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What's in Store for Pacific Biosciences (PACB) in Q4 Earnings?

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Pacific Biosciences of California Inc. (PACB - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 1.

Last quarter, the company posted a positive earnings surprise of 5%. Pacific Biosciences has underperformed the Zacks Consensus Estimate in two of the preceding four quarters, the average negative surprise being 1.9%. Let’s see how things are shaping up prior to this announcement.

Key Factors

In the past quarters, product revenues demonstrated consistent uptrend on strength in consumable revenues. However, the Zacks Consensus Estimate for the fourth-quarter product revenue stands at $18.6 million, reflecting an expected year-over-year decline by 10.7%. We believe that the termination of the agreement with F. Hoffman-La Roche Ltd effective February 2017 is likely to affect revenues in the yet-to-be reported quarter. The agreement had been signed for the development and supply of diagnostic products based on Pacific Biosciences’ Single Molecule, Real-Time (SMRT) technology.

 

Similar to the last two quarters, Pacific Biosciences’ fourth-quarter service and other revenues are expected to decline from the prior-year quarter. The decline was led by higher price RS service contracts being replaced with lower price sequel contracts. The Zacks Consensus Estimate for service revenues stands at $3.5 million for the fourth quarter, reflecting an expected year-over-year decline of 6.8%.

However, the company expects service revenue and service related costs to level out and improve, leading to improved gross margin in the yet-to-be reported quarter.

Here are the other factors that might influence Pacific Biosciences’ fourth-quarter results:

For 2017, the company expects 8-10% rise in operating expenses on a year-over-year basis. Further, management projects a loss for 2017 on a reported basis. Meanwhile, operating expenses in the third quarter of 2017 totaled $29.8 million, compared with $29.4 million a year ago. We expect the trend to affect the fourth-quarter bottom line too.

The company continues to see significant strength in China business. Sales in China last quarter was more than 30% of the total sales. With China being the fourth-largest developing nation (in terms of nominal GDP), we believe the progress in the country will open up channels for Pacific Biosciences, thereby driving its top line.

The Zacks Consensus Estimate for fourth-quarter revenues is $22 million, reflecting a 15.4% decline from the year-ago quarter. The Zacks Consensus Estimate for the bottom line is pegged at a loss of 19 cents, narrower than the year-ago loss of 21 cents.

Here is what our quantitative model predicts:

Pacific Biosciences does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Pacific Biosciences is +6.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Pacific Biosciences carries a Zacks Rank #4 (Sell).

Stocks to Consider

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Bio-Rad Laboratories (BIO - Free Report) has an Earnings ESP of +4.45% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics (MYGN - Free Report) has an Earnings ESP of +0.42% and a Zacks Rank #3.

Henry Schein (HSIC - Free Report) has an Earnings ESP of +0.09% and a Zacks Rank #3.

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