Since its second quarter report late last month, shares of
) have surged about 15.0% to hit their 52-week high of $27.69 on
August 27. This Zacks #1 Rank (Strong Buy) provider of aesthetic
treatment systems appears to be a solid momentum pick, given its
average earnings surprise of about 151.0% over the last five
quarters, one-year return of more than 171%, improving prospects
and triple-digit earnings growth expectation for 2012.
Strong Second Quarter
On July 24, 2012, Cynosure reported earnings of 20 cents per share
for the second quarter of 2012, well ahead of the Zacks Consensus
Estimate of 11 cents and the adjusted penny loss per share in the
Revenues increased 50% year over year to $39.6 million, making it
the highest quarterly revenue in the company's history. Revenues
were ahead of the Zacks Consensus Estimate of $36.0 million.
The company benefited from the Cellulaze Cellulite Laser
Workstation, which resulted in a 59% increase in laser revenue (and
92% increase in North American laser revenue). Since the FDA
approval in January 2012, response from physicians and patients has
been encouraging. In addition, increasing revenue contribution from
Cellulaze's disposable components (the single-use SideLaze3D fiber
and the ThermaGuide intelligent delivery system) also contributed
to the top line. Cynosure recorded 36% growth in the international
market on the back of robust demand from its overall portfolio,
including MedLite C6 and SmoothShapes XV systems.
Gross profit increased 52.9% year over year to $23 million, which
was accompanied by a 100 basis points (bps) expansion in gross
margin to 58.2%. A higher revenue contribution from North America
benefited margins as this region commands premium pricing. Despite
a 17% increase in adjusted operating expenses (excluding intangible
amortization), the company's focus on leveraging its fixed cost
base is yielding results. Operating expense margin dropped 13.6
percentage points to 48.03%. The company reported $4 million as
adjusted income from operations compared with a loss incurred in
the year-ago period.
Cynosure's portfolio further expanded in July with the 510 (k)
clearance from the FDA for a home-use over the counter device for
the treatment of facial wrinkles. The device, developed in
partnership with Unilever (
), is expected to be launched commercially in 2013 by Unilever. In
addition, the company has completed 510(k) submission for the
industry's first picosecond laser platform technology for tattoo
removal and treatment of pigmented lesions.
Earnings Estimates Heading Higher
Although seasonality is expected to be an important factor
impacting third quarter results, Cynosure is confident of a strong
second half based on the Cellulaze momentum. According to market
estimates, the treatment of cellulite is a multibillion-dollar
industry in the U.S. alone.
On the basis of a strong second quarter and robust outlook, the
Zacks Consensus Estimate for fiscal 2012 increased almost 47.5%
over the past 60 days to $0.59, representing year-over-year growth
of 685.0%. Meanwhile, the Zacks Consensus Estimate for fiscal 2013
has increased 16.7% to $0.77, representing year-over-year growth of
The valuation of Cynosure looks stretched compared to its peers by
most metrics. The company is trading at a price-to-book (P/B) of
2.11x, a considerable premium to the peer group average of 1.58x.
With respect to the price-to-sales (P/S) and EV/EBITDA ratios as
well, valuation looks stretched. The P/S ratio of the company stood
at 1.94, an 8.9% premium to the peer group average of 1.78.
Cynosure's EV/EBITDA ratio of 14.16 represents a hefty 25.8%
premium to the peer group average of 11.26. The premium valuation
seems warranted given the strong growth potential of the company.
Chart Reflects Strength
Cynosure's price performance has been reasonably strong recently.
The stock has been consistently trading above its 200-day moving
average since the beginning of 2012. Barring occasional pullbacks,
the stock has been above its 50-day moving average over the last
year. The stock is hovering around its 52-week high of $27.69 that
was reached on August 27, 2012. Cynosure, with a market
capitalization of $354 million, has also outperformed the S&P
500 Index over the past year by a substantial margin. The one-year
return for the stock is roughly 170.5% compared to a 16.5% return
from the S&P 500 index.
Founded in 1991, Cynosure, Inc. develops and markets aesthetic
treatment systems that are used by physicians and other
practitioners to perform several non-and-minimally invasive
procedures, including treatment of vascular and pigmented lesions,
rejuvenation of skin, removal of unwanted fat through laser
lipolysis and reduction in appearance of cellulite. As of December
31, 2011, the company had sold 11,524 aesthetic treatment systems
worldwide. Cynosure has grown both by organic and inorganic means.
Recent acquisitions include Eleme Medical (February 2011) and the
aesthetic laser business of HOYA ConBio (June 2011).
During 2011, the company derived 44% of its revenues from North
America with contributions from Europe (25%), Asia Pacific (25%)
and Others (6%). While Cynosure sells its products directly in
North America, France, Spain, the UK, Germany, Korea, China, Japan
and Mexico, the other countries are catered by its distributors.
CYNOSURE INC-A (CYNO): Free Stock Analysis
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