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VWR Plagued by Headwinds, Solid Fundamentals Raise Hope

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On Dec 20, we issued an updated research report on Radnor, PA-based VWR Corporation (VWR - Free Report) . The company, carrying a Zacks Rank #3 (Hold) offers laboratory products, services and solutions.

In the past six months, VWR consistently traded below the Zacks categorized Medical - Dental Supplies industry. The trend failed to improve with the company reporting a mixed third-quarter 2016 results, wherein earnings outpaced the Zacks Consensus Estimate but revenues missed the same.

A dull 2016 outlook is all the more disappointing as it indicates slim chances of recovery ahead. Per the last share price movement, overall the company lost 13.61%, much wider than 3.15% loss of the broader industry, over the last six months.

However, per management, mid-single-digit growth in biopharma, growth in large pharma, biotech, medical devices and sales to CRO customers led to a year-over-year improvement in the top line. Going forward, management expects to witness continued solid business momentum in the Americas segment. Noting several strategic initiatives taken by VWR of late, we believe the Americas segment will retain its strong growth trajectory in the upcoming period. The company expects to witness continued solid business momentum in the Americas segment in the fourth quarter as well.

The company's stable cash position as well as its huge customer base added to the optimism.

On the flip side, VWR continues to face gross margin pressure. Escalating cost of production has been a major factor behind this lackluster outcome. Moreover, as the company offers products from a wide range of suppliers, its ability to sustain its gross margin has been, and will continue to be dependent, partly upon its ability to obtain favorable terms from its suppliers.

Unfavorable currency fluctuation continued to impact the company's overall sales in the third quarter and management expects no respite from the same in the near term. Intensifying competition is also a headwind for the stock.

Key Picks

Some better-ranked medical stocks include NxStage Medical Inc. (NXTM - Free Report) , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation (BVX - Free Report) . NxStage Medical and Baxter International sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NxStage Medical gained 14.6% over the last one year compared with the S&P 500’s 11.4%. The company has a four-quarter average positive earnings surprise of 46.3%.

Baxter International rallied 17.2% over the last one year, much higher than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 111.3% gain in the past one year, way better than the S&P 500. The company has a trailing four-quarter positive average earnings surprise of 28.7%.

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