On Sep 5, 2014, we issued an updated research report on Abaxis Inc. (ABAX). The company’s first-quarter fiscal 2015 financial results exceeded the Zacks Consensus Estimate on the bottom-line front although the top line was only on par with expectation.
Earnings per share (EPS) of 21 cents reflected a massive slash of 50% from the year-ago number. Nonetheless, the EPS number beat the Zacks Consensus Estimate by a couple of cents. This is particularly significant as the company has been able to overcome its disappointing performance over the last few quarters, characterized by three consecutive earnings estimate misses.
On the other hand, revenues grew 10% to $47.5 million, almost in line with expectations. The company delivered a strong performance in mainstay North America and also in Europe, although revenues from the Pacific Rim disappointed.
According to Abaxis, the company’s new vet contract along with the new VetScan Instruments sales contributed to the impressive revenue growth in North America. Further, management has spoken highly about the two strategic long-term agreements Abaxis has signed with VCA Antech. Management is confident that both these agreements will benefit Abaxis and will serve as potential contributors to the company’s sales increase in the upcoming years.
In the reported quarter, Abaxis’ gross margin already expanded by an impressive number and at present, the company is involved in improving its sales tools in an attempt to further boost the gross margin. We are also encouraged with the substantial increase in operating margin that helped improve the quarter’s bottom line. Moreover, the distribution relationship with MWI Veterinary Supply (MWIV) and another similar one with Abbott in the Medical Market segment have started to pay off.
However, despite growth in North America and Europe, the poor performance in Asia Pacific dragged overall results. The company continues to face challenges while transiting from a direct sales approach to a distributor model. Going forward, a growing proportion of revenues from low-margin offerings may adversely affect the company’s margin. We also remain apprehensive about Abaxis’ dependence on distributors and its fiercely competitive environment.
The stock currently carries a Zacks Rank #2 (Buy).
Key Picks from the Sector
Medical product stocks such as NuVasive, Inc. (NUVA) and Eagle Pharmaceuticals Inc. (EGRX) are also expected to do well. Both the stocks also carry a Zacks Rank #2.
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