SurModics (SRDX) is a leading provider of surface modification technologies in the areas of biocompatibility, site specific drug delivery, biological cell encapsulation, and medical diagnostics.
SurModics partners with the world's foremost medical device, pharmaceutical and life science companies to bring innovation together for better patient outcomes. Recent collaborative efforts include the implementation of SurModics' Bravo drug delivery polymer matrix as a key component of the first-to-market drug-eluting coronary stent.
SurModics is also active in the ophthalmology market with a sustained drug delivery system that is currently in human trials for treatment of retinal disease. A significant portion of SurModics' revenue is generated by royalties earned from the sale of customers' commercial products.
Back to a Zacks #5 Rank Strong Sell
I last wrote about SurModics as the Bear of the Day in early December after the company reported its fourth quarter fiscal year 2013 results and the results were mixed, with weaker forward guidance the main catalyst for analysts to cut estimates and push the stock to a #5. For fiscal 2013, SurModics reported earnings of 85 cents per share, 29% higher than last year, but short of the Zacks Consensus Estimate by 2 cents.
SRDX shares were trading around $23 in December and climbed into the new year, making a double-top at $26 in January and March before steadily dropping again to an apparent support level around $20 this month from the June-September lows of last year.
The earnings reports for the December and March quarters, delivered in late Jan and early May respectively, offered EPS beats, but the sales guidance was enough to keep investors cautious. On May 1, the company reported EPS of $0.22, 2-cents better than the Zacks consensus estimate.
But revenues fell 0.7% year/year to $13.6 mln vs the $14.41 mln consensus. And the company offered mixed guidance for FY14, seeing EPS of $0.85-0.97 vs. the consensus of $0.92. They also projected revenues for FY14 of $56.0-58.5 mln vs. the $59.30 mln consensus.
In December, SurModics had given guidance for FY14 revenues in the range of $58-$62 million. And this is why the stock became a #5 Rank again as analysts dropped their estimates yet again. The declining sales picture could be a function of lost royalty payments related to Johnson & Johnson stent licensing agreements.
But whatever the causes, be sure to rely on the Zacks Rank for SurModics to let you know when the coast is clear and analysts are positive again on the company's earnings growth potential.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.