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SurModics (SRDX) Up 1.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for SurModics (SRDX). Shares have added about 1.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SurModics due for a pullback? 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 catalysts.

Surmodics Q2 Earnings and Revenues Beat Estimates

Surmodics, Inc. reported adjusted earnings per share of 4 cents in second-quarter fiscal 2020, which compared favorably with the Zacks Consensus Estimate of a loss of 5 cents. However, the bottom line plunged 42.9% from the year-ago quarter.

On a GAAP (reported) basis, earnings per share came in at 11 cents compared with 9 cents in the prior-year quarter.

Revenues in the quarter improved 0.4% year over year to $22.8 million. Also, the figure beat the Zacks Consensus Estimate of $22.5 million by 1.6%.

Fiscal Q2 Highlights

In the quarter under review, Product sales were $11.8 million, up 19.2% from the prior-year quarter. Royalty and license fee revenues totaled $8.2 million, down 17.2% from the prior-year quarter. Research, development and other revenues were $2.8 million, down 0.7% year over year.

Segmental Analysis

Medical Device

In the reported quarter, sales at the segment rose to $16.3 million, down 5.8% from the year-ago quarter. The Medical Device business unit reported an operating loss of $1.5 million in the fiscal second quarter compared with an operating loss of $0.2 million in the year-ago quarter.

In Vitro Diagnostics

In the quarter under review, sales improved 21.3% to $6.5 million. Operating income at the segment was $3.5 million in the reported quarter, compared to income of $2.9 million in the prior-year quarter.

Operational Details

The company’s research and development costs totaled $11.9 million, down 11.9% year over year.

Selling, general and administrative expenditures were $6.7 million, up 38.1% from the prior-year quarter.

Total operating costs and expenses in the quarter were $22.9 million, up 5.4% year over year.

The company reported adjusted operating income of $385 million, which fell 66.6% from the year-ago quarter. Adjusted operating margin came at 1.7%, showing a contraction of 339 bps.

Fiscal 2020 Guidance

Due to uncertainty surrounding the duration and extent of the COVID-19 pandemic, Surmodics has suspended its previously-issued financial guidance for fiscal year 2020.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 50% due to these changes.

VGM Scores

At this time, SurModics has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise SurModics has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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