Bull of the Day: Collegium Pharmaceutical (COLL)

Building the scenario for the Zacks Bull of the Day, broader valuation concerns have stemmed from the tech sector, with the market also on edge about delayed inflation data due to what was the longest government shutdown in U.S. history.   

• Some of the market’s ability and willingness to sift out and reward economic processes has been temporarily delayed with fears of an AI bubble adding to the willingness connotation.

• So, how about buying a medical stock that is already seeing strong momentum but is still cheaply valued?

• This could provide a defensive hedge against any further economic uncertainty, while and when inflation data gets sorted out, especially if it's unfavorable, along with addressing the “correction” the market appears to be asking for by pivoting to a value stock.

Collegium Pharmaceutical COLL fits this strategic selection as an attractively valued Zacks Rank #1 (Strong Buy) stock with the essential operations that investors often seek during market volatility, and the potentially lucrative profitability that successful biopharmaceutical companies can earn, i.e., momentum.

About Collegium and its Recent Stock Performance

Developing prescription and over-the-counter pharmaceuticals, Collegium is focused on pain management drugs that have an abuse-deterrent formulation, with its treatments also spanning to respiratory and skin-related disorders.  

Attributing to its improved margins and profitability, Collegium benefits from high-value branded drugs that are protected by patents or exclusivity periods. These include pain drug brands such as Belbuca and Nucynta, along with Xtampza ER (extended-release oxycodone), which has an exclusivity period through 2029.

As illustrated by the green arrows in the price, consensus, and surprise chart below, Collegium stock has ascended to new multi-year highs upon exceeding earnings expectations in each of its last four quarterly reports. COLL is currently trading near multi-year highs of around $45 a share and is up nearly +60% year to date.

Collegium’s Impressive Net Income Margins

Magnifying Collegium’s earnings potential has been its impressive net income margins. As shown below, Collegium has maintained a net margin of around 8.56% in the last five years (Median), with an eye-catching high of 32.73%.

In comparison, Collegium’s Zacks Medical-Drugs Industry’s median net income average is at 4.53% during this period, and is only at 1.1% at the moment. To that point, most biopharmaceutical companies generate high-product-level profitability (gross margins) but spend heavily on operating costs, especially as it relates to R&D.

Why COLL Still Looks Cheap  

Despite a sharp YTD rally, Collegium stock still trades at just 6X forward earnings, offering a sharp discount to the benchmark S&P 500 and its Zacks industry average of 18X.

Even better, EPS revisions are nicely up since Collegium exceeded Q3 expectations earlier in the month and raised its full-year revenue guidance.  

In the last 30 days, FY25 EPS revisions have gone from $7.08 to $7.55. Furthermore, this would reflect 17% growth from EPS of $6.45 last year. And although FY27 EPS is projected to dip to $7.40, estimates are up from $6.88 per share a month ago.

Bottom Line

Collegium is taking advantage of what has been respectable and steady sales growth, which correlates with a constant demand for health products and services. Recent market jitters suggest the smart money could start to favor such medical stocks as a defensive hedge amid valuation concerns and data setbacks that have shifted the Fed’s easing cycle into a holding pattern.

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This article originally published on Zacks Investment Research (zacks.com).

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