Abaxis Q1 revenue up 8.7% on y-o- y basis.

The shares of point-of- care blood analyzer provider Abaxis Inc (ABAX) was hammered by investors last week, following a report of its fiscal 2017 first-quarter earnings that missed the Zacks Consensus estimate. However, the Q1 2017 revenue grew 8.7% on a y-o- y basis. Considering the overall revenue growth worldwide and particularly in the USA, we believe that the share price of Abaxis will soon bounce back to $50 levels. The share price closed at $47.81 on Monday.

The Union City, California-based company reported a rise in the fiscal 2017 first-quarter revenue to $57.7 million, from $53.09 million in the similar period last year. The first-quarter revenue missed the Wall Street estimates of $59 million.

The company, which markets VetScan (veterinary) and Piccolo (human), reported a decline in the Q1 net income to $6.89 million, from $6.995 million in the prior year similar period. Earnings for the quarter ended June 2016 was $0.30 per share, down $0.01 from $0.31 per share in the first-quarter last year. The first-quarter earnings missed the Thomson Reuters estimate of $0.32 per share by 9.1%. The earnings missed analysts’ estimates mainly because of an increase in the Q1 research and development expenses to $5.23 million, from $4.72 million.

MWI Animal Health

All three segments of Abaxis, namely Veterinary, Medical, and Other reported an increase in the revenue, compared to the first-quarter of fiscal 2016. The Veterinary revenue increased 10% y-o- y to $47.7 million. The increase in the revenue was aided by a 6% and 27% growth in the veterinary consumable and veterinary instrument revenues respectively. The medical market segment revenue climbed 5% y-o- y to $9.1million. The Piccolo instrument revenues fell 19%. However, it was more than enough compensated by the 11% growth in the medical rotor revenue. Finally, the revenues from Other segment rose 6.2% to $0.87 million.

Abaxis ended the first-quarter with cash and cash equivalents (short and long-term investments) of $153 million, compared to $129.8 million in the corresponding quarter last year. Taking into account the free cash available, the company expanded its share re-purchase program by $30 million. With this, the total amount set aside for the program is $54 million.

So, considering the revenue growth in all the segments, share repurchase program and the appreciable increase in the cash and cash equivalents of the company, fundamentally, the stock can be expected to reverse to rise above $50 in the current quarter.

The stock declined sharply last week to close below the 50-day moving average of 48. Major support for the stock exists at 45. The RSI has entered the oversold region. Thus, a reversal in the stock is almost certain after short-term consolidation near 45-levels.

Thus, speculating via a one touch call option would be the prudent choice as of now. Ensuring a target level of about $52 would yield the desired ‘in the money’ result in the suggested trade. The trader should also look for a contract expiry date around mid-August.

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