'Attractive Acquisition Target' Could Be Big Earnings Play

We have quiet but positive action on Monday morning, with the Nasdaq 100 QQQ and Magnificent Seven names bouncing and outperforming. Breadth is OK at around 5,100 gainers to 3,700 decliners, but many stocks are taking a rest after a strong run. Bitcoin IBIT is receiving some attention, but the big green on the screen is Nvidia (NVDA), semiconductors and the Magnificent Seven names.

It isn't surprising that we see some bounce in big-cap technology in front of earnings, but if they bounce too much, it will set up a potential sell-the-news reaction like we saw on Alphabet GOOGL. I still favor Amazon AMZN in the group and will decide on Thursday how much I want to carry into the report.

I am not a big fan of betting on earnings reports. There is just too much risk in most cases. Not only do you have to guess the numbers, but you also have to guess the expectations. It is quite easy to be on the wrong side of the trade.

Some of the best trades — with lower risk and higher returns — come after the news as the market tries to revalue a stock. If you move quickly, you can often establish a position at an early stage, even if there is a strong immediate move on the earnings news.

One stock I'm considering for an earnings play is Lantheus Holdings, Inc. LNTH. LNTH is a radiopharmaceutical company that develops, manufactures and sells diagnostic and therapeutic products for nuclear medicine and diagnostic imaging. Their products assist healthcare professionals in managing patient outcomes and can aid clinicians in detecting cardiovascular disease. Lantheus also specializes in artificial intelligence (AI) solutions.

LNTH's key product is Pylarify, a radiotracer used to evaluate lesions in men with prostate cancer. The market for this product is anticipated to exceed $3 billion by 2031, and LNTH had revenue of about $260 million from it in the first quarter of 2024.

There have been some concerns that cheaper competition would hurt LNTH, but on July 10, 2024, the Centers for Medicare & Medicaid Services (CMS), which covers nearly 20% of Americans, proposed new guidelines "to improve the accuracy of the overall payment amounts by paying separately for any diagnostic radiopharmaceutical with a per-day cost greater than $630 and removing their costs from the payment amounts for the nuclear medicine tests." 

These changes are set to take place on January 1, 2025. This change makes it more beneficial for physicians to prescribe high-cost radiopharmaceuticals and results in greater adoption of these diagnostic tools.

LNTH will report earnings on Wednesday morning before the market opens. We typically do not want to hold large positions in events like earnings, but in this case, the technical setup combined with a big jump in forward guidance offers an interesting opportunity.

There are eight analysts who follow the stock, and all eight have "buy" recommendations. The lowest target price is $127, and the highest is $165, with an average of $142.63. The stock is currently trading around $112.80.

On average, analysts have boosted 2025 estimates to $7.57 from $6.31, but the company has not yet updated guidance and will do so during its upcoming earnings report. The company has exceeded earnings estimates for nine straight quarters and is likely to do so again.

Analysts have also commented that the stock is "an attractive acquisition target."

There are a number of other interesting developments in the pipeline, and the recent acquisition of an imaging agent for Alzheimer's disease has interesting potential.

Technically, the stock has been consolidating the big gain on the Medicare decision and has slowly been pulling back as it looks for support. It is very risky to hold into earnings, but I will likely hold some and then trade the ensuing volatility. There is a good chance that recent highs will be tested on positive news.

At the time of publication, DePorre was long AMZN and LNTH.