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Opko Health (OPK) Rallies on Q1 Earnings and Revenue Beat

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Shares of Opko Health, Inc. (OPK - Free Report) have gained 41.9% since the release of first-quarter 2018 results on May 8. The rally was backed by a narrower-than-expected loss per share and solid pharmaceutical business. In the past three months, the stock has rallied 37.6% against the industry’s decline of 12.4%.
 
 
 
In the quarter under review, this Zacks Rank #3 (Hold) company incurred adjusted loss of 8 cents per share, narrower than the Zacks Consensus Estimate of a loss of 14 cents. However, the loss widened 33.3% from the prior-year quarter tally.
 
Quarter Highlights
 
Revenues in the first quarter grossed $254.9 million, which surpassed the Zacks Consensus Estimate by 2%. Nevertheless, the top line decreased from $266.4 million registered in the year-ago quarter.
 
Segment Details
 
Revenues from Services came in at $211.3 million, down 7.6% from the year-ago quarter. Per management, the downside can be attributed to volume decline of approximately 3% at the clinical lab.
 
Pharmaceutical Products revenues totaled $27.9 million, up 25.7% year over year. Per management, the company generated $3.7 million of revenues from sales of RAYALDEE in the reported quarter.
 
At Transfer of Intellectual Property, revenues raked in $15.7 million, up slightly from $15.6 million in the prior-year quarter.
Margins
 
In the reported quarter, gross profit totaled $100.8 million, down 9.7% on a year-over-year basis.
 
Gross margin was 39.5%, which contracted 240 basis points (bps).
 
Operating expenses amounted to $124.4 million, down 8.9% on a year-over-year basis. Notably, Opko Health incurred an operating loss of $42.6 million, down from $45.2 million in the prior-year quarter.
 
Guidance
 
In the second quarter of 2018, Opko Health expects revenues from services between $205-$225 million. Product revenues are anticipated to be within $25-$30 million, including RAYALDEE revenues in the $4-$5 million band. Revenues from the transfer of intellectual property are projected between $15 million and $20 million.
 
Operating expenses are expected to be in line with the first quarter of 2018 at $295-$310 million range. For 2018, effective tax rate is projected to be in single digits.
 
Our Take
 
Opko Health wrapped the first quarter of 2018 on a tepid note. The company’s loss was narrower than expected, while revenues surpassed the Zacks Consensus Estimate. Moreover, the company rides on its pharmaceutical business, which registered a year-over-year increase in revenues. Also, a significant gain from RAYALDEE is noteworthy.
 
Furthermore, Opko Health is optimistic about its 4Kscore utilization, which witnessed solid growth in the first quarter. A year-over-year surge in the company’s R&D expenditures reflects increased focus on innovation.
 
However, declining margins is worrisome. Sales decline at the company’s core Service segment is an added concern.
 
Key Picks
 
A few better-ranked stocks in the broader medical space are Genomic Health (GHDX - Free Report) , Abiomed (ABMD - Free Report) and Stryker Corp. (SYK - Free Report) .
 
Genomic Health has an expected earnings growth rate of 187.5% for the current quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Abiomed has a projected long-term earnings growth rate of 27%. The stock sports a Zacks Rank of 1.
 
Stryker has a projected long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank #2 (Buy).
 
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