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Bear of the Day: Invacare Corp (IVC)


Invacare Corp (NYSE:IVC) announced Q3 earnings late October, and for the third consecutive quarter they missed the Zacks Consensus Earnings Estimate, and they missed the Zacks Consensus Revenue Estimate for the second time in the last three quarters.

Invacare Corp, which currently carries a Zacks Rank #5 (Strong Sell), is the world’s leading manufacturer and distributer of non-acute health care products based upon its distribution channels, and the breadth of its product lines and sales.  The company designs, manufactures and distributes an extensive line of health care products for the non-acute care environment including home health care, retail and extended care markets.

Missing Estimates (Expected, but not this bad)

For Q3 2014, the Zacks Consensus Earnings Estimate was missed by $0.30, or -113%, and the Zacks Consensus Revenue Estimate was missed by $7 million dollars, or -2.13%.  The earnings miss is a continuation of previous quarters misses, in Q1 Invacare missed by -75%, and Q2 they missed by 28.57%.  

The big issue facing Invacare Corp is a Consent Decree, an agreement between the FDA and IVC in which design and manufacturing activities were suspended,with various conditions, at IVC’s Taylor Street complex (power wheelchair and corporate facilities).  This agreement has been a significant headwind for the company for the past several years.  Further, during the Q3 earnings call, management did not give any guidance around the completion of the Consent Decree (therefore, it is still negatively impacting the company).  It appears as though this Decree will continue into 2015.

Guidance

Due to the continued earnings misses, the Zacks Consensus Earnings Estimates for Q4 2014, FY 2014, and FY 2015 have all declined in the past 30 days.  Q4 2014 dropped from -$0.13 to -$0.23, FY 2014 decreased from -$1.23 to -$1.62, and FY 2015 fell from -$0.01 to -$0.38.  Further, this company has been consistent in producing negative earnings surprises, the average negative earnings surprise is -72.98% over the past four quarters.  

As you can see in the Price and Consensus chart below, estimates are coming down sharply.  

More Negative News

On November 14, the company announced that company founder and Executive Chairman of the Board will retire as of December 21, 2014.  Further, the President of Invacare Technologies Division and SVP of Electronic and Design Engineering, J.B. Richey, is also retiring, but as of November 30 of this year.  

This is a major loss for the company because both of these original investors have been involved with the company for 35 years, and were considered the major force behind the start-up of the company.  

Bottom Line

With the Consent Decree hindering the company until at least early 2015, the company should then continue to face strong headwinds for the remainder of 2014.  Couple this with the fact that two original investors, and key management figures are leaving at basically the same time.  This puts a large grey cloud of uncertainty over the company for the next 1-3 months. Therefore it is the Zacks Bear of the Day.

Other Stocks to Consider

If you are inclined to invest in the Medical/Dental Supply Sector, you may want to consider BioReference Laboratories (NASDAQ:BRLI) which carries a Zacks Rank #2 (Buy), Merit Medical (NASDAQ:MMSI) a Zacks Rank #2 (Buy), or Steris Corp (NYSE:STE) a Zacks Rank #2 (Buy).  

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