On Jan 2, 2015, Zacks Investment Research downgraded Thoratec Corp. (THOR) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Thoratec’s lackluster third-quarter 2014 results (reported on Nov 5), with both earnings and revenues missing expectations, have set a negative earnings estimate revision trend for the company.
For 2014, Thoratec witnessed two downward estimate revisions over the last 60 days, with two upward revisions over the same time-frame. However, the Zacks Consensus Estimate has dropped roughly 7% to its current level of 79 cents per share. For 2015, four estimates moved south over the same time frame, leading to a nearly 32% decline in the Zacks Consensus Estimate to 67 cents per share.
Third-quarter adjusted earnings of 8 cents per share missed the Zacks Consensus Estimate by a penny and declined nearly 80% on a year-over-year basis, owing to a 16.3% fall in revenues. Revenues of $105.8 million also lagged the Zacks Consensus Estimate of $108 million.
The company has been witnessing sluggish sales from its flagship HeartMate product line with continued weakness in Japan. Consequently, Thoratec has slashed its adjusted earnings and revenue guidance in consideration of lower assumptions for HeartMate II product line owing to near-term challenges.
For 2014, Thoratec lowered its revenue guidance to the range of $450 to $460 million from the prior range of $455 to $470 million. The company also lowered its adjusted earnings per share (excluding stock-based compensation) guidance for the year to $1.20–$1.30 from the prior band of $1.25–$1.35.
Thoratec anticipates higher operating expenses in the fourth quarter of 2014 due to accelerated clinical trial activity, targeted commercial investments, and product development project expenses. Also, 2015 is anticipated to be a transition year for the company as it seeks to reaccelerate market growth.
The long-term expected earnings growth rate for this stock is pegged much lower at 11.3% compared to the industry growth rate of 17.2%.
Stocks to Consider
Better-ranked stocks in the medical instruments industry include Abiomed (ABMD), Edward Lifesciences (EW) and Electromed (ELMD). All the three stocks carry a Zacks Rank #2 (Buy).
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