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Why Is Genomic Health (GHDX) Down 4.8% Since Last Earnings Report?

Zacks Equity Research
Keysight (KEYS) closed at $88.22 in the latest trading session, marking a -1.34% move from the prior day.

It has been about a month since the last earnings report for Genomic Health (GHDX). Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

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

Genomic Health Rides on Solid U.S. Invasive Breast Cancer Growth in Q4

Genomic Healthdelivered fourth-quarter 2018 adjusted earnings per share (EPS) of 32 cents, higher than the year-ago adjusted EPS of 8 cents. The bottom line also surpassed the Zacks Consensus Estimate by 6.7%.

Reported EPS came in at 23 cents per share, comparing favorably with the year-earlier figure of 5 cents.

For the full year, adjusted earnings were $1.06 versus the prior-year loss of 5 cents per share. Meanwhile, the same came in line with the Zacks Consensus Estimate.

Revenues in Detail

Total revenues in the fourth quarter rose 19.6% year over year to $104.6 million, beating the Zacks Consensus Estimate by 2.8%. The top line also improved 22% on a year-over-year basis compared with pre-ASC 606 adjusted revenues of $85.7 million for the fourth quarter of 2017.

For 2018, revenues were $394.1 million as compared to pre-606 adjusted revenues of $334.0 million a year ago, reflecting an increase of 18%.

Growth in the United States and the international markets drove the top line. A solid U.S. invasive breast cancer uptick was also recorded in the quarter under review.

Geographically, fourth-quarter product revenues in the United States rose 23% to $88.6 million from the year-ago pre-606 adjusted revenues. The U.S. product revenue rise was fueled by a 22% rise in U.S. invasive breast revenues from Oncotype DX Breast Recurrence Score tests and a 48% surge in U.S. prostate test revenues from Oncotype DX Genomic Prostate Score (GPS) tests.

International product revenues totaled $16 million in the reported quarter, up 19% year over year (up 21% at adjusted constant currency) from the year-ago pre-606 adjusted tally.

During the fourth quarter, the company delivered more than 35,530 Oncotype DX test results, up 11% year over year.

Margin Trend

Genomic Health’s gross margin expanded 79 basis points (bps) year over year to 84.9% in the fourth quarter.

The company also saw an 11.1% escalation in operating expenses to $79.5 million on a 16.7% rise in selling and marketing expenses to $42.6 million and a 0.9% increase in general and administrative expenses to $20.2 million. However, research and development expenses declined 11.4% to $16.4 million.

In the reported quarter, Genomic Health’s operating income came in at $9.4 million compared with the year-ago operating income of $2.2 million. Operating margin expanded a huge 655 bps to 9% in the period.

Financial Update

Genomic Health exited 2018 with cash and cash equivalents and short-term marketable securities of $209.7 million, highlighting an improvement from $129.6 million at the end of 2017.

2019 Guidance

Genomic Health has provided its 2019 guidance. The company expects full-year revenues in the range of $436-$448 million, reflecting growth of 11-14% from the year-ago period. The Zacks Consensus Estimate for the metric is pegged at $441.6 million, which is within the guided range.

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 13.49% due to these changes.

VGM Scores

Currently, Genomic Health has a strong Growth Score of A, a grade with the same score on the momentum front. 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

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Genomic Health has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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