Will Myriad Genetics Q2 Earnings (MYGN) Surprise Investors?

Last quarter, the company had delivered a positive earnings surprise of 17.14%. Moreover, Myriad’s earnings have outpaced the Zacks Consensus Estimate in three of the past four quarters, with an average beat of 7.86%. Let’s see how things are shaping up prior to this announcement.  

Factors at Play

For the second quarter of fiscal 2016, Myriad expects adjusted earnings per share of 40–42 cents on total revenue of $188–$190 million. The current Zacks Consensus Estimate of earnings of 41 cents coincides with the midpoint of the company’s guidance range. Meanwhile, our estimate for revenues of $190 million is pegged at the upper end of the guided range.

Per management, Myriad’s first quarter operating expenses were a little lower than the company’s expectation for the remainder of 2016, while the company continues to expect a tax rate of approximately 40%. So, despite higher revenue expectations in the fiscal second quarter, management expects relatively flat adjusted earnings per share.

In terms of test menu expansion, with an aim to reach its recently announced five-year long-term goals, Myriad’s management has identified three strategic imperatives – transitioning and expanding the Hereditary Cancer business; diversifying its product portfolio and increasing its international contribution. With regard to the second strategy, Myriad has already commercialized four out of its six products in pipeline in the fiscal first quarter. These products, namely Vectra DA, Prolaris, myPath Melanoma, Myriad’s Companion Diagnostics and myPlan Lung Cancer test, are expected to fetch higher profits for the company in the near as well as the long term.

Over the near term, Myriad expects to see volume growth for Vectra DA as a result of Crescendo's (a subsidiary of Myriad) new sales and marketing initiatives to drive breadth and depth of testing with rheumatologists. Interestingly, Crescendo's early success with the practice integration program for Vectra DA has led to accelerated expansion efforts for the program. Myriad earlier announced its plans to expand practice integration training to 20% of its field sales force in the fiscal second quarter, and hopes to complete the training of the remaining by Jan 2016.

In relation to its Prolaris prostate cancer test, the company has submitted Medicare claims for low and very low risk prostate cancer patients and hope to recognize healthy Prolaris revenues in the fiscal second quarter. Moreover, based upon favorable study data published on Prolaris, Myriad had earlier announced its expectation to receive the CE Mark for its Prolaris test by the end of the second quarter. Post the CE Mark receipt, Myriad plans to apply for Prolaris’ reimbursement with the National Health System in the U.K. and with HAS, the public health system in France.

As far as Myriad’s suite of three companion diagnostic tests is concerned, the company initiated the early access launch for the CLIA version of myChoice HRD for platinum indication, early in the second quarter. Additionally, the company expects to report completion of the construction of its FDA laboratories for myChoice HRD and Tumor BRACAnalysis CDx, in line with earlier expectations, in the fiscal second quarter.

On the profitability front, Myriad expects to continue to witness incremental gross margin improvement in the second quarter, based upon the positive impact of Medicare reimbursement for Prolaris and higher fixed cost absorption associated with increased hereditary cancer revenues.

Earnings Whispers

Our proven model does not conclusively show that Myriad is likely to beat earnings 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. That is not the case here as you will see below.

Zacks ESP:  Myriad has an earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 41 cents.

Zacks Rank: Myriad has a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult

Note that 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 want to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter:

Gilead Sciences Inc. GILD, earnings ESP of +2.75% and a Zacks Rank #1.

Streamline Health Solutions, Inc. STRM, earnings ESP of +11.11% and a Zacks Rank #1.

Accuray Incorporated ARAY, earnings ESP of +100.00% and a Zacks Rank #2.

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