NuVasive (NUVA) Up 6.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for NuVasive (NUVA). Shares have added about 6.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is NuVasive due for a pullback? 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.

NuVasive Q1 Sales Suffers From Deferred Procedures

NuVasive delivered first-quarter 2020 adjusted earnings per share (EPS) of 48 cents, reflecting a 9.4% decline from the year-ago quarter. However, the figure surpassed the Zacks Consensus Estimate by 37.1%. The one-time adjustments include expenses associated with certain ongoing litigation matters and amortization expenses among others.

On a reported basis, EPS came in at 10 cents, reflecting 44.4% decline from the year-ago number.

The year-over-yeardecline can be attributed to significantly lower revenues on a year-over-year basis due to the coronavirus outbreak.

Revenues in the first quarter totaled $259.9 million, down 5.4% year over year on a reported basis (down 5.1% at constant exchange rate or CER). The top line also lagged the Zacks Consensus Estimate by 2.6%.

Geographical & Segmental Details

In the reported quarter, the U.S. Spinal Hardware business revenues declined 6.3% year over year to $138.5 million. The company noted that in the first two months of the quarter, NuVasive's X360 system was tracking to deliver solid year-over-year growth. However, starting in mid-March, the U.S. Spinal Hardware business witnessed significant deferrals in elective surgical procedures due to COVID-19.

Revenues from the U.S. Surgical Support business were $64.3 million in the first quarter, down 10.9% year over year. Here too, Case volumes tracked up year over year in January and February. The business experienced a slowdown in volumes in mid-March due to the pandemic.

In the March-end quarter, the company registered international revenues of $57.1 million, reflecting 4.1% year-over-year growth at CER.This was driven by mid-double-digit growth in Asia-Pacific, led by Japan, where COVID-19 impact was nominal in this period.

Margin Details

In the reported quarter, gross profit declined 6.1% year over year to $188 million. Gross margin contracted 54 basis points (bps) to 72.3%. Adjusted operating profit improved 5% from the year-ago period to $39.5 million. Accordingly, adjusted operating margin expanded 151 bps to 15.2% in the January-March quarter.

Operational Update

The company exited the first quarter with cash and cash equivalents of $511.9 million compared with $213 million at the end of 2019. First-quarter net cash, provided by operating activities, totaled $5.2 million compared with the prior year period’s $24.5 million.

Guidance for 2020

On Apr 14, 2020, while announcing its COVID-19 business update, NuVasive noted that it iscurrently unable to predict the time and rate of recovery of its elective surgery volumes. This compelled the company to withdraw its 2020 guidance.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -202.21% due to these changes.

VGM Scores

At this time, NuVasive has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, NuVasive has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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