We reiterate our rating for Thoratec Corp. (THOR) at Neutral. Its first-quarter 2012 adjusted earnings per share beat the Zacks Consensus Estimate. Profit (as reported) rose 54.8% year over year to $25.5 million aided by better utilization at pre-existing ventricular assist device (VAD) programs as well as growth of the treatment at new centers.
Sales rose 27.4% year over year to $126.8 million in the first quarter, surpassing the Zacks Consensus Estimate. Revenues were boosted by growth in both the company’s domestic and overseas operations. On a geographic basis, domestic sales rose 25.9% year over year to $103.9 million, while overseas sales were up 34.7% to $22.9 million. Thoratec had 299 HeartMate II centers (including 154 in the U.S.) at the end of the reported quarter, an increase from 293 centers at the end of the sequentially preceding quarter.
Although Thoratec is a growing company, its single product line and small size make it a riskier proposition. HeartWare has filed a PMA for a similar device, which will end Thoratec’s dominance for the BTT indication in the second half of 2012, leaving it more dependent on the DT indication. However, there is no imminent competitive threat from HeartWare in the DT segment as its product is not expected to be launched until 2015 or so. It appears that the hyper-growth phase enjoyed by Thoratec is now leading to more normalized growth.
Thoratec has demonstrated expertise in product development even as HeartWare is expected to close the technological gap. We believe that leverage will raise Thoratec’s earnings per share.
Thoratec enjoys a first-mover advantage and the growing number of HeartMate II centers indicates increasing acceptance. The company has shown expertise in product development. VAD represents a substantial market opportunity for Thoratec with a significant number of eligible heart failure patients globally.
With HeartMate II, Thoratec enjoys a monopoly in the U.S. market having the only device of its kind for the destination therapy indication (for heart failure patients who are not eligible for heart transplant). Favorable adoption trend of the device is expected to support revenue growth moving forward.
However, Australian heart pump maker HeartWare International (HTWR) is expected to close the technology gap with the launch of its next generation VAD offering.
We currently have a Neutral recommendation on Thoratec. The stock currently retains a Zacks #2 Rank, which translates into a short-term “Buy” recommendation.
HEARTWARE INTL (HTWR): Free Stock Analysis Report
THORATEC CORP (THOR): Free Stock Analysis Report
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