We have reaffirmed our Neutral recommendation on
) based on the company's disappointing third quarter 2012 and a
sluggish prelim result for the fourth quarter that was released
on January 7. The stock currently carries a Zacks Rank #4 (Sell).
However, strong pipeline development and encouraging growth trend
are expected to offset the near-term challenges.
Why Maintained at Neutral?
Volcano Corporation's third-quarter performance was mixed as
earnings per share (EPS) were in line with the Zacks Consensus
Estimate, while revenues missed the mark. Several challenges
including a weak domestic PCI market, transition to a direct
sales model in Spain, bi-annual price cuts in Japan and pressure
on margin, which are currently at play, forced the company to
lower its 2012 outlook. Adding to our worries, recently, the
company released its preliminary fourth quarter result with
expected revenues of $102.5 million, which once again fell short
of the Zacks Consensus Estimate ($106 million).
However, in spite of all, the expected fiscal revenues of
$381.9 million were up 11% year over year (up 12% at CER),
marginally ahead of the Zacks Consensus Estimate of $380 million
and within the company's guided range of $380-$384 million. We
are also encouraged with the company's pipeline development, with
many products, slated for release over the next few quarters. We
also believe that favorable industry trends should aid growth of
the company. At present, clinicians and hospitals are facing
increasing pressure to justify the medical necessity of PCI
Over the past 60 days, none of the 15 firms covering the stock
made any estimate revisions for the current fiscal, implying that
they still hold a similar view on the stock.
Other Stocks to Consider
While we prefer to remain on the sidelines on Volcano
Corporation, other medical device stocks worth a look are
Nxstage Medical Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
HAEMONETICS CP (HAE): Free Stock Analysis
NXSTAGE MEDICAL (NXTM): Free Stock Analysis
VOLCANO CORP (VOLC): Free Stock Analysis
To read this article on Zacks.com click here.