Bear Of The Day: Heska

| About: Heska Corporation (HSKA)

Estimates have moved into the negative territory after disappointing second-quarter results, sending Heska to a Zacks Rank No. 5 (Strong Sell) last month.

About the Company

Heska Corporation (NASDAQ:HSKA) sells advanced veterinary diagnostic and other specialty veterinary products, including diagnostic instruments and supplies as well as single use, point-of-care tests, vaccines and pharmaceuticals. The company's core focus is on the canine and feline markets. Heska acquired a majority interest in Cuattro Vet USA, an imaging and cloud medical data closing technology company, in February this year.

Disappointing Results

The company reported its second-quarter results on Aug. 7, 2013. The quarter resulted in a net loss of $2.2 million, or $0.38 per diluted share, compared to net income of $262 thousand, or $0.05 per diluted share, in the second quarter of 2012. Results were substantially worse than the estimates. Revenue for the quarter was $18.3 million, down slightly from the prior-year quarter. Total operating expenses increased to $8.6 million, or 47.1% of sales, from $7.7 million, or 42.0% of sales, in the prior-year period.

Downward Revisions

Zacks consensus estimates for the current quarter and year are now in the negative territory -- ($0.11) and ($0.59) per share, respectively, down substantially from $0.06 and $0.12 per share, respectively, 60 days ago. The company has reported a miss in three of the last four quarters, with an average negative surprise of 224%.

The Bottom Line

The management believes that integration of Cuattro Vet USA has gone extremely well, and the combination of the two companies will result in substantial cost savings through synergies and reprioritization. But it appears as if completion of integration and realization of synergies is taking longer than expected. Heska is currently a Zacks Rank No. 5 (Strong Sell) stock and it also has a longer-term recommendation of Underperform. As such investors may like to avoid the stock for the time being.

Better Play?

Investors seeking exposure to the biomedical industry could look at Affymetrix (NASDAQ:AFFX), a Zacks Rank No. 1 (Buy) stock with an Outperform recommendation. The company had reported excellent results for the second quarter.

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