On Sep 11, we reaffirmed our long-term Neutral recommendation on Abaxis Inc. (ABAX) following a disappointing start to fiscal 2014. Currently, the stock carries a Zacks Rank #3 (Hold).
Why Still Neutral?
On Jul 25, Abaxis declared first-quarter fiscal 2014 results that widely missed the Zacks Consensus Estimates. EPS of 14 cents in the quarter was up 7.7% year over year but missed the Zacks Consensus Estimate by a significant 9 cents. Although revenue improved 3% to $43.2 million, it trailed the Zacks Consensus Estimate of $49 million.
Gross margin continued to remain under pressure due to business mix. Moreover, operating margin declined in the first quarter. Abaxis also witnessed pressure in the international market with lower sales. Despite encouraging growth in Asia-Pacific and rest of the world, the poor performance in Europe dragged overseas results.
Barring growth in the veterinary market, the overall quarterly performance was weak. Although the distribution relationship with MWI Veterinary Supply Inc. (MWIV) is yielding positive outcomes, the same with Abbott (ABT) in the medical market is yet to pay off.
On the positive side, Abaxis remains a strong player in its core veterinary market that continues to record healthy growth. Given the attractive market dynamics, we expect the current growth trend to continue in the future.
Furthermore, Abaxis operates in a niche market of portable medical and veterinary blood analysis systems and is slated for growth in both the divisions. The company will now launch its Piccolo system in the fast growing Chinese market.
Other Stocks to Consider
While we remain on the sidelines for Abaxis, we believe that Alere Inc. (ALR), carrying a Zacks Rank #1 (Strong Buy) is likely to do well. We are also positive about MWI Vet that carries a Zacks Rank #2 (Buy).
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