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Bear of the Day: AngioDynamics (ANGO)

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AngioDynamics (ANGO - Free Report) is an $800 million provider of innovative medical devices used by interventional radiologists, vascular surgeons and other physicians for the minimally invasive diagnosis and treatment of peripheral vascular disease.
The small-cap med-tech cardio specialist designs, develops, manufactures and markets a broad line of therapeutic and diagnostic devices that enable interventional physicians to treat a broad range of peripheral vascular diseases and other non-coronary diseases. 
We recently sold ANGO for a long-term gain of 43.5% gain in my Healthcare Innovators portfolio because it had run so far and fast ahead of its fundamental growth metrics. Now, after a disappointing Q4 (FY18 ended in May) analysts have lowered their growth projections, causing the stock to fall into the cellar of the Zacks Rank. 
Quarter Details
AngioDynamics reported fourth-quarter fiscal 2018 adjusted earnings of 20 cents per share, which missed the Zacks Consensus Estimate by a penny. Earnings improved 5.3% year over year.
Net sales came in at $88.3 million, marginally missing the Zacks Consensus Estimate of $89 million. However, sales improved 1.6% from the prior-year figure.
Meanwhile, in the past year, shares of AngioDynamics have rallied over 20% against the industry’s decline of 12%.
Geographic Analysis
U.S. net revenues in the quarter under review were $70.3 million, down 1% at constant currency. Per management, the downside can be attributed to lower sales of Venous Insufficiency, PICCs, RFA (Radio Frequency Ablation) and NanoKnife product lines.
International revenues totaled $18 million, up 9% at cc primarily owing to strong performance in Europe.
Segment Analysis
Peripheral Vascular (PV) business: Sales in the segment came in at $52.6 million, which declined 2.5% on a year-over-year basis. Per management, growth in the Fluid Management, Angiographic catheters and AngioVac product lines was offset by declines in the Venous Insufficiency and Thrombolytic businesses.
AngioVac procedural volumes remained strong and were up 14% year over year in the reported quarter.
However, the Venous Insufficiency business continued to underperform. This was due to the discontinuation of exclusive use of the EVLT (Endovenous Laser System) products by the company’s largest customer.
Vascular Access net sales were $23.7 million, down 2.4% from the year-ago quarter. Per management, growth in Ports and Dialysis products was offset by declines in PICCs.
Oncology/Surgery business: Sales in this segment grossed $12.1 million, up a significant 38%. The upside can be attributed to strong growth in Solero Microwave Ablation System. However, an increase in sales of NanoKnife was partially offset by lower sales of RFA system.
Revenues for fiscal 2018 totaled $344.3 million, down 1.6% from the year-ago period.
Earnings per share of 74 cents inched up 1.4% from a year ago.
Revenues at the core Peripheral Vascular segment accounted for 58.8% of total sales.
Revenues at Vascular Access contributed 26.9%, while that at Oncology/Surgery represented 14.3%.
FY19 Guidance
AngioDynamics expects fiscal 2019 net sales in the range of $344-$349 million. Adjusted earnings per share are anticipated in the band of 82-86 cents.
And there's the rub for the Zacks Rank which was at 93 cents prior to this report.
Free cash flow is expected between $38 million and $43 million.
The Big Picture
AngioDynamics exited the fourth quarter of fiscal 2018 on a dull note. Solid performance by the Oncology/Surgery segment is encouraging. Surging international sales buoy optimism. The company continues to witness strong growth in its oncology ablation, Solero and NanoKnife product lines. In the fourth quarter, the company witnessed a significant expansion in gross margin. Increased R&D investments in the thrombus management portfolio are a positive.
On the flip side, underperformance of the core Peripheral Vascular and Vascular Access units raise concern. In the reported quarter, AngioDynamics saw persistent headwinds in the Venous Insufficiency business and PICC product lines. Declining sales in the United States and intense competition add to the woes.
Investors still love the growth story here apparently and are willing to assign a mid-20s multiple. I like the fact that the company trades at a price-to-sales ratio of only 2.1, which is attractive for such a small growth company. And while revenue growth appears to be stalling, EPS growth is expected to maintain a mid-teens double-digit advance.
Since the stock is still trading rich for this growth, I'd wait until the estimates turn back up or the stock pulls back. The Zacks Rank will let you know on the former.
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