Rockwell Medical RMTI is scheduled to report third-quarter 2024 results on Nov. 11, before the opening bell.
In the last reported quarter, the company’s adjusted earnings of 1 cent exceeded the Zacks Consensus Estimate by 125%. Rockwell Medical beat estimates in each of the trailing four quarters, the average positive surprise being 87.92%.
The Zacks Consensus Estimate for third-quarter revenues is pegged at $25.9 million, suggesting growth of 9.3% year over year. The consensus estimate for third-quarter earnings is pegged at 1 cent per share, implying a 114.3% surge on a year-over-year basis.
Q3 Estimates for RMTI Move North in 3 Months
Earnings estimates for Rockwell Medical have improved from a loss of 3 cents per share to earnings of 1 cent for the third quarter over the past 90 days.
Estimates have been northbound following back-to-back big announcements like the company’s new launches for home hemodialysis, a multi-million-dollar distribution agreement in Japan and a product purchase agreement with the leading at-home and acute care dialysis provider in the United States. These have generated significant optimism among investors and pulled the share price up by a staggering 102.2% in the past 90 days.
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Let’s look at how things have shaped up for RMTI before the announcement.
Factors to Focus on Ahead of RMTI's Q3 Earnings
In the third quarter, the company is expected to have witnessed strong growth from the acquisition of the hemodialysis concentrates business from Evoqua, recognized as the #3 player in the hemodialysis concentrates space at that time. With the acquisition, the market has now consolidated to two primary players to cater to the more than 12,000 dialysis clinics in the United States. With this consolidation, Rockwell Medical is now the only independent supplier of concentrates with the scale and distribution to service these in-center and hospital-based clinics. This might have significantly boosted the quarter’s sales growth.
Further, Rockwell Medical has also become the leading supplier of liquid bicarbonate in the country. Accordingly, the company is currently able to accurately price its products in the hemodialysis market. At the beginning of this year, Rockwell Medical undertook a new program to adjust its product pricing to reflect the inherent value of the products. This too might improve third-quarter top-line results.
Of late, the company has been seeing a high rate of customer conversions toward it from its primary competitor. The company is also expanding sales within its existing customer base. These favorable dynamics are expected to be reflected in the third-quarter results.
Among the recent developments, earlier this year, the company entered into a five-year distribution agreement with BioNuclear, enabling the latter to import, sell, promote and distribute Rockwell's hemodialysis concentrates products within the Dominican Republic. The company also entered into an expanded distribution agreement with an existing customer, Atlantic Medical International, which is Bermuda's leading supplier of medical products and equipment for acute and continuing care markets.
Further, the company entered into a product purchase agreement with one of the largest health systems in the Mountain West region of the United States to supply the company's liquid and dry acid and bicarbonate hemodialysis concentrates, cleaning agents, hemodialysis concentrates mixers and any additional products. Recently, the company executed a distribution agreement with Nipro Medical of Japan to supply Nipro with the company's liquid and dry acid and bicarbonate hemodialysis concentrates, as well as its dry acid concentrates mixer.
All these are likely to have contributed to the company’s third-quarter performance.
What Our Model Suggests
Per our proven model, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, have a higher chance of beating estimates, which is not the case here:
Earnings ESP: RMTI has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3. You can seethe complete list of today’s Zacks #1 Rank stocks here.
RMTI Shares Outperform Industry, Sector and S&P in Q3
In the third quarter, the stock surged a whopping 137.7%, outperforming the 13% rise of the industry, a 2.9% increase of the Medical sector and the benchmark’s 4.6% increase. The company also outperformed its key rivals like EDAP TMS EDAP and IRIDEX IRIX during this period.
EDAP TMS stock lost 51.1% and IRIDEX declined 16.2% from July to September 2024, majorly affected by global economic challenges and uncertainties in the form of geopolitical tension, supply-chain risks associated with inflation, the threat of recession, high rate of borrowing and currency volatility among others.
Q3 Share Comparison
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RMTI's Business Expansion at a Glance
The year 2024 can be regarded as a momentous period for Rockwell Medical’s business. This is the first time in the company’s history that it has achieved a steady revenue growth path, with a projection of more than $100 million in annual sales. Further, in 2024 so far, the company has reported an improving trend of gross profit and gross margin (from a negative number to a consistently growing positive number), attained sustained profitability, and, last but not least, significantly lowered its debt burden.
For 2025 and beyond, Rockwell Medical is focused on two areas. First, it intends to grow the company’s concentrates business and make it more profitable as the company continues to work toward keeping annual revenues above $100 million and gross margins up to 30%. Second, it intends to expand beyond concentrates.
Key Valuation Metric
From a valuation standpoint, RMTI’s forward 12-month price-to-sales (P/S) is 1.09X, a discount to the industry's average of 5.61X. The company is also trading at a discount to other industry players like EDAP, with its current P/S being 1.35X, and IRIX, whose current P/E is 2.68X. This suggests that investors may be paying a higher price relative to the company's expected sales growth.
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Macro Issues Concern: Wait for Better Entry Point
Rockwell Medical continues to outperform its peers in a challenging market for medical devices, banking on its continued focus on optimizing business to drive sustainable profitability and meaningful cash flow generation. However, growing geopolitical pressure and war situations around the Middle East have led to an escalation in oil prices in recent times. The continued increase in raw material and labor costs, as well as oil price volatility, can dent the company’s profit. In such a scenario, RMTI at its budding stage, might have found it hard to keep competitive prices. In addition, the high interest rate environment remains a concern.
These limit the stock’s near-term potential. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, thus providing a better entry point.
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