Shares of Abaxis, Inc. rallied 14.1% following the company’s announcement of strong preliminary figures for the third quarter of fiscal 2018 on Jan 9, to close the next day’s session at $61.65.
Prelim Results at a Glance
The market seems to be pleased with the company’s expectations to report revenues for the third quarter of fiscal 2018 in the range of $59.0−$60.0 million, reflecting an increase of 12-14% year over year. The preliminary revenue figure is above the Zacks Consensus Estimate of $55.91 million.
However, Abaxis expects operating income before income tax provision in the fiscal third quarter between $9.0 million and $10.0 million, lower than $10.8 million reported in the third quarter of fiscal 2017.
Moreover, the company expects gross margin between 53.5% and 54.0%, lower than 55.7% reported a year ago.
ABAXIS, Inc. Price and EPS Surprise
What Does the Latest Tax Reform Mean?
The latest U.S. tax legislation, which slashes the corporate tax rate from 35% to 21%, is anticipated to benefit the company with an effective tax rate of 27%, excluding a one-time non-cash charge. This one-time non-cash charge of approximately $2.5−$3.5 million is a result of a decrease in deferred tax assets due to a reduction of the federal tax rate. The company anticipates a decline of 200 to 300 basis points (bps) in effective tax rates in fiscal 2018 and a drop of 1,000-1,200 bps in fiscal 2019 from fiscal 2017.
Share Price Movement
Over the past three months, Abaxis has been trading above the broader industry. The stock surged 33.9% as compared to the industry’s gain of 5.9%. The company has been performing well in Veterinary consumables with contributions from hematology reagents, i-STAT cartridges, coagulation cartridges and rapid assays. We are also upbeat about the increase in sales of hematology instruments worldwide. Moreover, solid global sales of Piccolo instruments are encouraging.
We are also encouraged by Abaxis’ expansion of its portfolio of rapid test menu in the recent past. The company signed a partnership with the American Animal Hospital Association (AAHA) to develop a wellness testing initiative to improve veterinary blood work compliance and implementing preventive care. We believe successful expansion of the product portfolio will boost the top line and help the company foray into new regions.
Zacks Rank & Key Picks
Abaxis carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader medical sector are Integer Holdings Corporation (ITGR - Free Report) , Bio-Rad Laboratories, Inc. (BIO - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Bio-Rad Laboratories flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 25%.
Integer Holdings has a long-term expected earnings growth rate of 15%. The stock carries a Zacks Rank #2 (Buy).
Intuitive Surgical has a long-term expected earnings growth rate of 9.2%. The stock carries a Zacks Rank #2.
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