We have reaffirmed our Neutral recommendation on
) with a target price of $29.00 following its second-quarter 2012
results. The company recorded mixed second quarter 2012 results
with earnings of 4 cents per share surpassing the Zacks Consensus
Estimates while revenues of $95 million were almost at par with the
The San Diego, California-based company engages in the
development, manufacture, and commercialization of a broad suite of
precision guided therapy tools including intravascular ultrasound
("IVUS") and fractional flow reserve ("FFR") products. These
products improve the efficiency of the percutaneous interventional
("PCI") procedures in the coronary or peripheral arteries.
IVUS products have a significant contribution to the company's
revenues. Volcano Corporation witnessed mid single-digit growth in
IVUS disposable revenues in the US, Japan as well as in Northern
Europe during the most recent quarter though revenue trends in
Southern Europe, particularly Spain, were not so encouraging.
Meanwhile, we favor the company's strategy of driving growth based
on market penetration, share gain and pricing growth with the
introduction of more advanced IVUS catheters and related
technology. With weakness in PCI procedures in the US and price
cuts in Japan, the company is looking at mid single-digit growth in
IVUS disposables going ahead.
With the recent launch of several new products, Volcano
Corporation now maintains a strong portfolio, which is expected to
generate growth in the long term. During the first quarter, the
company initiated a limited market release of its Valet Micro
catheter in the US that received 510(k) clearance in early January.
This was followed by the CE Mark approval for the device, and
subsequently a limited market release was initiated in Europe in
the second quarter. The company is looking at an early 2013
approval of Valet in Japan.
Further, progress is also being made in pipeline development.
The next-generation IVUS technology called FACT (Focused Acoustic
Computed Tomography) is slated for commercial launch in the US and
Europe in mid-2013 and in Japan a year later. With respect to the
Forward-Looking IVUS (FL.IVUS) program, 40 patients have been
enrolled and the CE mark approval is expected before year-end.
Besides, within the Forward-Looking Intra-Cardiac Echo (FL.ICE)
program, animal trials have been completed and management is on
schedule for the first-in-man clinical work in 2013. Development of
adenosine-free Instant wave-free ratio FFR (iFR) is on track with
approval in Japan and Europe expected by the end of 2012. The
company is already discussing with the FDA about the study protocol
and expects clinical trial to begin soon
Volcano Corporation continues to expand its presence in Japan
through direct sales program or introduction of new products. With
termination of several distribution agreements over the past few
years, the company is now well placed to address 100% of business
in Japan on a direct basis. Having witnessed the benefits of
transition to direct sales force in Japan, the company is also
working to go direct in Spain.
The company, however, had to lower its outlook for fiscal 2012
to reflect the several headwinds currently at play. The revenue
outlook was lowered to include adverse currency movements ($2
million), slowdown in certain Southern European countries ($2
million) and lower Industrial revenues due to continued softness in
the telecom sector ($4 million). Capital spending by customers like
hospitals has been affected by the weak economic scenario. The
company also witnesses tough competition from players like
St Jude Medical
Our recommendation is backed by a Zacks #3 Rank (Hold) in the
BOSTON SCIENTIF (BSX): Free Stock Analysis
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VOLCANO CORP (VOLC): Free Stock Analysis Report
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