Author: Zacks Equity Research

SNV – Synovus (SNV) Up 0.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Synovus Financial (SNV Free Report) . Shares have added about 0.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Synovus 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 catalysts.

Synovus Q2 Earnings Beat Estimates, Provisions Fall

Synovus reported second-quarter 2021 adjusted earnings of $1.20 per share, which handily beat the Zacks Consensus Estimate of $1.03 per share, aided by solid mortgage banking income. Also, the bottom line compares favorably with the earnings of 23 cents per share recorded in the year-ago quarter.

Results were driven by rising NII, lower expenses and reversal of provisions. Moreover, solid capital position stoked organic growth. However, lower non-interest income and loans were undermining factors.

Including certain non-recurring items, net income available to common shareholders came in at $177.9 million or $1.19 per share compared with the $84.2 million or 57 cents recorded in the prior-year quarter.

Revenues Fall on Lower Non-Interest Income, Expenses Down

Adjusted revenues (fully tax-equivalent basis) in the second quarter came in at $488.95 million, down 11.1% from the prior-year quarter. Yet, the top line outpaced the Zacks Consensus Estimate by 0.98%.

NII inched up 1.4% year over year to $381.9 million. However, net interest margin shrunk 11 basis points (bps) to 3.02%.

Non-interest income plunged 38% on a year-over-year basis to $107.1 million. Fall in mortgage banking, income from bank-owned life insurance, capital markets income and other non-interest revenues led to this downside.

Non-interest expenses were $270.5 million, down 5% year over year. This upside mainly resulted from lower professional fees, FDIC insurance and other regulatory fees and Other operating expenses.

Adjusted tangible efficiency ratio came in at 54.41% compared with the 57.71% reported in the year-earlier quarter. A fall in ratio indicates an improvement in profitability.

Total deposits were $47.2 billion, down 0.4% sequentially. Also, total loans fell 4.2% sequentially to $38.2 billion.

Credit Quality: A Mixed Bag

Synovus’ credit metrics witnessed a mixed performance during the June-end quarter.

Non-performing loans rose 9% year over year to $161 million. Net charge-offs increased 10% to $26.5 million. The annualized net charge-off ratio was 0.28% compared with the year-ago quarter’s 0.24%. Total non-performing assets amounted to $177.8 million, underlining a marginal year-over-year jump.

Reversal of provision for credit losses of $24.6 million was recorded in the second quarter against provision expense of $141.9 in the prior-year quarter. Non-performing loan ratio came in at 0.46%, shrinking 4 bps sequentially.

Robust Capital & Profitability Ratio

Tier 1 capital ratio and total risk-based capital ratio were 10.99% and 13.25%, respectively, compared with 10.15% and 12.70% as of Jun 30, 2020.

Moreover, as of Jun 30, 2021, Common Equity Tier 1 Ratio (fully phased-in) was 9.75% compared with the 8.90% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.72% compared with the 8.38% recorded in the year-earlier period.

Return on average assets was 1.36% compared with the prior-year quarter’s 0.71%. Return on average common equity was 15.40%, up from the 7.48%.

2021 Outlook

Excluding all paycheck protection program balance changes and third-party consumer loan, the company expects period-end loan growth at the low end of 2-4% for 2021.

Overall, total adjusted revenues are expected to decline 1% and increase 1% in 2021. It expects adjusted non-interest expenses decline between 1% and 2% for 2021.

CET1 ratio of less or equal 9.5% is expected for 2021. The company expects an effective tax rate of 22% to 24%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.06% due to these changes.

VGM Scores

Currently, Synovus has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 D. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

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

RXN – Rexnord (RXN) Up 12.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Rexnord (RXN Free Report) . Shares have added about 12.8% in that time frame, outperforming the S&P 500.

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

Rexnord Q2 Earnings Beat, Increase Y/Y on Solid Sales

Rexnord reported better-than-expected results for the second quarter of 2021.

The machinery company’s adjusted earnings in the reported quarter were 58 cents per share, surpassing the Zacks Consensus Estimate of 50 cents. The bottom line increased 61.1% from the year-ago quarter earnings of 36 cents on the back of improved sales performance and margins.

Sales Details

In the reported quarter, Rexnord’s net sales were $568.3 million, increasing 26.5% from the year-ago quarter. The results benefitted from 21% growth in core sales, 3% gain from foreign currency translations and 3% contribution from acquisitions/divestitures.

Its net sales surpassed the Zacks Consensus Estimate of $544.2 million.

The company reports results under two segments — Process & Motion Control, and Water Management. The second-quarter segmental results are briefly discussed below:

Revenues from Process & Motion Control totaled $324.6 million, up 18.3% year over year. It represented 57.1% of the company’s quarterly net sales. Core sales in the reported quarter increased 16% year over year, driven by 21% growth in the non-aerospace business, partially offset by a 15% decline in the aerospace business. Foreign currency translations benefited the company by 4%, while divestitures had an adverse impact of 2%.

Water Management’s revenues, representing 42.9% of net sales, were $243.7 million, up 39.5% year over year. Core sales in the reported quarter increased 29%, whereas acquired assets (Hadrian) contributed 9% to sales growth. The rise in core sales was driven by high product demand. Foreign currency translations had a positive impact of 1% in the quarter.

Margin Profile

In the reported quarter, Rexnord’s cost of sales increased 22.2% year over year to $332.5 million. It represented 58.5% of net sales versus 60.6% recorded in the year-ago quarter. Gross margin increased 210 basis points (bps) to 41.5%. Selling, general and administrative expenses of $122 million increased 21.8% year over year and represented 21.5% of net sales versus 22.3% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $133.4 million, up 26.5% from the year-ago quarter. Adjusted EBITDA margin was 23.5% in the quarter under review, increasing 50 bps from the year-ago quarter. For the Process & Motion Control segment, adjusted EBITDA margin increased 260 bps year over year to 24.2%, whereas that for the Water Management segment decreased 230 bps to 26.8%.

Adjusted operating income increased 34.8% year over year to $110.3 million, whereas margin grew 120 bps to 19.4%. Interest expenses, net, in the reported quarter were $11.7 million, down 12.7% year over year.

Balance Sheet and Cash Flow

Exiting the second quarter of 2021, Rexnord had cash and cash equivalents of $390.7 million, reflecting 27.1% growth from $307.3 million recorded in the last reported quarter. Long-term debt was stable sequentially at $1,189.5 million.

In the quarter under review, the company generated net cash of $73.7 million from operating activities, increasing 54.8% year over year. Capital investment for purchasing property, plant and equipment declined 43.5% to $4.8 million. Free cash flow was $68.9 million, increasing from $39.1 million in the prior-year quarter.

In the first half of 2021, the company paid out dividends totaling $21.6 million, reflecting an 11.3% increase from the year-ago comparable period. It also repurchased shares worth $0.9 million during the same period.

Outlook

For the third quarter of 2021, the company expects Water Management sales to increase in high-teens, with double-digit core sales growth. Adjusted EBITDA margin for the segment is expected to be 26-27%.

Sales for the Process & Motion Control segment are anticipated to increase by mid-teens on a year-over-year basis. Adjusted EBITDA margin for the segment is expected to be 23-24%.

Corporate expenses for the third quarter are expected to be $10 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Rexnord has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Rexnord has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

PM – Why Is Philip Morris (PM) Up 4.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Philip Morris (PM Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Philip Morris 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 catalysts.

Philip Morris Q2 Earnings Beat Estimates, Revenues Up Y/Y

Philip Morris reported second-quarter 2021 results. Adjusted earnings per share came in at $1.57, which beat the Zacks Consensus Estimate of $1.54. Further, the bottom line rallied 21.7% year over year. On an organic basis, the bottom line increased 17.8%.

Net revenues of $7,594 million increased 14.2% from the figure reported in the year-ago quarter. The top line missed the Zacks Consensus Estimate of $7,840 million. Net revenues, on an organic basis, improved 7.9%. The upside can be attributed to favorable pricing variance, volume/mix and higher cigarette volumes. The upsides were partly offset by unfavorable impacts stemming from the Saudi Arabia customs assessments worth $246 million.

During the second quarter, revenues from combustible products were up 5.4% to $5,318 million on growth across most regions, except the Middle East & Africa and East Asia & Australia. Revenues in RRPs increased 41.7% to $2,276 million.

Total cigarette and heated tobacco unit shipment volumes increased 6.1% to 180.5 billion units. Cigarette shipment volumes went up 3.2% to 156.1 billion units in the quarter, while heated tobacco unit shipment volumes of 24.4 billion units rose 30.2% year over year.

Adjusted operating income came in at $3,454 million, up 23.3% year on year. The metric rose 18.7% on an organic basis. Moreover, adjusted operating income margin of 44.1% expanded 2.7 percentage points on an organic basis.

Region-Wise Performance

Net revenues in the European Union increased 27.2% to $3,149 million. Revenues climbed 15.6% on an organic basis, courtesy of favorable pricing variance and improved volume/mix driven by higher heated tobacco volumes. Total shipment volumes increased 8.7% to 48,425 million units.

In Eastern Europe, net revenues inched up 14.3% to $895 million. Revenues increased 12.5% on an organic basis, courtesy of favorable volume/mix and pricing variance. Total shipment volumes rose 2.9% to 29,625 million units.

In the Middle East & Africa region, net revenues declined 20.5% to $560 million. The metric fell 18.2% on an organic basis due to adverse impacts of Saudi Arabia customs assessments. Total shipment volumes in the region rose 12.7% to 30,859 million units.

Revenues in South & Southeast Asia increased 17.7% to $1,046 million. Revenues in the region were up 10% on an organic basis. The upside was a result of favorable volume/mix partly and pricing variance. Shipment volumes expanded 6% to 35,360 million units.

Revenues from East Asia & Australia advanced 5.7% to $1,514 million. Moreover revenues in the region advanced 3.1% organically due to favorable pricing variance. Total shipment volumes fell 1.3% to 20,872 million units.

Finally, revenues from Latin America & Canada increased 16.8% to $430 million. The metric was up 9% on an organic basis due to favorable volume/mix and pricing. Moreover, total shipment volumes rose 3.2% to 15,353 million units.

Other Financials

The company ended the second quarter with cash and cash equivalents of $4,915 million. Also, it had long-term debt of $27,414 million and shareholders’ deficit of $9,200 million.

The company approved a new share repurchase program of up to $7 billion. Per the program, the company targets to spend $5-7 billion over a three-year period, commencing from third-quarter 2021. The company also declared regular quarterly dividend of $1.20 per share, representing an annualized rate of $4.80.

Guidance

The company revised its view for 2021 and envisions adjusted earnings per share (EPS) in the range of $5.97-$6.07 compared with the earlier view of $5.95-$6.05. At constant currency, adjusted EPS are expected to grow 12-14% to $5.79-$5.89 compared with growth of 11-13% anticipated earlier. The guidance takes into consideration favorable impacts from currency exchange rates worth 18 cents per share.

In 2021, management expects gradual improvement in the general operating landscape. The company does not expect a near-term recovery in the duty-free business due to travel-related uncertainties. In fact, management expects the existing dynamics to persist through the end of 2021. Additionally, total cigarette and heated tobacco unit shipment volume growth is likely to be between flat to an increase of 2% in 2021. Heated tobacco shipment volumes are envisioned in a band of 95-100 billion units in 2021. For 2021, Phillip Morris expects adjusted net revenues to increase nearly 6-7% on an organic basis, compared with growth of 5-7% anticipated earlier. Adjusted operating margin on an organic basis is likely to rally 200 basis points in 2021. For third-quarter 2021, the company expects earnings in the bracket of $1.50-$1.55, including favorable currency impact of nearly 4 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Philip Morris has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 C. 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, Philip Morris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

ZBH – Zimmer Biomet (ZBH) Receives FDA Nod for ROSA Hip System

Zimmer Biomet Holdings, Inc. (ZBH Free Report) recently announced the FDA 510(k) clearance of the ROSA Hip System for robotically-assisted direct anterior total hip replacement. This is the latest addition to the company’s comprehensive ROSA Robotics portfolio, consisting of the ROSA Knee System, ROSA Partial Knee System and ROSA ONE.

The ROSA Hip also complements Zimmer Biomet’s ZBEdge Connected Intelligence Suite. Its integration with the ZBEdge advances the company’s vision to translate pre-, intra-and post-operative data into actionable clinical insights to aid in informed personalized care decision-making.

More on the Features of ROSA Hip

The ROSA Hip is intended to assist direct anterior surgeons with preparation, positioning and component impaction, while intra-operatively quantifying cup orientation, leg length and offset. The intra-operative data collected by ROSA Hip is combined with pre- and post-operative data collected by mymobility with Apple Watch, a proprietary remote care management platform. This data is consolidated and analyzed by OrthoIntel Orthopedic Intelligence Platform to gain new clinical insights.

The ROSA Hip is compatible with multiple implant systems, including the Avenir Complete Hip System.

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The ROSA Hip is designed to easily adapt to a surgeon’s existing workflow. It enables surgeons to retain complete control over case planning and execution, while providing real-time data and visualization tools. It also provides support during component positioning, cup impaction and other critical steps of an anterior approach total hip replacement.

Per management, ROSA Hip has the potential to offer greater surgeons and patients’ confidence in contemporary total hip replacement by reducing the intra-operative variability and inconsistency.

Additional Features of the ROSA Hip

The ROSA Hip is a fluoroscopy-based tool. It additionally allows surgeons to create a personalized pre-operative surgical plan through the ONE Planner Hip within five minutes. It can also help to improve procedural efficiency with a simplified set-up (that doesn’t require pins or reference arrays) and the convenience to use X-ray imaging instead of computed tomography (CT) scans.

Industry Prospects

Per a report published in Technavio, the global orthopedic surgical robots market is expected to see a CAGR of almost 44% by 2024. Factors driving market growth include increased adoption of robotic surgical platforms due to limitations associated with conventional surgeries, several advantages over-conventional surgeries, growing preference for minimally-invasive surgeries from hospitals and increase in strategic collaborations to develop advanced robotic platforms.

Given the substantial market prospects, the recent regulatory authorization of the ROSA Hip seems well-timed.

Notable Developments

In April 2021, Zimmer Biomet received FDA 510(k) clearance for the ROSA Partial Knee System for robotically-assisted partial knee replacement surgeries. The ROSA Partial Knee System added to the company’s ROSA Robotics portfolio. It is also a component of Zimmer Biomet’s ZBEdge. The ROSA Partial Knee System is compatible with Persona Partial Knee, a leading partial knee implant system with a clinically-proven legacy and a high rate of patient satisfaction.

In March 2021, the company launched ZBEdge Connected Intelligence Suite of digital and robotic technologies which are purposefully engineered to deliver transformative data-powered clinical insights, shared seamlessly across the patient journey, to improve patient outcomes. The notable ZBEdge technologies include the ROSA Robotics Platform, Signature ONE Surgical Planning, the Zimmer Biomet iAssist Knee Alignment System, among others.

Share Price Performance

The stock has underperformed its industry over the past year. It has grown 5.1% compared with the industry’s 12.1% growth.

Zacks Rank and Key Picks

Currently, Zimmer Biomet carries a Zacks Rank #4 (Sell).

A few better-ranked stocks from the Medical-Products industry include VAREX IMAGING (VREX Free Report) , Envista Holdings Corporation (NVST Free Report) and BellRing Brands, Inc. (BRBR Free Report) .

VAREX, sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Envista Holdings, sporting a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 26.8%.

BellRing Brands, carrying a Zacks Rank #2, has a long-term earnings growth rate of 25.3%.

RL – Why Ralph Lauren (RL) is a Top Growth Stock for the Long-Term

It doesn’t matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.

The research service features daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, all of which will help you become a smarter, more confident investor.

It also includes access to the Zacks Style Scores.

What are the Zacks Style Scores?

Developed alongside the Zacks Rank, the Zacks Style Scores are a group of complementary indicators that help investors pick stocks with the best chances of beating the market over the next 30 days.

Based on their value, growth, and momentum characteristics, each stock is assigned a rating of A, B, C, D, or F. The better the score, the better chance the stock will outperform; an A is better than a B, a B is better than a C, and so on.

The Style Scores are broken down into four categories:

Value Score

Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock’s true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.

Growth Score

Growth investors are more concerned with a stock’s future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.

Momentum Score

Momentum traders and investors live by the saying “the trend is your friend.” This investing style is all about taking advantage of upward or downward trends in a stock’s price or earnings outlook. Employing factors like one-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to build a position in high-momentum stocks.

VGM Score

If you like to use all three kinds of investing, then the VGM Score is for you. It’s a combination of all Style Scores, and is an important indicator to use with the Zacks Rank. The VGM Score rates each stock on their shared weighted styles, narrowing down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank, which is a proprietary stock-rating model, employs earnings estimate revisions, or changes to a company’s earnings expectations, to make building a winning portfolio easier.

#1 (Strong Buy) stocks have produced an unmatched +25.41% average annual return since 1988, which is more than double the S&P 500’s performance over the same time frame. However, the Zacks Rank examines a ton of stocks, and there can be more than 200 companies with a Strong Buy rank, and another 600 with a #2 (Buy) rank, on any given day.

This totals more than 800 top-rated stocks, and it can be overwhelming to try and pick the best stocks for you and your portfolio.

That’s where the Style Scores come in.

To have the best chance of big returns, you’ll want to always consider stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B, which will give you the highest probability of success. If you’re looking at stocks with a #3 (Hold) rank, it’s important they have Scores of A or B as well to ensure as much upside potential as possible.

As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company’s earnings outlook should be a deciding factor when picking which stocks to buy.

A stock with a #4 (Sell) or #5 (Strong Sell) rating, for instance, even one with Scores of A and B, will still have a declining earnings forecast, and a greater chance its share price will fall too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Ralph Lauren (RL Free Report)

Ralph Lauren Corp. is a major designer, marketer and distributor of premium lifestyle products in North America, Europe, Asia, and internationally. It offers products in the apparel, footwear, accessories, home furnishings, and other licensed product categories. The company possesses a strong portfolio of globally recognized brand names such as Polo Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Collection, Double RL, Lauren Ralph Lauren, Polo Golf Ralph Lauren, Ralph Lauren Golf, RLX Ralph Lauren, Polo Ralph Lauren Children, Chaps, Club Monaco and American Living.

RL is a #1 (Strong Buy) on the Zacks Rank, with a VGM Score of B.

Additionally, the company could be a top pick for growth investors. RL has a Growth Style Score of A, forecasting year-over-year earnings growth of 312.9% for the current fiscal year.

Six analysts revised their earnings estimate upwards in the last 60 days for fiscal 2022. The Zacks Consensus Estimate has increased $1.11 to $7.02 per share. RL boasts an average earnings surprise of 91.4%.

With a solid Zacks Rank and top-tier Growth and VGM Style Scores, RL should be on investors’ short list.

REGN – Why Regeneron Pharmaceuticals (REGN) Isn't Done Growing Earnings Yet

Growth stocks can be some of the most exciting picks in the market, as these high-flyers can captivate investors’ attention, and produce big gains as well. However, they can also lead on the downside when the growth story is over, so it is important to find companies which are still seeing strong growth prospects in their businesses.

One such company that might be well-positioned for future earnings growth is Regeneron Pharmaceuticals, Inc. (REGN Free Report) . This firm, which is in the Medical – Biomedical and Genetics industry, saw EPS growth of 27.6% last year, and is looking great for this year too.

In fact, the current growth estimate for this year calls for earnings-per-share growth of 72.1%. Furthermore, the long-term growth rate is currently an impressive 16.3%, suggesting pretty good prospects for the long haul.

And if this wasn’t enough, the stock has actually seen estimates rise over the past month for the current fiscal year by about 8.2%. Thanks to this rise in earnings estimates, REGN has a Zacks Rank #1 (Strong Buy) which further underscores the potential for outperformance in this company. You can see the complete list of today’s Zacks #1 Rank stocks here.

So if you are looking for a fast growing stock that is still seeing plenty of opportunities on the horizon, make sure to consider REGN. Not only does it have double-digit earnings growth prospects, but its impressive Zacks Rank suggests that analysts believe better days are ahead for REGN as well.
 

CRL – Charles River (CRL) at a 52-Week High: What's Driving It?

Charles River Laboratories International, Inc. (CRL Free Report) reported a new 52-week high of $423.63 on Aug 18, before closing the session marginally lower at $416.08.

The company’s shares have charted a solid trajectory in recent times, appreciating 93.4% over the past year, ahead of the 39% decline of the industry it belongs to and 33.4% surge of the S&P 500 composite.

Over the past five years, the company registered earnings growth of 15.5% compared with the industry’s 14.8% rise and way ahead of the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 14% is below the industry’s growth projection of 18.1% and exceeds the S&P 500’s projected 11.3% increase.

Charles River ended the second quarter of 2021 with better-than-expected results. The company is well poised for growth in the coming quarters backed by solid performance across all three reporting segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA) and Manufacturing Support. A good solvency position bodes well for the stock. Expansion of both margins is encouraging as well.

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Let’s delve deeper.

Key Drivers

Q2 Upsides: Charles River exited the second quarter of 2021 with better-than-expected revenues and earnings. The second quarter was highlighted by 24.1% organic revenue growth, driven by double-digit growth across all three segments. Robust demand in the Biologics Testing Solutions and Microbial Solutions businesses drove Manufacturing Solutions revenues in the reported quarter. Expansion of both margins is encouraging as well. The company has raised its 2021 guidance based on strong second-quarter performance and expectations of robust client demand through the remainder of the year.

RMS Business Rebounds: We are optimistic about the RMS segment that registered 44.5% revenue growth organically year over year in the second quarter despite the COVID-related business disruption in 2020. Organic revenue growth was driven by robust demand for research models across all client segments and geographic regions, particularly in China as well as higher revenues from research model services. COVID-led favorable year-over-year comparison contributed nearly 35% on a reported basis and 33.4% on an organic basis to RMS revenue growth in the second quarter.

DSA Arm Continues to Thrive: The market is upbeat about Charles River’s DSA arm, which reported 18.1% organic revenue growth in the second quarter of 2021 on broad-based demand for both Discovery and Safety Assessment. The Safety Assessment business continued to perform exceptionally well, reflecting robust demand from both biotech and global biopharma clients. Bookings and proposal volume reached record highs in the second quarter, with strength across all regions and major service areas.

Stable Solvency Structure: Charles River exited the second quarter of 2021 with cash and cash equivalents of $222.9 million compared with $465 million at the end of the first quarter of 2021. Meanwhile, the quarter’s total debt of $2.73 billion was much higher than the cash and cash equivalent level. However, we may note that the company has short-term payable debt of $3 million on its balance sheet, which is indicative of good news in terms of the company’s solvency position, particularly during the time of the pandemic, when it is majorly facing manufacturing and supply halt globally.

Downsides

Cell Supply Business Faces Challenge: Charles River’s cell supply business faced issues related to donor access in the second quarter. The company particularly noted that revenue growth for HemaCare and Cellero remained below the targeted level in the reported quarter due to some limitations on donor access imposed by the COVID-19 pandemic.

Competitive Landscape: Charles River competes in the marketplace on the basis of its therapeutic and scientific expertise in early-stage drug research, quality, reputation, flexibility, responsiveness, pricing, innovation and global capabilities. The company faces significant competition from a broad range of competitors of different sizes and capabilities across its RMS, DSA and Manufacturing Support segments.

Zacks Rank and Key Picks

Currently, Charles River carries a Zacks Rank #3 (Hold).

A few better ranked stocks from the Medical-Services industry include Apollo Medical Holdings, Inc. (AMEH Free Report) , HealthEquity, Inc. (HQY Free Report) and ICON PLC (ICLR Free Report) .

Apollo Medical, sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 20%. You can see the complete list of today’s Zacks #1 Rank stocks here.

HealthEquity, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 14.5%.

ICON, which carries a Zacks Rank #2, has a long-term earnings growth rate of 11.7%.

EW – Edwards Lifesciences (EW) at a 52-Week High: What's Driving It?

Edwards Lifesciences Corporation (EW Free Report) scaled a new 52-week high of $118.18 on Aug 18, before closing the session marginally lower at $116.26. The stock has rallied 3.5% since its second-quarter earnings announcement on Jul 29.

The company is witnessing an upward trend in its stock price, prompted by strong sales growth across all four product groups, led by steady improvement in TAVR procedure volumes worldwide. Growing demand for the company’s products used in high-risk surgeries and recovery in the ClearSight non-invasive finger cuff in elective procedures are impressive. However, reimbursement cut and foreign exchange woes remain concerns.

Let’s delve deeper.

Key Growth Catalysts

Impressive Q2 Results: Edwards Lifesciences exited the second quarter of 2021 with better-than-expected results on post-pandemic business recovery. Strong sales growth across all four product groups, led by steady improvement in TAVR procedure volumes worldwide, buoys optimism. Robust adoption of the INSPIRIS aortic surgical valve and the KONECT aortic valve conduit is encouraging. Continued strong adoption of the SAPIEN 3 Ultra platform and the PASCAL system across Europe looks encouraging as well. Growing demand for the company’s products used in high-risk surgeries and recovery in the ClearSight non-invasive finger cuff in elective procedures are impressive.

Critical Care Business Holds Potential: The segment registered growth compared to the year-ago quarter, both on a reported and an underlying basis. The revenue uptick resulted from balanced contributions from all product lines, led by HemoSphere sales in the United States as hospital capital spending continues to rise.  In June 2021, the company received FDA clearance for the software algorithm that powers the Hypotension Prediction Index (HPI) on HemoSphere and the Acumen IQ cuff. The company expects full-year 2021 underlying sales growth in the low-double-digit range on the back of strength in demand for products used in more intense surgeries.

Zacks Investment ResearchImage Source: Zacks Investment Research

Long-Term Growth Strategy Buoys Optimism: Edwards Lifesciences expects to maintain its leadership position in the global TAVR market through increased focus on expanding patient access by actively leveraging current valve platforms for additional indications. With patients and clinicians increasingly preferring TAVR and based on the substantial body of compelling clinical evidence along with strong adoption of its TAVR devices, management remains optimistic about the long-term growth opportunity its transcatheter therapies offer in the global market. Edwards Lifesciences is also committed to aggressively investing in structural heart disease and critical care technologies.

Upbeat Guidance: For the third quarter of 2021, Edwards Lifesciences expects adjusted earnings per share in the range of 50-56 cents. The company projects third-quarter 2021 sales revenues in the range of $1.29-$1.37 billion. For 2021, the company narrowed its projection of adjusted earnings per share to the high end of the previously-announced $2.07 to $2.27 range. For the year, the company raised its anticipation for sales to the range of $5.2-$5.4 billion from the previously-guided $4.9-$5.3 billion.

Downsides

On the flip side, there are some factors deterring the stock’s rally of late.

Foreign Exchange Headwinds: The significant challenges Edwards Lifesciences had to face owing to unfavorable foreign currency impact have been affecting the company’s gross margin over the past few quarters. Per management, significant currency fluctuations could have a material effect on revenues, cost of sales and operational results.

Reimbursement Cut to Increase Expenses: The U.S. government’s law related to the health care system includes provisions that, among other things, reduce or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose increased taxes. This in turn puts pressure on companies’ cost structure in the medical sector.

Zacks Rank and Key Picks

Currently, the company carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST Free Report) , BellRing Brands, Inc. (BRBR Free Report) and Henry Schein, Inc. (HSIC Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

BellRing Brands has an estimated long-term earnings growth rate of 22%.

Henry Schein has a projected long-term earnings growth rate of 14%.

RH – Is RH a Great Growth Stock?

Growth stocks can be some of the most exciting picks in the market, as these high-flyers can captivate investors’ attention, and produce big gains as well. However, they can also lead on the downside when the growth story is over, so it is important to find companies which are still seeing strong growth prospects in their businesses.

One such company that might be well-positioned for future earnings growth is RH (RH Free Report) . This firm, which is in the Retail – Home Furnishings industry, saw EPS growth of 52.9% last year, and is looking great for this year too.

In fact, the current growth estimate for this year calls for earnings-per-share growth of 28.4%. Furthermore, the long-term growth rate is currently an impressive 17.5%, suggesting pretty good prospects for the long haul.

And if this wasn’t enough, the stock has actually seen estimates rise over the past month for the current fiscal year by about 1.3%. Thanks to this rise in earnings estimates, RH has a Zacks Rank #2 (Buy) which further underscores the potential for outperformance in this company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

So if you are looking for a fast growing stock that is still seeing plenty of opportunities on the horizon, make sure to consider RH. Not only does it have double-digit earnings growth prospects, but its impressive Zacks Rank suggests that analysts believe better days are ahead for RH as well.
 

MDT – Medtronic (MDT) Q1 Earnings to Benefit From Market Share Gains

Medtronic plc (MDT Free Report) is scheduled to report first-quarter fiscal 2022 results on Aug 24, before the opening bell.

In the last reported quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 5.63%. The company missed estimates in one of the trailing four quarters and surpassed the same in the other three, the average surprise being 60.95%.

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Medtronic, which has a strong global base, is expected to have witnessed a strong rebound in product demand across its core business segments during the months of its fiscal first quarter, with the market getting back to normalcy on reduced new COVID-19 case count and mass vaccine rollouts. This is likely to have boosted its fiscal first-quarter top line.

Since the beginning of calendar year 2021, the company has been consistently outperforming the markets with new product launches driving share gains in an increasing number of Medtronic businesses.

Even with the pandemic adversely impacting the procedures, we expect to Medtronic’s Q1 results to reflect growth in market share. Especially, the company’s Cardiac Rhythm Management (CRM) business, which has already shown strong market share gain globally in the last reported quarter, is expected to have continued with this bullish momentum in Q1 driven by robust performances of Micra leadless pacemaker, Cobalt and Crome High Power devices.

However, in Neurovascular, the company, in May 2021 noted that it estimates to lose a couple of points of share year over year, primarily due to new competitive flow diverters from Stryker and Terumo. That said, Medtronic expected shares to stabilize sequentially in fiscal Q1 banking on the launch of Solitaire X 3-millimeter stent retriever in the United States and the limited launch of pipeline vantage flow diverter in certain CE mark countries.

In fact, considering market share as one of the key metrics in evaluating performance, the company in its May 2021 update noted that, starting from fiscal 2022, this metric will be included in its incentive compensation. This should get reflected in the company’s fiscal first-quarter results.

Further, Medtronic’s hospital customers have been showing signs of recovery. Purchases of capital equipment have gainedmomentum. Notably, the use of Medtronic’s capital equipment like energy consoles, robotics and navigation systems, is tied directly to procedures. Hospitals have been prioritizing spending on this type of equipment. This should get reflected in the company’s soon-to-be-reported quarter’s results.

The company earlier noted that there will be strong recovery and its ability to return to growth will outpace its competitors. Strong new product flow in the core segments, increase in tuck-in M&As, and the recent implementation of a new operating model are expected to have contributed strongly to the company’s first-quarter top line.

During its May 2021 update, Medtronic stated that it expects first-quarter organic growth to be in the range of 17% to 18% and a currency tailwind between $200 million and $250 million.

By segment, the company earlier expected Q1 Cardiovascular sales to grow in the band of 14% to 15%, Medical Surgical to grow 18% to 19%, Neuroscience to grow 25% to 26% and Diabetes to remain flat year over year.

Q1 Estimates

The Zacks Consensus Estimate for fiscal first-quarter total revenues of $7.85 billion suggests 20.7% rise from the prior-year reported number. The consensus mark for earnings of $1.31 per share implies 111.29% decline from the year-ago reported figure.

What Our Quantitative Model Predicts

Per our proven model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver an earnings surprise. But this is not the case here as you will see below.

Earnings ESP: Medtronic has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Medtronic currently carries a Zacks Rank #3.

Stocks Worth a Look

Here are a few stocks worth considering as these have the right combination of elements to beat on earnings this reporting cycle.

Advance Auto Parts, Inc. (AAP Free Report) has an Earnings ESP of +13.22% and a Zacks Rank of 2, at present. The company is slated to release second-quarter fiscal 2021 results on Aug 24.

Abercrombie & Fitch Company (ANF Free Report) has an Earnings ESP of +13.89% and a Zacks Rank of 1, at present. The company is slated to release second-quarter 2021 results on Aug 26.

Burlington Stores, Inc. (BURL Free Report) has an Earnings ESP of +20.61% and a Zacks Rank of 1, at present. The company is slated to release second-quarter 2021 results on Aug 26.