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Merit Medical (MMSI) Down 37.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Merit Medical (MMSI). Shares have lost about 37.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Merit Medical due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Merit Medical Q2 Earnings & Revenues Miss Estimates

Merit Medical reported second-quarter 2019 adjusted earnings per share (EPS) of 42 cents, lagging the Zacks Consensus Estimate of 50 cents by 16%. The bottom line also deteriorated 2.3% from the year-ago quarter.

This Utah-based provider of peripheral and cardiac intervention products reported worldwide revenues of $255.5 million, up 13.7% from the year-ago quarter. On a comparable constant-currency basis, the metric improved 9.6% year over year. However, the top line missed the Zacks Consensus Estimate of $258.9 million by 1.3%.

Segmental Analysis

Cardiovascular

The Cardiovascular unit reported second-quarter revenues of $246.7 million, up 14% year over year. The upside can be attributed to year-over-year increase of 11.9% in the segment’s Stand-alone devices to $103.5 million. Further, revenues from Catheters improved 15.2% to $45.3 million. The same for embolization devices rose 10.1% to $14 million.

Moreover, revenues at the CRM/EP unit increased 3% to $13.9 million. Further, revenues from Custom kits and procedure trays unit, under the Cardiovascular segment, rose 1% to $34.3 million. Inflation devices revenues remained flat on a year-over-year basis at $24.3 million.

Endoscopy Devices

Revenues from the Endoscopy devices totaled $8.9 million, up 5.3% year over year.

Margins

In the quarter under review, gross profit totaled $111.9 million, up 11.9% on a year-over-year basis. Gross margin came in at 43.8% of net revenues, down 70 bps year over year. Adjusted gross margins contracted 20 bps on a year-over-year basis to 48.7% of net revenues.

Merit Medical registered selling, general and administrative expenses totaled $79.9 million, up 15.7% year over year.

Meanwhile, research and development expenses amounted to $16.3 million, up 6.6% year over year.

Operating income in the quarter totaled $12.2 million, down 19.3% from the year-ago quarter. Operating margin was 4.8% of net revenues, contracting 190 bps on a year-over-year basis.

Financial Update

Cash and cash equivalents came in at $156.4 million, up 14% from the 2018-end level.

Total assets came in at $1.73 billion, up 7% from the year-end 2018.

Guidance Revised

For 2019, the company projects revenues in the range of $1-$1.03 billion (down from the previously guided range of $1.01-$1.03 billion).

Adjusted earnings per share is expected to range between $1.74 and $1.97 (down from the previously guided range of $1.97-$2.08).

Adjusted gross margin is estimated to range between 49.2% and 49.9% compared with prior guidance range of 50.6-51.3%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -11.15% due to these changes.

VGM Scores

At this time, Merit Medical has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Merit Medical has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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