On Nov 20, 2014, Zacks Investment Research downgraded Invacare Corp. (IVC) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Invacare reported disappointing third-quarter 2014 results. Adjusted loss from continuing operations came in at 56 cents per share, much wider than the Zacks Consensus Estimate of a loss of 26 cents.
The quarter’s loss was wider than 23 cents of loss per share reported in the year-ago quarter. Higher warranty expenses (27 cents per share) related to three specific product issues negatively impacted profitability in the quarter.
Net sales from continuing operations declined 4.8% year over year to $320.5 million, which also missed the Zacks Consensus Estimate of $328 million. Higher net sales in the European and Asia/Pacific segments were fully offset by a decline in the North America/Home Medical Equipment (HME) segment, primarily in respiratory products, as well as a fall in the Institutional Product Group (IPG) net sales.
During the quarter, Invacare divested Altimate Medical – its division that manufactures stationary standing assistive devices for use in patient rehabilitation. The company used the net proceeds worth $21.9 million to pay off its debt.
The ongoing restructuring activity, which is expected to generate $14 to $15 million in pre-tax savings, will improve profitability in 2015. However, the uncertainty related to the FDA’s consent decree at Invacare’s corporate and Taylor Street facilities in Elyria, OH that is currently being audited by third-party experts, is expected to remain an overhang on results going forward.
Owing to the present headwinds, analysts remain reasonably apprehensive, as is evident from the downward estimate revisions. Over the last 30 days, the Zacks Consensus Estimate for full year 2014 widened to a loss of $1.62 from an earlier estimate of a loss of $1.23.
For 2015, the Zacks Consensus Estimate widened to a loss of 38 cents from the earlier estimated loss of a penny over the same time frame.
Stocks to Consider
While we choose to avoid Invacare at present, better-ranked stocks include Cardinal Health, Inc. (CAH), CR Bard Inc. (BCR) and Merit Medical Systems, Inc. (MMSI). All the three stocks carry a Zacks Rank #2 (Buy).
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