On Dec 24, we reaffirmed our long-term Neutral recommendation
). While we are optimistic about the huge and underpenetrated
market for epilepsy, the recent Centers for Medicare and Medicaid
Services (CMS) decision on treatment-resistant depression (TRD)
indication was a major downfall for the company. This medical
technology company with core expertise in neuromodulation
presently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
Cyberonics posted a 13.6% rise in its second-quarter fiscal
2014 earnings per share (EPS) to 50 cents, and a healthy 12%
increase in revenues to $70.1 million. The numbers also surpassed
the respective Zacks Consensus Estimate of $0.49 and $69
The company continues to rein in surging demand for its VNS
Therapy for the treatment of refractory epilepsy. Consistent
solid overseas growth amid several macroeconomic uncertainties in
the European market is encouraging. The pipeline development also
bolsters confidence. Meanwhile, Cyberonics has been rewarding its
shareholders with attractive share repurchases.
However, the CMS decision on TRD indication was a major
downfall for the company. Furthermore, contributions from Japan
lagged the company's expectations for another quarter. Moreover,
gross margin pressure remains an overhang. Considering the
ongoing costs associated with the development of the Costa Rican
facility and product development initiatives, Cyberonics expects
the margin pressure to continue in fiscal 2014.
While we derive comfort from the advantages of VNS therapy and
the strong untapped potential of the epilepsy market, we are wary
about competitive pressures from larger players in the
Cyberonics envisages revenues in the range of $281−$285
million against the earlier expected range of $279−$283 million.
The current Zacks Consensus Estimate of $283 million remains
within the company's guidance. Cyberonics expects global unit
growth of roughly 10% (unchanged from the earlier guidance).
Adjusted income from operations is expected in the range of
$86−$88 million (against earlier $85−$88 million), resulting in
net income of $54−$56 million ($53−$56 million) and adjusted EPS
of $1.97−$2.03 ($1.93−$2.01) for fiscal 2014. The current Zacks
Consensus Estimate of $2.00 for fiscal 2014 lies within the
Despite the lucrative market opportunity, we remain on the
sidelines until we see improved execution. However, better-ranked
healthcare stocks include
Align Technology Inc.
Cardinal Health, Inc.
). While McKesson sports a Zacks Rank #1 (Strong Buy), Align
Technology and Cardinal Health carry a Zacks Rank #2 (Buy).
ALIGN TECH INC (ALGN): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
CYBERONICS INC (CYBX): Free Stock Analysis
MCKESSON CORP (MCK): Free Stock Analysis
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