Abiomed Posts Solid Earnings, Warns of Federal Investigation (ABMD)

A solid earnings report cannot even mask investor’s fears when a company speaks about a federal investigation. Yesterday, November 1, Abiomed (NASDAQ: ABMD) reported second-quarter financial results that showed revenues growing 27% on a year-over-year basis to $37.4 million. Profits increased five-fold from $0.02 per share during the same quarter in 2011 to $0.13 per share. The earnings per share easily beat the estimates of Wall Street analysts who looked for $0.05. Management even affirmed analyst expectations of $0.07 per share profit for next quarter.

The company then said the two words no investor wants to hear, “federal investigation”. Abiomed admitted that it had received notice last week from the US Attorney’s office of their plans to investigate the company’s marketing and labeling of Impella 2.5. On October 31, the company received a subpoena related to the investigation. The Impella products account for almost the entire revenue stream for the company.

Abiomed is a medical device company specializing in products for circulatory support and heart recovery care in patients with acute heart failure. The Impella 2.5 is a percutaneous micro heart pump used in interventional cardiology which allows surgeons to implant a device that keeps the patient’s blood flowing.

Like someone yelling fire in a crowded theater, the news had investors running for the exits before the market opened on Thursday with sell orders flapping in their hands. The initial trade of the day saw the stock gap down over $4.00 from the closing price on Wednesday to start the session at $15.80. Except for a brief bounce to a daily high of $15.90, share prices continued to slide during the morning. During the morning hours, traders swapped shares at a rate seven times the amount traded on an average day. The selling continued through the lunch hour with share prices finally bottoming out at a new annual low price of $13.12. The stock ended the session with a loss of 31% to close down $6.21 at a price of $13.61. By far, today was the heaviest trading day for Abiomed shares in over a year. The total volume on the day fell just shy of 9 million shares compared to the 481,000 shares exchanged on a typical day.

The real question before investors and traders is what could the government find and what impact would an adverse ruling have on future earnings. Unfortunately, the answers might take some time to find out.

Before today, the 52-week low for the stock was set almost one year ago to the day when traders exchanges shares for $15.12. Over the course of the next seven months, the stock moved higher reaching a 12-month high of $26.17 toward the end of May.

As of October 31, half of the analysts covering the stock had a “buy” rating. The consensus view places a $25.38 price target on Abiomed shares.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).