YB new stock pitches (Tue, Dec 16)

Advance Auto Parts (AAP) represents a compelling turnaround investment opportunity led by CEO Shane O'Kelly, who has taken bold actions including selling Worldpac for $1.5 billion, closing 500 unprofitable stores, and rationalizing the distribution center network from 28 to 16 locations by end of 2025. Management targets 7% operating margins by 2027 versus the street consensus of 4.5%, supported by a 'market hub' strategy that has reduced delivery times from 50 to under 40 minutes and positioned the company with the highest or second highest market share in 75% of its store footprint. The company is expected to benefit from tariff-induced inflation in the inelastic auto parts industry, with each 1% pricing benefit potentially adding $90 million in operating income or 92 basis points to margins. AAP trades at 6.1x EV/EBITDA versus peers at 16.3x, and once investment-grade status is achieved, there is $2.2 billion in capital return potential (65% of current market cap) as the company could normalize its balance sheet structure similar to AutoZone's accounts-payable-to-inventory ratio of 114.2% and 2.0x net leverage. The price target of $149.04 represents 166% upside potential, with risks including execution challenges on the turnaround plan and uncertainty around trade policy impacts.

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Teva Pharmaceutical Industries Limited (TEVA) has submitted its NDA for Olanzapine extended-release injectable suspension in December 2025, targeting a $1.5-2 billion uncontested schizophrenia market with no Black Box warning or post-injection monitoring requirements, validating CEO Richard Francis's 'Pivot to Growth' strategy that is transforming the company from a debt-laden generics manufacturer to an innovative biopharma company. The company's gross margins are expanding from 48% in Q1 2023 to a 54% target by end of 2025 and 57-58% by 2027, eventually reaching the 60s-80s range, as Teva replaces lower-margin generic revenues with high-margin innovative products including Austedo (tracking toward $3+ billion peak sales for tardive dyskinesia with patent protection to 2040-2041), Uzedy (delivering 119% year-over-year growth), Duvakitug partnered with Sanofi ($5 billion potential for ulcerative colitis/Crohn's disease with 50% economics retained by Teva, launching 2029), Emrusolmin ($4 billion potential for multiple system atrophy, launching 2028), and DARI for asthma (10-million-patient market, launching 2027). Wall Street is re-rating the stock with major price target increases: Barclays $35 (Overweight), Bank of America $32 (Buy), UBS $29 (Strong Buy), Scotiabank $35 (Sector Outperform), and Goldman Sachs $31 (Buy), as the company expects to grow EBITDA and operating income in 2026 despite a $1 billion revenue headwind from generic Revlimid exclusivity loss and targets investment-grade status by late 2026.

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Xeris Biopharma (NASDAQ: XERS) has completed a financial turnaround from cash burn to profitability, achieving $287 million revenue (+42% YoY), >80% gross margins, and $25-30 million free cash flow in 2025. The company operates three marketed products: Recorlev (cortisol-synthesis inhibitor for Cushing's syndrome) doubled sales to drive nearly half of total revenue, Gvoke (ready-to-use liquid glucagon) provides stable 10% growth, and Keveyis (for primary periodic paralysis) generates profitable orphan revenue of ~$50 million. The key catalyst is XP-8121, a once-weekly levothyroxine injection for hypothyroidism targeting 1-3% of poorly controlled patients via the 505(b)(2) pathway, with Phase 3 initiation planned for 2026 and potential approval by 2028, representing a $150-200 million revenue opportunity that could double company scale. Financially, the company projects becoming net-cash by 2027 with leverage falling from 1.9x to zero, while free cash flow scales from $25 million to $150 million+ by 2030. Currently trading at 11x EBITDA versus specialty pharma peers at 12-14x, base case valuation of $17-18/share (+120% upside) assumes 12x multiple on projected $210 million 2030 EBITDA, while bull case of $25-28/share assumes stronger XP-8121 adoption and platform monetization. Key risks include XP-8121 trial timing delays (12-18 months), commercial execution challenges, market access for premium injectable pricing versus generic oral therapy, and valuation sentiment remaining anchored to biotech rather than specialty pharma multiples despite achieving structural profitability.

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