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Why Is SurModics (SRDX) Down 6.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for SurModics (SRDX). Shares have lost about 6.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SurModics 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 catalysts.

Surmodics Q2 Earnings and Revenues Beat Estimates

Surmodics, Inc. delivered adjusted earnings per share(EPS) of 7 cents in second-quarter fiscal 2019, which surpassed the Zacks Consensus Estimate of break-even earnings. Meanwhile, the bottom line is flat with the year-ago quarter’s figure.

Reported EPS came in at 9 cents compared with 11 cents in the year-earlier period.

Revenues in the quarter increased 18.9% yearoveryear to $22.7million. This figurealso outpaced the Zacks Consensus Estimate by 8.1%.

Q2 Highlights

In the quarter under review, Product sales were $9.9 million, up 13.8% year over year. Royalty and license fee revenues totaled $9.9 million, up 17.8% from the prior-yearquarter. Research, development and other were $2.9 million, up 46.9% year over year.

In the reported quarter, the enrollments under Surmodics’ TRANSCEND clinical trial continued and 75% of it was completed.

Segmental Analysis

Medical Device

In the reported quarter, sales at the segment rose 23.1% to $17.3 million including $1.6 million from the SurVeil agreement with Abbott (ABT).

The Medical Device business unit also incurred $0.02 million of operating lossin the second quarter against an operating income of $0.23 million a year ago.

In Vitro Diagnostics

In the quarter under review, sales increased 7.4% to $5.4 million, reflecting growth in sales of the company’s chemicalcomponents, used in diagnostic tests and its microarray slides.

Operating income at the segment was $2.9 million in the reported quarter, up 20.3% from the same period last year.

Operational Details

Surmodics registered Product costs of $3.1 million in the quarter, up 6.9% year over year.

The company’s research and development costs totaled $13.6 million, up 25.8% year over year.

Selling, general and administrative expenditures were almost $4.9 million, down 24.3% from the prior-year quarter.

Total operating costs and expenses in the quarter were $21.8 million, up 17.8% year over year.

Fiscal 2019 Guidance Revised

Surmodics has lowered its fiscal 2019 revenue expectation to $88.5-91.5 million from the earlier expected range of$94-$97 million.

Adjusted EPS is now projected between 26 cents and 36 cents compared with the previous projection of 2-22 cents. The Zacks Consensus Estimate for the metric is pegged at EPS of 15 cents, 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 200% due to these changes.

VGM Scores

At this time, SurModics has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. 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. Notably, SurModics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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