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Here's Why You Should Retain ABIOMED Stock in Your Portfolio

Zacks Equity Research

ABIOMED, Inc. ABMD gains from its unique product portfolio and robust demand for its Impella line of products. Additionally, ABIOMED has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in two of the trailing three quarters. Notably, this trend of consecutive beats underlines the company’s operating efficiency.

However, the company faces cutthroat competition in the MedTech space. Contracting margins add to the woes. A glance at this Zacks Rank #3 (Hold) stock’s price performance shows that it has lost 2.3% against the industry’s 17.2% growth in a year’s time.

So, let us take a quick look at the primary factors plaguing ABIOMED and discuss the prospects that ensure near-term recovery.

Concerns

In the third quarter of fiscal 2019, gross margin was 83% of net revenues, down 80 basis points (bps) year over year. Per management, margins contracted due to sales mix and manufacturing investments.

Per management, the benefit from higher volume was offset by manufacturing investments such as direct labor hires to support future growth.

This apart, competition among companies of treatments for heart-related diseases is intense and subject to rapid technological change as well as evolving industry requirements and standards. ABIOMED’s products compete with a temporary cardiac assist device from Thoratec.

The company also faces stiff competition from organizations developing permanent heart assist products like Thoratec, Teleflex, HeartWare, Jarvik Heart and MicroMed Technology.

Factors That Bode Well

Impella, ABIOMED’s flagship product line, has continued to be a key growth driver. Impella is the world's smallest heart pump. It is a support system of percutaneous, catheter-based devices offering hemodynamic support to the heart.

In the third quarter of fiscal 2019, ABIOMED’s flagship Impella heart pump revenues summed $193.3 million, globally. Per management, this shows a year-over-year upside of 31%. U.S. Impella heart pump revenues totaled $165.7 million in the reported quarter, reflecting a 27% increase from the prior-year quarter. Outside the United States, Impella heart pump revenues came in at $27.5 million, up 59%.

The Impella support has already been integrated in hospitals throughout Germany and Japan.  The company treated patients using Impella in Hong Kong, Australia, Singapore, Israel and, most recently, in India. However, the United States, Germany and Japan remain the company’s priority.

In the third quarter of fiscal 2019, U.S. revenues rose 27% year over year to $173 million driven by a 24% increase in overall patient utilization, per management. Outside the United States, revenues totaled $28 million, up 59% from the year-ago quarter owing to strength in Germany and Japan.

Japan had a strong quarter, contributing $5.4 million to revenues in the third quarter.

Which Way Are Estimates Trending?

The Zacks Consensus Estimate for fiscal 2019 earnings is pegged at $5.05, reflecting 106.1% growth year over year. The same for revenues stands at $778.3 million, up 31.1% year over year.

ABIOMED, Inc. Price and Consensus

 

ABIOMED, Inc. Price and Consensus | ABIOMED, Inc. Quote

Bottom Line

Despite cutthroat competition in the niche markets, ABIOMED seems to be well-positioned for growth on strong guidance and solid product portfolio. The company's long-term earnings growth rate of 27.7% also supports this view.

Key Picks

A few better-ranked stocks from the MedTech space are DexCom, Inc. DXCM, Varian Medical Systems, Inc. VAR and Masimo Corporation MASI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DexCom delivered a positive earnings surprise in each of the trailing four quarters, the average being 132.3%.

Varian Medical has a long-term earnings growth rate of 8%.

Masimo Corporation has a long-term earnings growth rate of 15.6%.

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