Shockwave (SWAV) Wins the Q1:21 Medtech Earnings Pre-season
There is no way to avoid the bad pun. SWAV’s pre-announcement on 3/30/2021 of its Q1:2021 was shockingly good news. Management was scheduled to speak at a medtech management discussion with Wells Fargo later that day, and decided it was best to answer (or not answer) the inevitable questions about March patient volumes – and the launch of its new coronary catheter in the US - with a very unambiguous and positive preannouncement of the Q1:21 revenues.
The day before, I described that in order for our “Club of 9” (INSP, LUNG, SWAV, NARI, PODD, EAR, AXNX, SILK, and NVRO) to regain its valuation footing, news in the form of earnings was sorely needed (“earnings season can’t come soon enough”). The next day, SWAV decided to fill in some of the information void with its pre-announcement.
Shockwave announced that its revenues would come in between $31-32M (+104-111%) , well above the consensus sales number of $24.9M (+58%). Basically, the company grew its revenues earnings nearly twice as fast as estimated. The source of the upside, or at least the majority of it, came from the launch in Q1:21 of its coronary IVL catheter, since the press release was titled “Shockwave Provides Update on U.S. Launch of Coronary IVL System”. And since the coronary catheter was launched midway into the first quarter, it also seems safe to assume that patient volumes in the US rebounded in favor of Shockwave and its non-coronary business.
Though the Wells Fargo discussion was not a publicly webcast event, the analyst subsequently raised his revenue estimates on Shockwave by approximately 33% and 25% in 2021 and 2022, respectively*. In simple terms, the Shockwave story in the next two years is at least 25% better than it was before the pre-announcement, if those estimate increases are reasonable. Further, we can be pretty safe in assuming that consensus 2021 numbers are too low. Indeed, BofA’s Bob Hopkins wrote (in his note after the pre-announcement) that he estimates there is 10-30% upside to SWAV’s 2021 revenue numbers. He did not, however, change his price target of $13 or his estimates, and kept a Neutral rating on the stock. **
It’s hard to argue that the fundamentals for SWAV haven’t indeed shifted to the positive. Investors seemed to have taken that same view – the story is better than it was March 29 – by driving the stock up, as of 4/15/2021’s close, by 35.9%, to $140.00. What’s interesting is that at $140.00, the stock is still down below its 2021 intra-day peak of $143.79. Granted, SWAV’s valuation at $143.79 assumed upside to 2021 numbers. But not 30%. SWAV is still cheaper than it was at its peak before the pre-announcement on both an absolute basis, and even more so, relative to its 2021-2022 growth profile. And all that despite a substantial de-risking of the story.
For the Club of 9 overall, the group has not quite recovered from the correction that started in mid-February 2021. Even if you include the big positive move in SWAV, the 9 highfliers we follow are still down as a group by 13.6% from their 2021 highs. Without SWAV, still down 10.8% from the group’s 2021 high. By comparison, the XBI ETF is still down 23.3% from its 2021 high (-5.6% YTD), while the QQQ ETF is up 1.8% from its February peak, and up 9.02% YTD. (all return data 12/31/2020 – 4/15/2021)
Lastly, it seems SWAV’s pre-announcement had a coattail effect on the group. Each of the stocks among our 9 highflier basket – excluding LUNG - climbed higher on the day of SWAV’s pre-announcement, and has largely maintained that upwards momentum. In the comparative return chart below, from the index base price of $100, each of the stocks with the exception LUNG are higher than their closing price on March 29, 2021. SWAV is up 35.9% (135.95 on chart). INSP, which has not provided any public update since March 29, is up 23.68% (123.68, in green).
Source: FactSet
