EBS has been range bound the past 2 weeks or so, but providing some excellent trades the past month... the ceiling appears to be $27 - so we'd look for a break over that level to add, or on a more serious pullback (preferably to the 50 day moving average of $22) Below $21 I'd probably cut back severely since it is quite far away from its 200 day moving average... so that's the playbook. Waiting for one or the other to happen while it marks time.
I put in a limit order at $22 which obviously hit today as the stock fell as low as lower $20s. This takes us from a 1.3% stake to 2.8%. We have a look of booked gains on this name and due to the nature of this fall (due to a news release rather than the natural order of things) I'll look to cut back the position below the low of the day ($20) if we get there. If $22 holds we'll make it a larger position...
EDIT 12:30 PM: EBS seems to bouncing nicely off $22 so I'm adding more just under $23 ; up to a 4.7% stake. Will look to let some go around $26.
Basically it looks like some revenue range adjustment for 2009 and some revenue out from last quarter of 2008 and into 2009; not a big deal in my book. My gut says they were thinking some upside from 2009 with the acquisition they were pursuing and now that it is not in the cards they have to get to a lower guidance. I find it hard to believe it was a 'coincidence' in timing; a warning on earnings the day after walking away from a deal. This is exactly why I was scratching my head yesterday that the market was not reacting to the news. That said, the US government of Unlimited Pockets remains its customer, so unlike most companies in the market it's not a matter of a threat to revenue - it's just a question of what multiple the market will pay for the company and earnings stream.For 2008, the company expects total revenue of $179 million and net income of $18 to $20 million. An additional $12 million of BioThrax® revenue originally planned for the fourth quarter of 2008 is expected to be recognized in 1Q 2009. This additional revenue is attributable to three lots of BioThrax® that were delayed in the completion of final testing. This delay stemmed from an equipment failure that the company addressed and has resolved. These three lots are expected to be delivered in the first quarter of 2009. The company also expects a year-end cash balance of approximately $90 million.
For 2009, the company is forecasting 25% to 35% growth in total revenue, or approximately $225 to $240 million. The company also anticipates 2009 net income in excess of $20 million. Forecasts for both revenue and net income exclude the potential contribution of the pending contract award from the U.S. Department of Health and Human Services (HHS) related to the development and procurement of a recombinant anthrax vaccine (rPA) and the potential impact of a strategic transaction.
2009 revenue growth is expected to be driven by:
- the completion of deliveries of BioThrax® under the current 3-year contract with HHS to deliver 18.75 million doses through September 2009 at an aggregate contract value of up to $448 million;
- a price premium for BioThrax® upon FDA approval of the company’s pending application for 4-year dating;
- the continuation of deliveries of BioThrax® under a follow-on, 2-year contract with HHS to deliver 14.5 million doses through September 2011 at an aggregate contract value of up to $404 million;
- the performance of work in 2009 under existing development contracts with the U.S. government; these multi-year contracts, with an aggregate value of up to $71 million, support the development of our anthrax immune globulin, advanced anthrax vaccine, anthrax monoclonal antibody and recombinant botulinum vaccine; and
- additional sales of BioThrax® to allied foreign governments.
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In a general sense, I am looking for this range of S&P 850 to 920 and with the 60%+ in cash look to deploy as names falter downward - realizing the first purchases will be money losers initially; but averaging down in the best charts that either we already own or want to own. This is a different strategy when what we've been doing since early December when we were making trades looking to immediately gain - now we'll allow that some purchases will not work right away because this market "should" start facing reality more. Cash will remain high even at our most (ahem) "bullish" and we'll remain hedged even as we deploy some money to the long side. If/when the S&P falls below S&P 850 I'll be more harsh on cutting back positions - again, my belief is the market is in denial on the duration and severity of what awaits us in 2009. You can make money as cheap as you want, but threatened people do not make purchases or add on debt - simple as that. Today another half million (PLUS!) won't be buying homes at 4% interest or new cars or going to malls to buy clothing or whatever the dream of the pundits are for 2nd half 2009. It will get worse from here - much. But when the sentiment switches is anyone's guess - but at some point I believe that S&P 850 level will not hold. And the "it's all priced in" crowd will scurry away until they can repeat the SAME words a few months from now. But we'll play the pattern until the pattern ends.
Long Emergent BioSolutions in fund and personal account
