On Jan 6, we maintained our Neutral recommendation on Thoratec Corp. (THOR). We are impressed with Thoratec's last quarterly results, where both earnings and revenues surpassed the Zacks Consensus Estimates. However, the company’s unified product line and small size make it a risky investment.
Why Neutral?
On Oct 30, Thoratec posted adjusted earnings of $26.0 million or 44 cents per share for the third quarter of the year, surpassing the Zacks Consensus Estimate of 29 cents. However, adjusted earnings fell 3.2% from $26.9 million or 2.2% from 45 cents in the comparable quarter a year ago.
Revenues in the quarter rose 7.4% to $126.4 million, exceeding the Zacks Consensus Estimate of $121.0 million. This was due to the company’s HeartMate product line that contributed $112.8 million to overall revenue, reflecting a 7% year-over-year increase due to the expansion of its international business and the launch of Pocket Controller.
Thoratec narrowed its fiscal 2013 revenue guidance to a range of $500–$505 million from the previous range of $490–$510 million. The current Zacks Consensus Estimate of $504 million falls within the guided range.
However, the company raised its non-adjusted earnings per share guidance to a range of $1.30 to $1.35 from the earlier range of $1.23–$1.33. The revised guidance includes approximately 5 cents of incremental expense related to increase in future acquisition-related milestone payments.
Following the release of third quarter results, the Zacks Consensus Estimate for 2013 earnings rose 1.5% to $1.35 per share. However, the Zacks Consensus Estimate for 2014 earnings declined 4.8% to $1.38 over the same timeframe.
Thoratec enjoys a monopoly in the U.S. market with this only device of its kind. In the U.S. DT market, Thoratec faces no near-term competitive threat as HeartWare’s LVAD is not expected to be launched before 2015 or so. The company has benefited from rapid acceptance of HeartMate II on a global basis.
However, the small size of Thoratec may restrict its ability to raise resources. The absence of strategic alliances may also hinder its ability to develop new products. Further, the evolving coverage and reimbursement policies of the Centers for Medicare & Medicaid Services (CMS) will impact the pace of adoption of VAD.
Other Stocks to Look For
Other players that worth a look in the medical instruments industry include Cepheid (CPHD), CryoLife Inc. (CRY), and AngioDynamics Inc. (ANGO). While Cepheid and CryoLife carry a Zacks Rank #1 (Strong Buy), AngioDynamics has a Zacks Rank #2 (Buy).
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