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Can Core Unit Drive Pacific Biosciences' (PACB) Q1 Earnings?

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Pacific Biosciences of California, Inc.’s (PACB - Free Report) first-quarter 2018 results, expected to release on Apr 26, are assumed to show steady growth in the Product revenue wing —  the core business.

While this may majorly drive growth, declining revenues in all other segments might mar the company’s prospects in the first quarter.

In the last reported quarter, the company reported a loss of 18 cents per share, down 14.2% year over year, missing the Zacks Consensus Estimate by a penny. Revenues came in at $24.9 million, beating the Zacks Consensus Estimate of $22 million, down 3.1% on year-over-year basis.

Notably, for the first quarter, the Zacks Consensus Estimate is pegged at a loss of 19 cents per share, reflecting year-over-year growth of 26.9%. On the other hand, the Zacks Consensus Estimate for revenues is pinned at $24.6 million, indicating a decline of 1.4%. Pacific Biosciences reported an average negative earnings surprise of 2.8% in the trailing four quarters.

Let’s delve deeper into the numbers.

Product Revenues in Focus

Pacific Biosciences’ flagship platform — the Sequel system — has been fortifying the company’s footprint worldwide. In fiscal 2017, product revenues accounted for a whopping 87.6% of the company’s net revenues. In the fourth quarter of fiscal 2017, the segment posted revenues worth $21.8 million, up 5.9% year over year.

It is encouraging to note that for the current quarter, the Zacks Consensus Estimate for the segment’s revenues is fixed at $21.8 million, up 2.6% on year-over-year basis.

Consumable revenues in the fourth quarter were $12.7 million, up 70% on a year-over-year basis, marking the metric’s eighth consecutive quarter of growth on continued consumable sales momentum. This upside was driven by an increased utilization of the company’s growing installed base of sequel systems, also known as the PacBio Sequel system.

However, instrument revenues dipped 29.8% to $9.2 million, on year-over-year basis.

Other Factors at Play

PacBio Sequel System Drives Growth

Per management, Sequel-generated revenues grew more than eight-fold in the fourth quarter, representing a whopping 80% of fourth-quarter revenues. Additionally, BGI China ordered 10 Sequel Systems, making it one of the primary growth drivers of Pacific Biosciences.

Since the past year, a number of studies have been using or planning to use the PacBio whole-genome sequencing with a goal to increase cure rates of genetic diseases. These studies include Stanford University School of Medicine; the European Solve-RD Consortium, performing a 500-individual rare disease study; and Novogene, which has announced plans to sequence 1,000 Chinese genomes.

The platform has also witnessed a series of developments lately. The flagship PacBio Sequel is currently being used by the Alabama-based HudsonAlpha Institute for Biotechnology, to support the goal of dramatically increasing the diagnostic success rate in challenging pediatric clinical cases. Moreover, Beijing-based Annoroad Gene Technology has recently placed a purchase order of 10 PacBio Sequel Systems, which is expected to increase Annoroad’s large-scale genomic service capabilities across various fields.

View Mixed

For the first quarter of 2018, revenues are expected to be slightly lower than the reported count in fourth quarter of fiscal 2017 due to seasonality. Banking on a better-than-expected fourth-quarter show, Pacific Biosciences expects its 2018 revenues to grow 20% from the year-ago figure, translating to approximately $112 million in total revenues.

Shrinking Service Revenues & Margins

In the last reported quarter, revenues in the Service and Other segment fell 18.3% on a year-over-year basis to almost $21.8 million. For full year of fiscal 2017, revenues in the segment deteriorated 4.3% compared to full-year 2016.

The Zacks Consensus Estimate for the segment’s revenues in the first quarter is fixed at $3.31 million, down 8.6% year over year.

On the other hand, gross margin in the quarter was 38.1%, down 610 basis points year over year, while the company incurred an operating loss of $20.5 million, wider than a loss of $17.8 million in the year-ago quarter.

Here is what our quantitative model predicts:

Although Pacific Biosciences carries a Zacks Rank #2 (Buy), it does not have a positive Earnings ESP  needed for increasing the odds of an earnings beat.

Zacks ESP: Earnings ESP for Pacific Biosciences is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Pacifc Biosciences carries a Zacks Rank #2, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post earnings beat this quarter.

Stryker Corp. (SYK - Free Report) has an Earnings ESP of +0.13% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic, Inc. (HOLX - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #3 (Hold).

Edwards Lifesciences (EW - Free Report) has an Earnings ESP of +0.99% and a Zacks Rank #3.

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