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Zack’s Bull of the Day: ABIOMED


ABIOMED (NASDAQ:ABMD) is a Zacks Rank #1 (Strong Buy), and as such, we know that earnings estimates are moving higher. The company is coming off a super strong earnings report in late January, so let’s take a look at that report and what other recent developments as it is the Bull of the Day

Healthcare Has Been Strong

Along with being the Bull of the Day due to earnings estimate revisions, the healhcare group has been very strong over the last several months. It is clear that some portfolio managers shifted dollars into this space after moving out of the energy space. Right now, the medical instruments industry of which ABMD is a part of, has a Zacks Industry Rank of 96 out of 265 placing it in the top 36%.

Company Description

ABIOMED provides medical devices in circulatory support and continuum of care in heart recovery to acute heart failure patients. ABIOMED was founded in 1981 and is headquartered in Danvers, Massachusetts.

Earnings History

ABMD has a great earnings history as they have beaten the Zacks Consensus Estimate in 11 of the past 14 quarters. During that stretch there were 2 mets and one miss, but it is the most recent report that captured my attention for this stock.

The most recent quarter reported in late January was a huge beat. The company reported EPS of $0.30 per share and that was $0.27 ahead of expectations which translated into a positive earnings surprise of 900%. The toplien was just as impressive, with $62M in revenue as compared to the $53M estimate.

Guidance

An important aspect of why the stock moved up 26% in the session following the earnings report was the strong guidance issued by the company. The company raised FY15 revenue guidance from $209M-$212M to $223-$226M. Even better news for FY15 was that the GAAP opertating margin is now expected to be in the range of 9%-11%, up from the previous guidance of 1-4%.

The FY16 guidance is now calling for revenue of $260M-$270M, and that is well above the Wall Street Consensus of $247M.

Estimates

The FY15 Zacks Consensus Estimate, jumped from $0.14 in December to $0.48 in January and then ticked higher another penny to $0.49 in February.

The FY16 number is another story. The was some strength already embedded in the numbers, with an estimate of $0.42 as of December. Following the strong report, estimates jumped to $0.58 which lowered the year over year comparisons to some very palatable levels. The next month saw estimates tick lower to $0.54.

The next earnings report will come the first week of May.

Valuation

The valuation for ABMD has been stretched a bit due to the recent jump in stock price after solid earnings, great guidance and the FDA approval of its Impella RP System under a Humanitarian Device Exemption. The 124x forward PE is hard to swallow when compared with the 23x industry average, and the rest of the normal metrics show a nearly equal premium. The story here is more about the potential for vastly stronger margins in FY2016 which begins in March. Esimates are calling for 18% topline growth, and that is just about 3x the industry average, but EPS growth for FY16 is a relatively muted 11% compared to a 16% industry average. Investors are clearly calling for higher margins for next fiscal year, and if that manifests in the same mannger of recent guidnace we could see this stock really move higher.

P&C Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

 

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