Thoratec: A Strong Buy - Analyst Blog
October 04 2012 - 12:05PM
Zacks
Potential growth prospects in the
Destination Therapy (DT) market and raised guidance have helped
Thoratec Corp. (THOR), 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 investment opportunity.
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 stock.
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.’s (HTWR) 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 Thoratec.
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 share.
Valuation
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 Hologic Inc. (HOLX)
and Align Technology Inc. (ALGN).
ALIGN TECH INC (ALGN): Free Stock Analysis Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
HEARTWARE INTL (HTWR): Free Stock Analysis Report
THORATEC CORP (THOR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Synthorx (NASDAQ:THOR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Synthorx (NASDAQ:THOR)
Historical Stock Chart
From Jul 2023 to Jul 2024