On Mar 12, 2015, Zacks Investment Research downgraded Invacare Corp. (IVC) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The downgrade was primarily attributed to Invacare’s dismal top-line performance in the fourth quarter of 2014. Although net sales of $318.2 million beat the Zacks Consensus Estimate of $311 million, the figure declined 3.8% on a year-over-year basis.
Organic net sales slipped 0.5% year over year, primarily due to a decline in the North America/ Home Medical Equipment (HME) segment sales. This was partially offset by higher net sales in the European, Institutional Products Group (IPG) and Asia/Pacific segments.
Revenues from North America/HME fell 11.3% to $124.8 million. Organic net sales decreased 10.7% on a year-over-year basis owing to declines across all product categories.
IPG sales amounted to $26.7 million, up 6.2%. Organic net sales increased 6.5% driven by growth in interior design projects and therapeutic support surfaces, partially offset by reduced rental revenues.
Revenues from Europe inched up 1.2% on a year-over-year basis to $155.3 million. Organic net sales for the quarter increased 7.2%, principally owing to improvement in lifestyle and respiratory products, which were partially offset by a drop in mobility and seating products.
However, revenues generated from Asia/Pacific dipped 0.7% to $11.4 million. Organic net sales increased 5.5% which may be attributed to volume increases at Invacare's distribution businesses in Australia and New Zealand. This was partially offset by declines in microprocessor controllers’ volume.
Invacare believes that a stronger dollar will continue to impact top-line growth in 2015. The ongoing consent decree process with the FDA is also expected to remain an overhang on the stock at least in the near term.
Estimate Revisions
Owing to the present headwinds, analysts remain reasonably apprehensive, as is evident from the downward estimate revisions. Over the last 60 days, the Zacks Consensus Estimate for full-year 2015 widened to a loss of 60 cents from an earlier estimate of a loss of 38 cents.
For 2016, the Zacks Consensus Estimate is pegged at EPS of 38 cents per share.
Stocks to Consider
While we choose to avoid Invacare at present, better-ranked stocks include Cardinal Health CAH, McKesson Corp MCK and Merit Medical Systems MMSI. All the three stocks carry a Zacks Rank #2 (Buy).
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