This Mid-Cap Healthcare Stock Is Lining Up for Another Successful Trade
Good value is hard to find in an overbought market.
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Today we'd like to revisit a mid-cap radiopharmaceutical concern for the first time in quite a while.
This name has done me a solid a couple of times as a covered call trade -- and the shares look lined up to do so again after falling by approximately a third since their highs in late spring of last year.
Massachusetts-based Lantheus Holdings LNTH currently has a market cap of $4.5 billion. Its core asset is called Pylarify, a radioactive diagnostic agent delivered via IV that is used for positron emission tomography, or PET imaging.
The global market for radiopharmaceutical products is projected to expand at a 10% annual clip and reach more than $13.5 billion by 2032. The company believes the U.S. PET Imaging part of that market, which Pylarify increasingly dominates, will grow from $1.6 billion currently to north of $3 billion by 2028.
Lantheus also owns an ultrasound enhancing agent called Definity, which is doing around $75 million in sales a quarter now, some other small revenue generators, and a couple of promising agents in development.
In the fourth quarter of 2023, the company's overall revenues came in at nearly $355 million. Pylarify contributed $230 million of that number, which was up 40% from the same period a year ago. Definity revenues rose 15% to just over $73 million.
Lantheus also has a solid balance sheet with approximately $150 million in net cash. The company is nicely profitable and is producing solid free cash flow. Sales growth is expected to slow to around 10% in 2024 as Pylarify has already taken a good chunk of the market share in its segment and faces some new competition.
More than a half dozen analyst firms, including Leerink Partners and Mizuho Securities, have reissued "Buy" ratings on the stock since the company delivered solid quarterly results last week. Price targets range from $83 to $105 a share. The stock currently trades just under $65 a share.
LNTH currently trades at approximately half the overall S&P 500 earnings multiple, as it is valued at 10 times this year's projected profits and just over three times forward sales. Both metrics represent good value in an overbought market, in my view. Options against the equity are liquid and provide both acceptable downside protection and potential upside.
Option Strategy
Here is how one can establish a position in LNTH using a covered call strategy. Remember, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the October $60 call strikes, fashion a covered call order with a net debit in the $51.25 to $51.50 a share range (net stock price - option premium).
This strategy provides downside protection of approximately 20% over the option duration with potential upside of over 16% even if the stock trades down 7% from current trading levels.
At the time of publication, Jensen was long LNTH.
