It has been about a month since the last earnings report for Myriad Genetics (MYGN). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Myriad 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.
Myriad Genetics Rides on Strong Molecular Diagnostics in Q2
Myriad Genetics reported adjusted earnings per share (EPS) of 38 cents in the second quarter of fiscal 2019, up 5.6% year over year. However, adjusted EPS missed the Zacks Consensus Estimate of 41 cents and coincided with the high end of the company’s guided range of 36-38 cents.
Meanwhile, on a reported basis, the company’s EPS came in at 3 cents in comparison with 43 cents in the year-ago quarter.
Total revenues were up 15.4% year over year to $216.8 million in the quarter under review and were almost in line with the low end of the company’s guidance of $216-$218 million. The figure, however, missed the Zacks Consensus Estimate by 0.8%.
The year-over-year growth was driven by growing new product and hereditary cancer volumes. Moreover, this was the eighth consecutive quarter in which the company witnessed year-over-year Hereditary Cancer testing volume growth.
Quarter in Detail
Segment-wise, Molecular diagnostic tests (93.6% of total revenues) recorded total revenues of $203 million, up 17.3% year over year. Hereditary Cancer testing revenues rose 3.7% to $126.7 million.
EndoPredict testing revenues increased 10% year over year to $2.2 million in the reported quarter. Vectra DA testing revenues were $11.8 million, up 6.3% year over year while other testing revenues declined 47.4% to $1 million. Further, GeneSight testing revenues declined 24.3% year over year to $24 million in the reported quarter. Prolaris tests raked in revenues of $6.1 million, up 45% year over year. Prenatal testing revenues came in at $31.2 million.
Pharmaceutical and clinical service revenues (accounting for the rest) in the quarter under review totaled $13.8 million, reflecting a year-over-year decline of 7%.
Gross margin in the quarter under review contracted 40 basis points (bps) to 76%. However, adjusted gross margin came in at 76.3%, down 20 bps year over year. According to management, benefits from reduction in reagent costs derived by initiating new process enhancement for the DNA, RNA, and protein laboratories were offset by the inclusion of the prenatal business with lower gross margin.
Adjusted operating income was $7.1 million, down 63.2% year over year. Research and development (R&D) expenses rose 33.3% year over year (to $22.4 million) along with a 25.9% increase in selling, general and administrative (SG&A) expenses (to $135.2 million) in the reported quarter. The adjusted operating margin came in at 3.3%, compared with operating margin of 10.3% a year ago.
Myriad Genetics exited second-quarter fiscal 2019 with cash, cash equivalents and marketable securities of $165.4 million compared with $167.5 million at the end of the fiscal first quarter. For the six months ending Dec 31, 2018, cash flow from operations totaled $45.6 million compared with $56.5 million a year ago. Further, the company registered free cash flow of $41.5 million in the same period, compared with $52.8 million a year ago.
Myriad Genetics has reiterated the guidance for fiscal 2019 revenues. The company expects fiscal 2019 revenues in the range of $855-$865. The Zacks Consensus Estimate of $872.1 million lies above the guided range.
On the bottom-line front, the company continues to expect adjusted EPS of $1.70-$1.75. The current Zacks Consensus Estimate of $1.78 is above the company’s guided range.
Management has provided the guidance for the third quarter of fiscal 2019. The company estimates adjusted EPS of 42-44 cents on total revenues of $216-$218 million. The Zacks Consensus Estimate for adjusted EPS is 42 cents, coinciding with the low end of the guided range. Our consensus estimate for revenues is $219.4 million, above the company’s guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Myriad has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Myriad has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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