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NuVasive (NUVA) Q1 Earnings: Disappointment in the Cards?


NuVasive, Inc. NUVA is expected to report first-quarter 2017 results on Apr 25, after market close.

Last quarter, the company reported a positive earnings surprise of 6%. Also, the company has an average beat of 8.30% for the trailing four quarters. Let's see how things are shaping up prior to this announcement.

Factors at Play

We are optimistic about NuVasive’s expansion initiatives of its drug development business worldwide.

Meanwhile, the company’s gross margin scenario is quite discouraging. In the last reported quarter, the company registered an 88-basis point (bps) contraction in gross margin owing to a 30.6% increase in cost of goods sold. The company’s lower gross margin profile of the Biotronic business primarily led to the 220-bps drop in the gross margin. In absence of any suitable corrective measures, we expect the trend to continue in the first quarter as well.

NuVasive, Inc. Price and EPS Surprise

NuVasive, Inc. Price and EPS Surprise | NuVasive, Inc. Quote

This apart, we are apprehensive about the persistent pressure from adverse foreign currency movement. Also, management’s projection of a $10 million currency headwind in 2017 poses a threat.

We are also concerned about NuVasive’s declining product prices due to intensifying competition in the spine market. The number of players in the medical device industry is increasing by the day, making the market a keenly contested space. This may continue to affect the company’s operating results. Further, reimbursement-related headwinds might impair the company’s ability to sell products and services.

A comparative analysis of NuVasive’s forward P/E (F12M basis) multiple reflects a relatively gloomy picture. The stock’s valuation looks stretched when compared to its industry. NuVasive currently trades at a P/E ratio of 34.50, which is overvalued in comparison to the Zacks categorized Medical Products Industry’s P/E (F12M basis) multiple of 20.43. In fact, a comparison of the company’s current P/E level with its own ranges (median of 34.59) shows that the stock is a little overvalued. Even when compared to the market at large, the stock looks overvalued, as the P/E for the S&P 500 is 17.53.

On the brighter side, we are encouraged to note that the company is continuously striving to increase its scale of operation, which has started to reflect in its top line as well. The company is presently focusing on expansion in field head count by recruiting experienced field representatives. We believe this will drive sales considerably.

Also, we are encouraged to note that the market for spine surgery is estimated to grow significantly over the long term.The company is putting in efforts to expand in this space through R&D investments.

The company also saw solid uptake of the Integrated Global Alignment platform or iGA across core product areas, including the Reline posterior fixation system, ALIF, Bendini and Integrated Operative Solutions. We expect the company to benefit from this in the first quarter as well.

The company is also pursuing strategic acquisitions which might prove accretive to spine operations. The buyouts include Ellipse Technologies, Mega Surgical, Biotronic NeuroNetwork and the LessRay software suite.

Earnings Whispers

Our proven model does not conclusively show that NuVasive is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: NuVasive has an Earnings ESP of 0.00%. This is because the Most Accurate estimate stands at $0.37, below the Zacks Consensus Estimate of $0.37. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: NuVasive has a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Adidas AG ADDYY has an Earnings ESP of +0.94% and a Zacks Rank #1. You can seethe complete list of today's Zacks #1 Rank stocks here.

Ameriprise Financial, Inc. AMP has an Earnings ESP of +0.79% and a Zacks Rank #2.

Capital Bank Financial Corp. CBF has an Earnings ESP of +6.82% and a Zacks Rank #3.

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