LivaNova's (NASDAQ:LIVN) Strong Earnings Are Of Good Quality
LivaNova PLC (NASDAQ:LIVN) recently posted some strong earnings, and the market responded positively. We did some digging and found some further encouraging factors that investors will like.
How Do Unusual Items Influence Profit?
For anyone who wants to understand LivaNova's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$405m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2026, LivaNova had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
An Unusual Tax Situation
Just as we noted the unusual items, we must inform you that LivaNova received a tax benefit which contributed US$77m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.
Our Take On LivaNova's Profit Performance
In its last report LivaNova received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Based on these factors, we think that LivaNova's profits are a reasonably conservative guide to its underlying profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with LivaNova, and understanding these should be part of your investment process.
In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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