Molecular diagnostics provider Myriad Genetics, Inc. MYGN is slated to report its first-quarter fiscal 2016 financial numbers on Nov 3, after the market closes.
Over the last two quarters, the company delivered earnings in line with the Zacks Consensus Estimate. With a beat and a miss each in the other two, the trailing four-quarter average earnings surprise for Myriad stands at a negative 2.49%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that the company is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Myriad has an Earnings ESP of +2.86%. That is because the Most Accurate Estimate is 36 cents while the Zacks Consensus Estimate is pegged lower at 35 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Myriad has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Myriad’s Zacks Rank #2 and +2.86% ESP makes us confident of a positive earnings beat at the company.
What is Driving the Better-than-Expected Earnings?
For the first quarter of fiscal 2016, Myriad expects adjusted earnings per share of 34–36 cents on total revenue of $176–$178 million. The current Zacks Consensus Estimate of adjusted EPS of 35 cents coincides with the midpoint of the company’s guidance range. Meanwhile, our estimate for revenue of $178 million is pegged at the upper end of the guided range.
Since the beginning of fiscal 2015, with the initiation of myRisk Hereditary Cancer test, Myriad has been trying to convert the entire hereditary cancer market toward myRisk by discontinuing its legacy flagship product – BRACAnalysis. In the fourth quarter of fiscal 2015, Myriad initiated additional physician conversion among its targeted doctors and completed 72% of the conversion.
Currently, Myriad is on track to report completion of the conversion of all of its targeted physician customers in the first quarter of fiscal 2016. Management believes this will account for approximately 80% of incoming hereditary cancer tests being ordered through myRisk in the fiscal first quarter.
On the other hand, in Aug 2015, Myriad received favorable Medicare local coverage determination (LCD) for its Prolaris diagnostic test, from Noridian – the local Medicare Administrative Contractor (MAC) that processes all Medicare claims from Myriad. On the profitability front, management expects to witness continued gross margin improvement through fiscal 2016, partly owing to this Medicare reimbursement for Prolaris.
Further, in Sep 2015, Myriad released data from three new studies, in favor of its myChoice homologous recombination deficiency (HRD) and Tumor BRACAnalysis CDx companion diagnostic tests, and the Prolaris Prostate cancer test. Myriad has gained a competitive leverage with these positive test results in the molecular diagnostics market. We expect demand for these tests to rise substantially, once the results are formally presented. This in turn should boost Myriad’s profits.
Also, during fiscal 2016, Myriad plans to begin discussing the dossier for its myPath Melanoma test’s reimbursement coverage with payers and pursue the final publications for clinical validation and clinical utility studies. Given these developments, we expect Myriad to start fiscal 2016 on a high note.
On a cautionary note, Myriad expects to witness seasonality in the quarter owing to summer vacations, in both its Hereditary Cancer franchise and Vectra DA. Additionally the company does not expect to gain any revenue from its Prolaris prostate cancer diagnostic test (used to evaluate the aggressiveness of prostate cancer in patients) before the second quarter of fiscal 2016. Besides, unfavorable foreign currency fluctuations continue to threaten the company’s operations.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:
AmSurg Corp. AMSG, earnings ESP of +8.79% and a Zacks Rank #1.
Trevena, Inc. TRVN, earnings ESP of +25.71% and a Zacks Rank #2.
ZELTIQ Aesthetics, Inc. ZLTQ, earnings ESP of +11.11% and a Zacks Rank #2.
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