Why Abiomed Stock Is Being Mauled Today

Shares sink after the company's earnings come up short and management cuts guidance.

Brian Feroldi
Brian Feroldi
Aug 1, 2019 at 12:06PM
Health Care

What happened

Investors in Abiomed (NASDAQ:ABMD), a medical device company focused on temporary heart pumps, are having a tough day. Shares were down about 26% at 12:36 p.m. EDT on Thursday after the company reported mixed quarterly results and lowered full-year guidance.

So what

Here are the key takeaways from the first quarter of fiscal 2020:

  • Revenue grew 15% to $207.7 million. That was shy of the $210.7 million that Wall Street had expected.
  • Gross margin dipped 80 basis points to 82.1%.
  • Operating income grew 30% to $60.7 million, which represents a 29.2% operating margin.
  • Net income under generally accepted accounting principles (GAAP) was $88.9 million, or $1.93 per diluted share. However, this included a $30 million, or $0.65 per share, unrealized gain from its investment in ShockWave Medical. The company also benefited from $12.8 million, or $0.28 per share, of tax benefits related to employee share-based compensation. 
  • Adjusted earnings per share were $1.00, which was $0.03 ahead of the consensus estimate on Wall Street.
Business man looking worried in front of laptop

Image source: Getty Images.

The mixed quarterly results were great, especially since the company is still in recovery mode after a weak earnings report last quarter. But traders appear to be in a foul mood today because of management's decision to lower full-year guidance:

  • Revenue is now expected to land between $885 million and $925 million, which represents growth of 15% to 20%. This is down from its prior range of $900 million to $945 million.
  • GAAP operating margin is forecast to be in the range of 28% to 30%. That's a slight decline from its prior guidance of 29% to 31%.

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Now what

Abiomed's weak results suggest that it still hasn't fully recovered from the confusing letter that was sent by the Food and Drug Administration to providers in February. The FDA sent another letter to providers on May 21 stated that the Impella RP heart pump is safe and effective, but the quarterly results show that not everyone has received that update.

CEO Michael Minogue said, "In Q1, we implemented new training programs, organizational changes in distribution, and launched external initiatives that will require time to drive more growth in the future." He also stated that, "We are confident in our ultimate global adoption because we know that our innovation improves clinical outcomes and patient quality of life."

Those statements are falling on deaf ears with traders today, which is understandable given that the company has produced back-to-back earnings reports that can be viewed as disappointing. However, even during this challenging period, Abiomed promises to post revenue growth in the high teens and crank out strong profits. With the stock currently trading for the most attractive valuation that we've seen in years, my view is that right now is a great time to pick up a few shares.