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Why Is Genomic Health (GHDX) Down 0.5% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Genomic Health (GHDX). Shares have lost about 0.5% in that time frame, outperforming 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 Q1

Genomic Health delivered first-quarter 2019 earnings per share (EPS) of 34 cents against the year-ago net loss of 11 cents. The bottom line also surpassed the Zacks Consensus Estimate by 17.2%.

Revenues in Detail

Total revenues in the first quarter rose 17.4% year over year to $108.8 million, beating the Zacks Consensus Estimate by 1.6%. At constant currency (cc), revenues shot up 18%.

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

Geographically, first-quarter product revenues in the United States rose 15.4% to $91 million. The U.S. product revenue rise was fueled by a 12.5% rise in U.S. invasive breast revenues from Oncotype DX Breast Recurrence Score tests and a 46.6% surge in U.S. prostate test revenues from Oncotype DX Genomic Prostate Score (GPS) tests.

International product revenues totaled $17.8 million in the reported quarter, up 29% year over year (up 32.9% at adjusted constant currency).

During the first quarter, the company delivered more than 37,580 Oncotype DX test results, up 15.9% year over year.

Margin Trend

Genomic Health’s gross margin expanded 460 basis points (bps) year over year to 84.4% in the first quarter.

The company also saw a 2.5% escalation in operating expenses to $80.2 million on an 8.6% rise in selling and marketing expenses to $45.3 million and a 0.5% increase in general and administrative expenses to $19.8 million. However, research and development expenses declined 10.4% to $15.1 million.

In the reported quarter, Genomic Health’s operating profit came in at $11.5 million against the year-ago operating loss of $4.4 million. Operating margin expanded a huge 1535 bps to 10.6% in the quarter.

Financial Update

Genomic Health exited first-quarter 2019 with cash and cash equivalents and short-term marketable securities of $206 million, showing a decline from $209.7 million at the end of 2018.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Genomic Health has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 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 downward for the stock, and the magnitude of these revisions has been net zero. Notably, 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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