY21 Results: The company reported 28.80% YoY growth in total revenues to USD 80.46 million in Q2FY21 (ended June 30, 2021) from USD 62.47 million in Q2FY20, attributable to the growth of 16.3% in the average student population led by 8.0% growth in student starts. Transportation and Skilled Trades, which represented 70.80% of the total revenue in Q2FY21, improved 32.74% YoY, whereas the HOPS reported 20.17%YoY growth in the topline. Net income for Q2FY21 grew 2.71x YoY to USD 2.12 million compared to USD 0.78 million in Q2FY20. The company was net cash positive as of Q2FY21, with cash and cash equivalents totaling USD 33.01 million and total debt of USD 16.30 million.

Key Financial And Operational Metrics YTD (Source: Q2FY21 Investor Presentation, August 09, 2021)

Key Risks: In FY20, revenue from Title IV programs accounted for 74% - 83% of LINC’s total revenue. The company is mandated to comply with the comprehensive Title IV program regulatory requirements set by the Department of Education (DOE), which prohibits proprietary institutions that derive more than 90% of their total revenue from Title IV Programs for two consecutive fiscal years from participating in Title IV programs for the next two years. This can lead to loss of program funding and could adversely impact the company’s financials.

Outlook: As of Q2FY21, the company expects a YoY growth of 9%-12% in its revenue in FY21, along with a 5%-10% growth in student starts over FY20. LINC expects to clock adjusted EBITDA in the range of USD 34 – 37 million and incur ~USD 7.5 million in capital expenditures in FY21.

Valuation Methodology: EV/EBITDA 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.

LINC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LINC's stock price decreased 19.44% in the past three months and is currently leaning towards the lower band of its 52-week range of USD 4.42 to USD 8.99. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 28.89. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 7.56. Considering the significant growth in top and bottom line, balance sheet strength, positive outlook, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 6.09, down 7.31% as of August 17, 2021, 12:27 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.