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Is a Surprise in Store for Penumbra (PEN) in Q2 Earnings?

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Penumbra Inc. (PEN - Free Report) is scheduled to release second-quarter 2017 results on Aug 8, after market close.

The four-quarter average earnings beat is 35.7%. However, the company posted a negative earnings surprise of 66.7% in the last quarter. Let's see how things are shaping up for this announcement.

Factors at Play

Penumbra’s revenues rose 26.4% on a year-over-year basis in the first quarter on the company’s stellar performance in both neuro and peripheral vascular. With the company remaining focused on product launches and geographic expansion, we expect the strong top-line uptrend to continue in the yet-to-be-reported quarter as well.

We are also upbeat about the company’s promising guidance for 2017. Penumbra forecasts full-year total revenue in the range of $312 million to $317 million, which represents growth of almost 20% over full-year 2016.

Penumbra, Inc. Price and EPS Surprise


Penumbra, Inc. Price and EPS Surprise | Penumbra, Inc. Quote

We are also encouraged by the company’s focus on product development and innovation which should get reflected in the second quarter itself. Notably, research and development expenses increased 40.1% in the first quarter. In line with this, the company introduced a product under the Indigo family, CAT-D. Also, the company received FDA clearance for 3D revascularization device recently within its neuro franchise segment. Further, the company’s latest addition to its SMART COIL family is a wave extra soft finishing coil. Notably, Penumbra’s SMART COIL system is a platinum embolization device comprising complex Standard and Soft coils that change softness profile within a single coil.

Coming to first-quarter 2017 results, Penumbra reported loss per share of 10 cents, comparing unfavorably with earnings of 7 cents in the year-ago quarter. Also, both gross and operating margin deteriorated in the first quarter. We expect escalating costs and expenses to continue to keep margins under pressure in the yet-to-be-reported quarter. Moreover, in the first quarter, SG&A expenses had risen 29.2% year over year on increased headcount and personnel-related expenses. If this continues, the company’s operating income and earnings are likely to get affected in the yet-to-be-reported quarter.

Further, foreign exchange fluctuations and stiff competition from major commercial laboratories and hospitals continue to raise caution.

Earnings Whispers

Our proven model does not conclusively show a beat for Penumbra this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Penumbra has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 5 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Penumbra’s Zacks Rank #3 increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, 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 revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +1.95% and a Zacks Rank #2.

INSYS Therapeutics, Inc. (INSY - Free Report) has an Earnings ESP of +33.3% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stryker Corporation (SYK - Free Report) has an Earnings ESP of +0.65% and a Zacks Rank #2.

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