Potential growth prospects in the Destination Therapy (DT)
market and raised guidance have helped
), provider of mechanical circulatory support devices, achieve a
Zacks #1 Rank (Strong Buy) on October 03, 2012. Moreover, the
company has delivered positive earnings surprises in three of the
last four quarters with an average beat of 8.01%.
With a decent one-year return of 11.2% and a history of beating
quarterly earnings estimates, this stock offers an attractive
The Rank Driver
Attractive growth opportunity in the DT market, margin and
product expansions, solid performance in international markets,
along with raised guidance - are the primary rank drivers for this
Ventricular Assist Devices (VAD) and DT represent a
multi-billion dollar opportunity for Thoratec. The company till now
enjoys a monopoly in the U.S. market with its DT's HeartMate II
offering. The device faces no near-term competitive threat as
HeartWare International Inc.
) HeartWare Ventricular Assist Device (HVAD) System is not expected
to be launched before 2015 or so.
Moreover, Thoratec has benefited from rapid acceptance of DT's
HeartMate II on a global basis. The HeartMate II business grew 22%
in the last six months, capping off the strongest six months
financial performance in the company's history. In addition, VAD
represents a substantial market opportunity for Thoratec due to
changes in demographic trend.
Thoratec constantly attempts to achieve its strategy of margin
expansion. The company's gross margin improved in successive
quarters on the back of favorable volume, mix and acquisitions.
Management expects this trend to continue as it benefits from the
growth momentum. It forecasts adjusted gross margin to be about
71.5% for 2012. This reflects the improvement in utilization on the
back of growth of the HeartMate II product line.
Thoratec has a proven track-record in research and development
(R&D) in expanding its product portfolio. The company is
currently developing its next generation HeartMate III for which it
will avoid first-in-man trial. Instead, the company will target CE
Mark approval in Europe (expected in mid 2013) followed by clinical
trials in the U.S. before the end of 2013. Next generation
HeartMate devices are expected to be accretive to the company's
growth in the long-term.
Further, Thoratec continues its solid performance in the
international market. The contagion of economic problems in Europe
did not have any significant impact on the most recent quarter's
performance. Additionally, the company expects regulatory approval
in Japan by the end of 2012, which will enable it to serve one of
the high value markets for its products.
Recently, Thoratec revised its financial forecast for 2012. The
company expects revenues between $460 million and $470 million
compared with the prior guidance of $452 million and $467 million.
For 2012, adjusted earnings are expected to be between $1.67 and
$1.73, compared with the prior guidance of $1.62 and $1.72.
The updated guidance includes higher sales estimates for the
HeartMate product line, in the range of $10 million to $15 million,
partially offset by lower sales estimates for the Paracorporeal
Ventricular Assist Device (PVAD) product line and foreign exchange
impact of $7 million.
However, Thoratec is facing stiff competition from Australian
heart pump maker HeartWare International. HeartWare is awaiting
approval from the U.S. Food and Drug Administration (FDA) for its
Ventricular Assist System for a Bridge-to-Transplant (BTT)
indication, challenging Thoratec's dominance in the BTT space. The
product is likely to receive approval later in the second half of
2012, which will result in a slower growth profile for
Earnings Estimate Revision
The Zacks Consensus Estimate for 2012 remained unchanged at
$1.49 over the last 30 days. For 2013, Zacks Consensus Estimate is
$1.58, reflecting a 0.6% increase over the year-ago earnings per
The company's strong fundamentals justify the premium valuation
of the stock. Thoratec currently trades at a forward P/E of 24.04x,
a 10.7% premium to the peer group average of 21.72x. Moreover, the
price-to-sales ratio of 4.61x is at a 22% premium to the peer group
average of 3.78x.
Thoratec has a trailing 12-month ROE of 14.5% compared with the
peer group average of 15.1%.
About the Company
California-based Thoratec Corporation is a leading developer of
innovative devices for advanced heart failure. Founded in 1976, the
company offers employment to about 800 people worldwide. With a
market capitalization of roughly $2.11 billion, Thoratec owns
manufacturing facilities across the U.S., U.K. and Switzerland.
Other Zacks #1 Rank (Strong Buy) medical devices stocks include
Align Technology Inc.
ALIGN TECH INC (ALGN): Free Stock Analysis
HOLOGIC INC (HOLX): Free Stock Analysis Report
HEARTWARE INTL (HTWR): Free Stock Analysis
THORATEC CORP (THOR): Free Stock Analysis
To read this article on Zacks.com click here.