On Sep 3, 2014, Zacks Investment Research downgraded Alere Inc. (ALR) by a notch to a Zacks Rank #4 (Sell).
Why the Downgrade?
On Aug 4, Alere reported disappointing 2014 second-quarter results with both the top and the bottom line missing our expectations. Following the earnings release, shares of the company dropped nearly 9.3% till the last closing date.
The lackluster results have set a negative earnings estimate revision trend for this MA-based provider of rapid diagnostics and health information solutions. For 2014, Alere witnessed two downward estimate revisions over the last one month, with no upward revision, causing the Zacks Consensus Estimate to drop 12.2% to $2.08 per share.
For 2015, one estimate moved south during the last 30 days, leading to 2.6% decline in the Zacks Consensus Estimate to $2.59 per share.
Adjusted earnings per share of 44 cents in the second quarter of 2014 came in 29.0% below the year-ago earnings of 62 cents and missed the Zacks Consensus Estimate by a wide margin of 24.1%. Meanwhile, net revenues declined 3.4% year-over-year to $737.9 million and also missed the Zacks Consensus Estimate by 0.8%.
Revenues continue to be impacted by weak U.S. influenza sales and wider-than-expected decline in U.S. healthcare utilization, which primarily affects Alere’s U.S. infectious disease revenues. Despite growth across international markets, revenues during the quarter lacked luster.
Margins and segmental results were also disappointing. Gross margins remain pressurized owing to weak results across higher margin geographies, lower U.S. influenza sales and costs associated with two product recalls made during the second quarter.
While net revenues from the Professional Diagnostics segment were supported by the company’s recent professional diagnostics acquisitions, it was offset by the disposition of Spinreact in 2013. Moreover, a weak contracting season in the second half of 2013 hurt net revenues at the Health Information Solutions segment. Nevertheless, the company’s Consumer Diagnostics segment is reaping continued success from its joint venture with The Procter & Gamble Company (PG).
The long-term expected earnings growth for this stock is pegged lower at 11.0% compared with industry growth of 15.2%.
Other Stocks to Consider
Some better-ranked stocks in the medical products industry include ICU Medical, Inc. (ICUI), and Symmetry Medical, Inc. (SMA). ICU Medical sports a Zacks Rank #1 (Strong Buy), while Symmetry Medical carries a Zacks Rank #2 (Buy).