On Dec 9, we maintained our Neutral recommendation on Abiomed Inc. (ABMD). We are encouraged about the company’s multiple near-term drivers, including new products and clinical trials. However, we are disappointed with the company’s significant year-over-year decline in earnings in the fiscal 2014-second quarter.
Why Maintained?
On Nov 6, ABMD’s fiscal 2014 second-quarter earnings per share of 3 cents plunged 76.9% from 13 cents in the year-ago quarter. However, EPS was in line with the Zacks Consensus Estimate.
Revenues for the quarter grew 19% to $44.3 million, in line with the Zacks Consensus Estimate. This had marked the 16th straight quarter of Abiomed’s year-over-year revenue growth in double digits. The improvement was led by record patient utilization of the Impella device in the quarter.
Following the release of fiscal second quarter results, the Zacks Consensus Estimate for fiscal 2014 fell 26.7% to 11 cents per share. The Zacks Consensus Estimate for fiscal 2015 also went down 6.5% to 43 cents over the same timeframe. Abiomed now has a Zacks Rank #3 (Hold).
ABMD enjoys strong demand for its Impella products, given its unique technology and being the world’s smallest heart pump. The company is likely to maintain this growth trend in the future on the back of favorable demographics and increasing trend of heart failure.
However, Abiomed significantly lowered its operating margin forecast to the range of nil to 5%, compared with the earlier guidance of 7%–8% on the back of higher costs related to legal issues, regulatory submissions and pipeline development, which are likely to increase SG&A and R&D expenses. These additional expenses are pressurizing the company’s bottom-line growth, which is a cause of concern.
Other Stocks to Consider
Some better-ranked stocks that are worth a look in the medical instruments industry include Natus Medical Inc. (BABY), CryoLife, Inc. (CRY), and AngioDynamics Inc. (ANGO). BABY carries a Zacks Rank #1 (Strong Buy), while both CRY and ANGO carry a Zacks Rank #2 (Buy).
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