YB new stock pitches (Thu, Mar 20)

SpringWorks Therapeutics (SWTX), currently trading at $50, is in advanced acquisition talks with potential buyers, including Merck KGaA, with a target price of $70-85 per share, representing a 50% upside. The company has two FDA-approved oncology drugs: Ogsiveo for desmoid tumors ($250M sales, 25% QoQ growth) and Gomekli for NF1-PN (estimated $1B potential). Combined peak sales are estimated at $1.5-2B. Evidence of an imminent deal includes canceled earnings calls and conference appearances. The stock's downside is protected by its standalone value, with two commercial products. Risks include the possibility of acquisition talks collapsing, mitigated by limited downside, multiple potential acquirers, and management incentives. Trading strategies include direct long positions, option spreads, and selling puts. The company's valuation is supported by industry-standard multiples of 3-5X peak sales for oncology assets.

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Quipt Home Medical Corp. (QIPT), a home healthcare equipment provider, trades at 3.2x EBITDA with 78% recurring revenue. The company faces headwinds including a False Claims Act investigation, GLP-1 weight loss drug concerns, Medicare reimbursement changes, and a cyber-attack impact. However, recent trends show improving KPIs, with patients served reaching a new high last quarter. Activist investors Forager Capital and Kanen Wealth Management are pushing for a strategic review, potentially leading to a sale. The fragmented industry has seen increased private equity interest, making QIPT an attractive acquisition target. Based on recent transactions, a potential acquisition at 6.3x EBITDA could yield a $6.58 price target (177% upside). Risks include the investigation outcome, potential Medicare changes under a new administration, and GLP-1 impact on the industry. Without a transaction, resuming 2% QoQ organic growth could align QIPT with peers at 5x EBITDA, suggesting a $4.70 target price (98% upside). - link

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Hesai Group, a Chinese LiDAR manufacturer, faces multiple challenges that call into question its financial reporting and business practices. Evidence suggests the company's LiDAR is used on Chinese military vehicles, contradicting its claims and potentially leading to its designation as a Chinese military company, which could result in the loss of U.S. customers and possible delisting. Hesai's reported revenue from its largest customer, Cruise, appears inconsistent with Cruise's purchasing volumes, implying potential revenue inflation of 48-67%. The company's inexplicable gross margin expansion, from 32% to 41%, despite shifting to lower-margin ADAS products, raises suspicions about its reported profitability. Hesai also failed to disclose the loss of Cruise as its largest customer and subsequent employee layoffs. A recent announcement of an 'exclusive' deal with Mercedes appears questionable, given Mercedes' recent statements about removing LiDAR from its vehicles in China. Persistent material weaknesses in financial reporting and the company's withdrawal of its China IPO plans shortly after new regulations on financial falsification further compound concerns about Hesai's financial reliability.

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