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Can Solid European Sales Boost Inogen (INGN) in Q2 Earnings?

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Inogen Inc.’s (INGN - Free Report) second-quarter 2018 results are scheduled for release on Aug 7, after market close. Strong performance in the European markets is likely to drive the top line in the upcoming quarterly results. However, rental revenues are likely to decline.

Notably, in the last reported quarter, Inogen reported earnings per share of 48 cents, beating the Zacks Consensus Estimate by 77.8%. Earnings rose by the same margin from the year-ago quarter’s figure of 27 cents.

Total revenues in the reported quarter came in at $79.1 million, beating the Zacks Consensus Estimate by 26.4%. Revenues surged 50.6% from the prior-year quarter’s figure. The company delivered average positive earnings surprise of 43.7% in the trailing four quarters.

For the quarter to be reported, the Zacks Consensus Estimate for revenues is pegged at $81.6 million, reflecting a rise of 27.3% year over year. The Zacks Consensus Estimate for earnings is pegged at 44 cents per share, reflecting a rise of 15.8%.

Inogen, Inc Price and EPS Surprise

Let’s delve into other factors which are likely to impact Inogen’s second-quarter 2018 results.

European Sales to Boost Q2 Top Line

Inogen has been one of the leading providers of POCs in Europe. In the last reported quarter, Europe contributed 89.5% of international sales, up from 73.2% in the year-ago quarter.

We expect the trend to continue in the upcoming quarterly results. In fact, management expects long-term opportunity as the market transitions from tank and liquid oxygen systems to non-delivery solutions. Per management, international business-to-business sales will have a modest growth rate in the second quarter, with key focus in the European markets.

Further, to support European customers, the company initiated the production of Inogen One G3 concentrators recently, using a contract manufacturer — Foxconn — located in the Czech Republic. Notably, Foxconn, the company’s manufacturing partner, has been producing the G3 products to cater to European demand. In 2018, the company expects Foxconn to produce large number of Inogen One G3 concentrators to support the massive European demand with the second quarter being no exception.

Other Factors at Play

Guidance

Buoyed by solid first-quarter results, Inogen raised the outlook for 2018. The revenue guidance is projected in the range of $310-$320 million, representing growth of 24.3-28.3% from 2017 levels. Direct-to-consumer is expected to be the fastest growing channel of the company. Net income guidance for 2018 is $38-$41 million, up from $36-$39 million and representing growth of 80.9-95.2% in 2017.

The upside is expected to continue in the quarter to be reported.

Dull Rental Revenues

Inogen derives a significant portion of its revenues from Medicare’s service reimbursement programs. The company expects rental revenues per patient to decline in the upcoming quarters, due to lower reimbursement rates in connection with the nationalization of competitive bidding and persistent reimbursement declines.

Rental revenues represented 6.9% of Inogen’s total revenues in the first quarter of 2018. Notably, rental revenues totaled $5.5 million, reflecting a decline of 16.3% year over year. We expect second-quarter results to project dismal rental-revenue trend, thanks to lower sales revenues and lower rental gross margins.

Management expects rental revenues to decline around 10% in 2018 from 2017.

What Does Our Model Predict?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here. This is not the case here as you will see below.

Earnings ESP: Inogen has an Earnings ESP of -2.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Inogen sports a Zacks Rank #1.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks Worth a Look

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

STERIS plc (STE - Free Report) has an Earnings ESP of +1.02% and a Zacks Rank of 3.

PerkinElmer, Inc. has an Earnings ESP of +1.03% and a Zacks Rank of 3.

Cardinal Health, Inc. (CAH - Free Report) has an Earnings ESP of +1.40% and a Zacks Rank of 3.

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