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Medidata (MDSO) Up 0.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Medidata Solutions (MDSO). Shares have added about 0.8% in that time frame, outperforming the S&P 500.

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

Medidata Earnings Beat Estimates in Q2, Margins Contract

Medidata reported second-quarter 2019 adjusted earnings per share of 48 cents, which surpassed the Zacks Consensus Estimate by 23.1%. The bottom line improved 11.6% from the year-ago figure.

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Revenues of $180.5 million rose 15.7% year over year and edged past the consensus estimate of $180 million.

Per management, increased customer subscriptions drove the quarterly revenues.

Segment Details

Subscription revenues in the second quarter totaled $150 million, up 15% on a year-over-year basis.

Revenues at Professional services grossed $30.5 million, up 19.8% from the prior-year quarter.

Margins

In the second quarter, gross profit was $130.9 million, up 10.5% year over year. Though the gross margin was an impressive 72.5%, it contracted 340 basis points (bps).

Operating income in the second quarter was $1.9 million, significantly down from the year-ago quarter’s $12.8 million. Operating margin in the quarter was 1.1%, marking a substantial contraction from 8.2% in the year-ago quarter.

Adjusted operating income in the quarter was $41.3 million, up 13% year over year. This represents adjusted operating margin of 22.9%, down 60 bps.

Liquidity Position

The company exited the second quarter of 2019 with cash and marketable securities of $206 million, compared with $240.5 million at the end of 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -5.88% due to these changes.

VGM Scores

Currently, Medidata has an average Growth Score of C, 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 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Medidata has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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