Can Penumbra (PEN) Spring A Surprise This Earnings Season?

Penumbra Inc. (NYSE:PEN) is slated to release first-quarter 2017 results on May 9, after market close.

Last quarter, the company posted a positive earnings surprise of 33.33%. The four-quarter average earnings beat is 84.51%. Let's see how things are shaping up for this announcement.

Factors at Play

Penumbra’s revenues surged 34.3% on a year-over-year basis in the fourth quarter on the company’s stellar performance in both neuro and peripheral vascular. With the company remaining focused on product launches and geographic expansion, we expect the strong top-line uptrend to continue in the first quarter as well.

Revenues from the neuro business grew at an impressive rate of 31.5% year over year in the last reported quarter, driven by strong sales of ACE68 reperfusion catheter and ACE68 introduction in Europe. Growth in neuro growth was driven by sales of the SMART Coil, under the neuro embolization range of products designed to treat brain aneurysms. Also, the company’s consistent focus on expansion through product launches is expected to help maintain the bullish trend at neuro.

Penumbra, Inc. Price and EPS Surprise

Penumbra, Inc. Price and EPS Surprise | Penumbra, Inc. Quote

Meanwhile, the company has pinned hopes on a strong performance by peripheral vascular following the promising 41.5% revenue growth in the fourth quarter. Growth in this area is likely to come from the embolization portfolio and peripheral thrombectomy, courtesy of continued uptake of indigo among new and existing customers.

With regard to launches in other geographies, the company saw solid distributor sales of SMART Coil in Japan last quarter. The increase in sales and consignment inventories in the quarter reflect the company’s focus on driving overall capacity and replenishing SMART Coil inventory levels. This should get reflected in the first-quarter results as well.

We are also hopeful about the company’s encouraging revenue guidance which calls for approximately 20% growth over full-year 2017. This should get reflected in the yet-to-be-reported quarter’s results as well.

On the flip side, foreign exchange fluctuations and stiff competition from major commercial laboratories and hospitals continue to raise caution. Rising costs and weak margins also add to the woes. Per management, the first quarter is likely to suffer a substantial fall from the preceding quarter. However, year-over-year growth is expected to be quite impressive.

Also, in the fourth quarter, SG&A expenses surged 42.46% year over year on increased headcount and related compensation expenses. If this persists, it may impact the company’s operating income as well as earnings.

Earnings Whispers

Our proven model does not conclusively show a beat for Penumbra this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Penumbra has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 6 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Penumbra’s Zacks Rank #3 increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Adidas (DE:ADSGN) AG (OTC:ADDYY) has an Earnings ESP of +0.94% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology, Inc. (NASDAQ:ALGN) has an Earnings ESP of +4.48% and a Zacks Rank #2.

Hill-Rom Holdings, Inc. (NYSE:HRC) has an Earnings ESP of +1.27% and a Zacks Rank #2.

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