Nevro (NVRO) Plagued by Issues in Australia & Stiff Rivalry

On Apr 1, we issued an updated research report on Nevro Corp. NVRO. Sluggishness in Australia, a highly competitive Spinal Cord Stimulation (SCS) market and a tough regulatory environment are headwinds at the moment.

The company has a negative average earnings surprise of 50.4% for the trailing four quarters.

Price Performance

A glance at the stock's price performance shows that it has declined 28.9% against the industry’s 16.1% increase. The current level is also lower than the S&P 500 index’s 10% rally.

Deterrents

In the recently-reported fourth quarter, Nevro’s international sales were negatively impacted by weakness in Australia. Management expects 2019 international revenues to remain flat owing to reimbursement changes in Australia that will begin in April 2019.

In fact, the company’s 2019 revenue guidance appears bleaks since it assumes headwinds due to reimbursement changes in Australia.

Additionally, Nevro faces stiff competition in the SCS market from MedTech bigwigs like Medtronic MDT, Boston Scientific and Abbott Laboratories ABT, who have already obtained regulatory approval for SCS systems and have greater capital resources.

Nevro’s products and operations are subject to extensive and rigorous regulations by the FDA under the Federal Food, Drug, and Cosmetic Act and its regulations, guidance and standards. Any violation of these could result in a material adverse effect on the company’s business, financial condition and operational results.

However, Nevro aims to continue to improve patient outcomes and expand patient access to HF10 therapy through enhancements to its flagship Senza platform. Notably, the company’s R&D expenses shot up 35.6% year over year in the recently-reported fourth quarter and 29% in 2018.

Estimate Revision

The Zacks Consensus Estimate for 2019 is pegged at a loss of $2.31. The same for revenues stands at $405.5 million, mirroring a 4.7% improvement from 2018. In fact, the company’s first-quarter earnings are expected to decline 11.9%.

Nevro Corp. Price and Consensus

 

Nevro Corp. Price and Consensus | Nevro Corp. Quote

 

Bottom Line

Despite an R&D edge, persisting sluggishness in Australia are likely to hurt Nevro Corp. Additionally, a Zacks Rank #4 (Sell) along with a VGM Score of C is indicative of dull prospects.

A Key Pick

A better-ranked stock in the broader medical space is Penumbra, Inc. PEN.

Penumbra’s long-term earnings growth rate is 20.9%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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