Myriad Genetics (MYGN) Q2 Earnings: What's in the Cards?

Myriad Genetics, Inc.MYGN is expected to report second-quarter fiscal 2017 results on Feb 7, after the closing bell.

Last quarter, the company posted a negative earnings surprise of 11.54%. However, its earnings outpaced the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 0.21%.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Myriad Genetics is currently plagued by several issues that may hamper its overall performance in the to-be-reported quarter. Of late, the company has been delivering poor hereditary cancer revenue numbers, primarily impacted by volume declines and price reduction. We note that, the reductions in pricing were primarily attributable to the full implementation of long-term contracts that the company signed over the last year.

Myriad Genetics Inc. Price and EPS Surprise

Myriad Genetics Inc. Price and EPS Surprise | Myriad Genetics Inc. Quote

Although the company expects to see sequential increase in hereditary cancer volumes in the second quarter, we believe there is still time to return to the normal sequential volume trend. From pricing perspective, the company is still not clear about the 35% of revenue that remains under long-term contract.

We remain concerned about the ongoing foreign exchange headwind. With considerable portion of its revenues coming from outside the U.S, the company is at risk of exchange rate fluctuations. Additionally, macroeconomic uncertainty and higher expenses owing to extensive pipeline of some tests may continue to impact the company's margins in the second quarter.

On a positive note, we are looking forward to Myriad Genetics' consistent efforts to remain aligned with its five-year goals of achieving revenue growth of greater than 10% CAGR; generating revenues of above $50 million from seven products, operating margins greater than 30% and international revenues constituting more than 10% of total revenue, by 2020.

Management is currently pursuing a number of initiatives to stabilize and grow its hereditary cancer testing business segment. For this, the company earlier submitted data to NCCN on expanding indications in breast cancer and pancreatic cancer. Moreover, recent data on prostate cancer patients and recommendations to expand guidelines to all metastatic patients are expected to considerably expand hereditary cancer indications. Per management, in total, these expansion activities represent more than $1 billion per year in incremental market potential for Myriad. We expect the second quarter to draw some positive outcomes out of these efforts.

Earlier this fiscal, Myriad Genetics completed the acquisition of Assurex, which will boost the former's preventive care business with the addition of Genesight products that have a market potential of $3 billion. Myriad Genetics expects revenues of approximately $50 million from GeneSight in fiscal 2017. The buyout will also help the company establish the foundation for its neuroscience business which is believed to be one of the highest growth areas for personalized medicine business. We expect to see some favorable outcome from the to-be-reported quarter itself.

Management expects fiscal 2017 to be a year of investment for Myriad Genetics as it looks to expand its footprint with products like Vectra DA, Prolaris and GeneSight, integrate two major acquisitions and also lay the foundation for its companion diagnostic portfolio.

Estimate Revision Trend

If we observe the estimate revision trend for the second quarter over the past one month, we can see that it remains stable with zero upward or downward movements. The magnitude of the estimate revision trend also indicates a stable picture with the second-quarter earnings estimates remaining unchanged at 24 cents, over the last 30 days.

Earnings Whispers

Our quantitative model also doesn't point to an earnings beat. Here's why:

Myriad Genetics doesn't have the right combination of the two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better - for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Myriad Genetics is +4.17%. This is because the Most Accurate estimate of 25 cents remains a penny ahead of the Zacks Consensus Estimate. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Myriad Genetics has a Zacks Rank #5 (Strong Sell)

As it is 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 as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Cempra Inc. CEMP has an Earnings ESP of +15.79% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Molina Healthcare Inc. MOH has an Earnings ESP of +5.33% and a Zacks Rank #2.

Universal Health Services, Inc. UHS has an Earnings ESP of +4.97% and a Zacks Rank #2.

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Myriad Genetics Inc. (MYGN): Free Stock Analysis Report

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Universal Health Services Inc. (UHS): Free Stock Analysis Report

Cempra Inc. (CEMP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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