Merit Medical (MMSI) Up 18.9% in a Month on Solid Q1 Earnings

Shares of Merit Medical Systems, Inc. MMSI have gained 18.9% since the release of first-quarter 2018 results on Apr 25.

The rally was backed by better-than-expected earnings per share (EPS) and revenue growth across all product lines along with strong performance in all geographies. Over the past month, the company has gained 10.4% significantly outperforming the industry’s decline of 1.3%.

Let’s delve deep into the release:

The company reported adjusted EPS of 31 cents, which beat the Zacks Consensus Estimate by 6.9%. Earnings rose 10.7% from the prior-year quarter.

Revenues in Detail

In the first quarter, worldwide revenues totaled $203 million on a reported basis, beating the Zacks Consensus Estimate by 4.6%. At constant currency (cc), revenues came in at $197.9 million. Revenues inched up 15.7% at cc.

Meanwhile, core revenues grossed $183.2 million, up 7.1% at cc.

Per management, organic growth was 7.1%, mainly driven by catheter, endoscopy and inflation device sales. Moreover, sales from the United States and China, Asia-Pacific, Europe, Middle East and Africa contributed to overall growth.

Segmental Analysis

The Utah-based manufacturer of proprietary disposable devices reported revenues through two segments — Cardiovascular and Endoscopy.

Revenues at the Cardiovascular segment grossed $195.9 million, up a significant 18.9% on a year-over-year basis.

Meanwhile, Endoscopy sales totaled $7.2 million, up 13.7% from a year ago.

Margins

In the reported quarter, gross profit came in at $88.1 million, up 16% year over year. Gross margin was 47.5%, down 80 basis points (bps).

Income from operations grossed $8.8 million, up 56.6%. Notably, operating margin expanded 110 bps.

However, operating expenses shot up 12.7% on a year-over-year basis. The rise was mainly led by a surge in the selling, general and administrative expenses, which rose 12.4% to $64.9 million.

Guidance

Merit Medical did not provide any guidance for 2018.

However, buoyed by a solid first quarter, management expects solid margin improvement in the quarters to come.

Our Take

Merit Medical exited the first quarter of 2018 on a solid note. Strong sales across segments and geographies along with solid organic growth buoy optimism. A diversified product portfolio, with 50 active R&D products, is a major positive. New biopsy devices in the pipeline are also encouraging. Additionally, a 510(k) approval of the company’s distal access SYNC is promising. Management is optimistic about acquisitions completed in the fourth quarter of 2017 and the asset purchase of Becton Dickinson. Improvement in the operating margin is another positive.

On the flip side, the company’s declining gross margin and year-over-year rise in operating expenses are discouraging. Moreover, management has not issued any guidance for the quarters ahead.

Zacks Rank & Key Picks

Merit Medical currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks which reported solid results this earnings season are Intuitive Surgical ISRG, Abiomed, Inc. ABMD and Varian Medical Systems VAR. While Intuitive Surgical and Abiomed sport a Zacks Rank #1 (Strong Buy), Varian Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted earnings per share of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus mark by 10.6%.

Abiomed reported fourth-quarter fiscal 2018 earnings per share of 80 cents, which beat the Zacks Consensus Estimate by 25%. Revenues were $174.4 million, surpassing the consensus estimate by 6.3%.

Varian Medical reported second-quarter fiscal 2018 adjusted earnings per share of $1.15, which beat the Zacks Consensus Estimate of $1.06. Revenues totaled $729.9 million, which surpassed the Zacks Consensus Estimate of $659.6 million.

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