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Qiagen (QGEN) Down 2.6% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Qiagen N.V. (QGEN - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 drivers.

Recent Earnings

Qiagen reported fourth-quarter 2016 adjusted earnings per share (excluding restructuring expenses) of $0.39, up 7.7% year over year. The reported earnings figure is in line with the Zacks Consensus Estimate.

At constant exchange rate or CER too, the company reported adjusted EPS of $0.41, which exceeded the company’s guidance of $0.38 at CER.

Considering one-time items, Qiagen’s reported EPS for the quarter is $0.04, down 80.9% year over year.

Full-year adjusted EPS (excluding restructuring expenses) came in at $1.11, up 4.7% year over year. At CER, the company reported $1.14 of earnings, which exceeded the company’s expectation of $1.10–$1.11 at CER.

Revenues in Detail

Net sales at actual rates in the fourth quarter grew 5% on a year-over-year basis to $366.5 million (up 8% at CER). However, the top line missed the Zacks Consensus Estimate of $374 million by 2%. Adverse currency translation impacted the top line by 3%. 

Meanwhile, the acquisitions of MO BIO and Exiqon during the fourth quarter contributed 3% to the top line at CER while there has been 5% organic growth. Sales grew at a faster 8% CER rate, excluding 4% CER decline in U.S. HPV test sales from the year-ago quarter.

Region-wise, sales from the Americas (45% of revenues) grew 5% at CER, while revenues from Europe-Middle East-Africa (33%) and Asia-Pacific/Japan (22%) increased 10% and 14%, respectively, at CER. Sales in the top seven emerging markets (17%) exhibited growth of 18% year over year at CER in the quarter.

Segments in Detail

Qiagen primarily generates revenues from Molecular Diagnostics, Applied Testing, Pharma and Academia, which represented 50%, 9%, 20% and 21% of net sales, respectively, during the reported quarter.

Molecular diagnostics sales (50% of revenues) were up 11% at CER. Excluding a 4% decline in the U.S. HPV test solutions sales, Molecular diagnostics sales increased 12% at CER which advanced on sales of the QuantiFERON latent TB test growing well above the 25% CER annual growth rate target. Sales derived from Applied Testing (10%) rose 10% at CER, maintaining double-digit CER growth in both consumables and instruments and volume growth in applications for human ID and forensics.

Pharma sales (18%) rose 18% at CER in the fourth quarter on account of mid single-digit CER consumable growth from marketing initiatives and product launches. Academia sales (22%) improved 3% at CER, on the back of higher consumable sales, marginally offset by lower instruments sales and a soft trend in Europe.

Operational Update

Gross profit increased 2% to $228.0 million in the fourth quarter. Gross margin however contracted 189 basis points (bps) to 62.2% on 10.7% rise in cost of goods sold.

Meanwhile, research and development expenses saw a hike of 48.1% to $58.5 million, sales and marketing expenses increased 24.5% to $115.0 million and general, administrative, integration and other expenses rose 65.4% to $40.5 million. Adjusted operating income in the quarter was down 79.2% year over year to $13.8 million. Adjusted operating margin declined a stupendous 1543 bps to 3.7%, as a result of a 36.8% rise in overall operating expenses to $214.1 million.

Financial Update

Qiagen exited fiscal 2016 with cash and cash equivalents of $439.1 million, up from $290.0 million in the prior fiscal. Full-year net cash provided by operating activities was $341.6 million, up from $317.5 million a year ago. This resulted in a 22% improvement in free cash flow to $267 million in 2016.

In Jan 2017, Qiagen completed a synthetic share repurchase that combined a direct capital repayment with a reverse stock split as part of a commitment to return $300 million to shareholders. The transaction was announced in Aug 2016 and involved an approach used by various large, multinational Dutch companies to provide returns to all shareholders in a faster and more efficient manner than traditional open-market purchases. Qiagen intends to return the balance of the commitment through open-market share repurchases during 2017.

2017 Guidance

Management reaffirmed its 2017 guidance for adjusted net sales growth at approximately 6–7% CER. Also, the adjusted EPS guidance has been reiterated at the band of $1.25–$1.27 CER. This is based on operating and financial leverage which includes benefits from the completion of the $300 million share repurchase plan by the end of 2017 and efficiency action taken in 2016. This however excludes the expected 3 cents per share of restructuring costs planned for 2017. The Zacks Consensus Estimate for earnings of $1.29 is above the guided range. The Zacks Consensus Estimate for 2017 revenues is pegged at $1.42 billion.

The company also provided its financial guidance for the first quarter of 2017. Net sales are expected to rise 4–5% CER, which includes an anticipated 2% decline in U.S. HPV test sales. Adjusted EPS is expected to be likely $0.21–$0.22 CER on an underlying basis and $0.18–$0.20 CER including the anticipated restructuring charge of about $0.02–$0.03. The Zacks Consensus Estimate for first-quarter 2017 revenue is $321 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Qiagen N.V. Price and Consensus

 

Qiagen N.V. Price and Consensus | Qiagen N.V. Quote

VGM Scores

At this time, Qiagen's stock has a nice Growth Score of 'B', however its Momentum is lagging a bit with a 'C'. Following the exact same course, the stock was also 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than momentum and value investors.

Outlook

The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.


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