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Why is NuVasive (NUVA) Down 5.7% Since its Last Earnings Report?

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It has been about a month since the last earnings report for NuVasive, Inc. (NUVA - Free Report) . Shares have lost about 5.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is NUVA 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 catalysts.

Recent Earnings

NuVasive reported first-quarter 2018 adjusted earnings per share (EPS) of 39 cents, reflecting a 5.4% rise from the year-ago quarter. The figure, however, missed with the Zacks Consensus Estimate of 45 cents.

Solid contributions from the international business along with strong case volume growth in the U.S. hardware businessled to the year-over-year improvement in earnings.

Including one-time items, the company reported first-quarter 2018 net loss of 53 cents per share against a net income of 22 cents a year ago. Rise in litigation liability of $29.0 million associated with the company's lawsuit with a former sales agent led to the net loss.

Revenues in the reported quarter came in at $260.5 million, up 4.6% (up 3.4% at constant exchange rate or CER) from the year-ago $249 million. The figure was on par with the Zacks Consensus Estimate.

In the reported quarter, revenues at the U.S. Spinal Hardware business increased around 1% led by rise in case volumes of roughly 5% along with contribution from product launches like XLIF Modulus, TLX, RELINE Small Stature and COHERE. Further, continued growth in the RELINE posterior fixation systems drove the top line. However, rise in pricing pressure and product mix had offset case volume growth of around 2%.

Revenue growth in the U.S. Surgical Support business was roughly flat in the first quarter, primarily due to weakness in the biologics portfolio along with persistent slowdown in the U.S. service business case volume growth.

However, the international business recorded 20% growth at CER or 28% on a reported basis for the sixth consecutive time on solid contributions from key geographies.

In the reported quarter, there was a 20.2% increase in cost of goods sold after excluding amortization of intangible assets expenses. Accordingly, gross profit declined 0.5% to $186.7 million. Moreover, the company reported a 360-basis point (bps) year-over-year contraction in gross margin to 71.7%.

Sales, marketing and administrative expenses went up 4.6% to $146.8 million and research and development expenses rose 16.9% to $14.5 million.

NuVasive recorded adjusted operating income of $25.4 million in the reported quarter, reflecting a 27% decline from the year-ago quarter. Adjusted operating margin contracted 420 bps to 9.8% in the quarter.

The company exited 2017 with cash, cash equivalents and short-term investments of $73.7 million, down from $76.7 million at the end of 2017.

Outlook

NuVasive reiterated the guidance for 2018. The guidance has been adjusted for the recent buyout of SafePassage, full-year benefits from U.S. tax reform and suspension of the medical device tax.

The company expects 2018 revenues in the range of $1.095 billion to $1.105 billion, reflecting 4.7% to 5.7% organic growth. Moreover, on a reported basis, the company expects revenue growth of 6.7% to 7.6%, inclusive of the recently-acquired SafePassage.  The Zacks Consensus Estimate of $1.10 billion is within the guided range. Foreign exchange rates are expected to prove favorable for NuVasive in 2018. In fact, the company expects foreign exchange rates to have a positive impact of almost $10 million in the year compared with $5 million stated previously.

NuVasive continues to expect full-year 2017 adjusted EPS within $2.44-$2.47. The current Zacks Consensus Estimate of $2.46 falls within the guided range. Additionally, adjusted operating margin for the year is expected at 17.6%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to three lower.

NuVasive, Inc. Price and Consensus

 

NuVasive, Inc. Price and Consensus | NuVasive, Inc. Quote

VGM Scores

At this time, NUVA has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions indicates a downward shift. Notably, NUVA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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