Recently, we have reaffirmed our Neutral recommendation on
). Although we are concerned about the company's disappointing
fourth quarter 2012 and conservative outlook for 2013, strong
pipeline development and encouraging growth trends are expected
to offset the near-term challenges of this Zacks Rank #3 (Hold)
Why Maintained at Neutral?
Volcano Corporation reported dismal fourth-quarter EPS of 4
cents. The result lagged the Zacks Consensus Estimate by 5 cents
and missed the year-ago figure of 54 cents as well.
Revenues were up 12% at CER, in line with the Zacks Consensus
Estimate. Several challenges including weak domestic PCI market,
transition to a direct sales model in Spain, bi-annual price cuts
in Japan and pressure on margins which are currently at play
forced the company to take a conservative outlook for 2013.
Despite the importance of Japan in development of the IVUS
business, the quarter's performance was disappointing, adversely
affected by a 10% cut in reimbursement. In addition, margins
remain under pressure due to the duplicity of operations between
its new facility and the existing one.
However, we are 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. Volcano continues to believe
that the IVUS and FM markets remain under-penetrated.
According to the company, the broader market for intra-body
imaging and sensing products will grow from $332 million recorded
in 2006 to $2.7 billion by 2021, representing a CAGR of
approximately 15%. Within this broader market, the current market
for IVUS, FFR and Axsun products will take up $750 million,
reflecting high growth potential in the coming period.
Other Stocks to Consider
While we prefer to remain on the sidelines on Volcano
Corporation, other medical device stocks worth a look are
). All the stocks carry a Zacks Rank #1 (Strong Buy).
CEPHEID INC (CPHD): Free Stock Analysis
CYBERONICS INC (CYBX): Free Stock Analysis
NUVASIVE INC (NUVA): Free Stock Analysis
VOLCANO CORP (VOLC): Free Stock Analysis
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