Why Is Myriad Genetics (MYGN) Down 9.6% Since the Last Earnings Report?

A month has gone by since the last earnings report for Myriad Genetics, Inc. MYGN. Shares have lost about 9.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Myriad Genetics Tops Q3 Earnings & Sales, Tweaks View

Myriad Genetics reported adjusted earnings per share (EPS) of $0.27 in the third quarter of fiscal 2017, down 34% year over year. However, adjusted EPS beat the Zacks Consensus Estimate by 12.5% and surpassed the company’s guided range of $0.23–$0.25.

Including one-time items, the company reported net income of $4.2 million or earnings of $0.06 per share in the quarter, exhibiting a decline of 88% and 87%, respectively.

Revenues

Total revenue rose 3% year over year to $196.9 million. The figure also outpaced the company’s guidance of $188–$190 million. The top line also exceeded the Zacks Consensus Estimate of $188.9 million. The year-over-year rise in the top line was primarily on account of sequential growth in hereditary cancer revenues and strong results from GeneSight.

Segment-wise, Molecular diagnostic tests (94.1% of total revenue) recorded total revenue of $185.2 million, up 4% year over year, mainly on account of a 109% surge in EndoPredict testing revenues to $2.3 million. Prolaris testing revenues however fell 35% to $3.4 million. Also, Hereditary cancer testing revenues dropped 10% year over year to $140.8 million, Vectra DA testing revenues fell 9% to $11.2 million, while other testing revenues gained 44% to $3.6 million.

On the other hand, Pharmaceutical and clinical service revenues (accounting for the rest) in the quarter were $11.7 million, reflecting a year-over-year decline of 11%.

Margin Trend

Gross margin in the quarter under review contracted 140 basis points (bps) to 77.5%. According to management, the decline was led by unfavorable product mix with more revenues coming in from lower margin segments such as pharmaceutical and clinical services along with reduced fixed cost absorption on reduced hereditary cancer revenues. Additionally, the company witnessed an impact from the full implementation of long-term contracts in hereditary cancer.

Operating expenses rose 30% to $139.7 million owing to a 34.9% rise in selling, general and administrative (SG&A) expenses to $122.1 million. Research and development (R&D) expenses climbed 2.3% (to $17.6 million) in the reported quarter. Consequently, the operating margin contracted a stupendous 1580 bps, down 6.6%.

Financial Position

Myriad exited the third quarter of fiscal 2017 with cash, cash equivalents and marketable securities of $123.8 million, compared with $162.5 million at the end of second-quarter 2017. Year to date, cash used in operations totaled $69.6 million, down 45.5% year over year. Consequently, free cash flow was down to $39.6 million from $45.2 million a year ago.

Guidance

Myriad raised the revenue guidance for fiscal 2017 to the range of $745–$755 million from $745–$755 million. The Zacks Consensus Estimate of $752 million is within the range.

On the bottom-line front, the company slashed the high end and raised the low end of the adjusted EPS guidance to $1.01–$1.03 from $1.00–$1.05. The current Zacks Consensus Estimate of $0.99 lies below the present range.

Alongside, management provided its outlook for the fourth quarter of fiscal 2017. The company estimates adjusted earnings per share of $0.26–$0.28 on total revenues of $192–$194 million. The Zacks Consensus Estimate for adjusted EPS is pegged at $0.28 and revenues at $188.0 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Myriad Genetics, Inc. Price and Consensus

 

Myriad Genetics, Inc. Price and Consensus | Myriad Genetics, Inc. Quote

VGM Scores

At this time, the stock has a subpar Growth Score of 'D', while Momentum is lagging a lot with a 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

While estimates have been moving downward, the magnitude of the revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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