We have reaffirmed our Neutral recommendation on
) with a target price of $28.00 following its third-quarter 2012
results. The company reported earnings per share (EPS) of 4 cents
in the quarter, in-line with the Zacks Consensus Estimate.
However, the result lagged the year-ago quarter's EPS by a penny.
Revenues for the quarter climbed9% year over year (up 12% at
constant exchange rate or CER) to $93.7 million, but missed the
Zacks Consensus Estimate of $95 million.
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
IVUS products have a significant contribution to the company's
revenues. Volcano Corporation witnessed mid-single-digit growth
in IVUS disposable revenues in the U.S. However, revenue trends
in Japan as well as in Southern Europe, particularly Spain, were
not so encouraging. The company is expecting mid-single digit
growth in IVUS disposables going ahead based on softness in PCI
procedures in the U.S., price cuts in Japan, difficult economic
conditions in Europe and its transition to a direct-sales force
in Spain. Meanwhile, we favor the company's strategy to drive
growth based on market penetration, share gain and pricing growth
with the introduction of more advanced IVUS catheters and related
Volcano Corporation now maintains a strong portfolio due to
the recent launch of several new products, which is expected to
generate growth in the long term. In August 2012, the company's
Valet Micro catheter received the CE Mark approval followed by a
limited market release in Europe. Volcano is expecting an early
2013 approval of Valet in Japan.
Pipeline development is also progressing. The next-generation
IVUS technology called FACT (Focused Acoustic Computed
Tomography) is slated for commercial launch in the U.S. and
Europe in mid-2013 and in Japan a year later. Besides, a full
market release for Volcano Corporation's Eagle Eye Platinum
catheter is expected in the fourth quarter of 2012. Moreover,
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.
Volcano Corporation continues to expand its presence in Japan
through direct sales programs or introduction of new products.
The termination of several contracts in the past few years has
made the company strengthen its position to address 100% of its
business in Japan. The benefits of the transition to a direct
sales force in Japan have encouraged the company to go direct in
Spain as well.
The company, however, had to lower its outlook for fiscal 2012
to reflect the several headwinds currently at play. Due to the
weak domestic PCI market and the transition to a direct sales
model in Spain, the company now expects to report revenues of
$380-$384 million (previous expectation $384-$390). Moreover,
capital spending by customers like hospitals has been affected by
the weak economic scenario. The company also faces tough
competition from players such as
St Jude Medical
Our long-term Neutral recommendation is backed by a Zacks #3
Rank (Hold) in the short term.
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