Volcano Poised at Neutral - Analyst Blog
June 04 2012 - 11:15AM
Zacks
We have reaffirmed our Neutral
recommendation on Volcano Corporation (VOLC)
following its first-quarter 2012 results. However, the company’s
revenues and earnings per share during the quarter lagged the Zacks
Consensus Estimates.
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 and efficacy of existing percutaneous interventional
(“PCI”) procedures in the coronary or peripheral arteries. While
FFR technology is used to determine whether or not a stent is
necessary, IVUS is used to guide stent placement and
optimization
We believe sales of IVUS products
will continue to account for a significant portion of the company’s
revenues going forward. While the IVUS penetration rate in Japan is
quite high (more than 80%), the penetration rate in the US and
Europe for similar procedures is relatively low. The low
penetration rate in the US and Europe nevertheless provides scope
for market share expansion.
Japan is a significant market for
Volcano Corporation as it derives more than 30% of its revenues
from this region. With the 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. With
increasing market share in Japan, we are encouraged to note that
management is expecting modest growth in PCI volumes and IVUS
penetration in Japan during the current fiscal.
The company’s strong portfolio and
pipeline development should generate growth in the long term. The
company is in the process of rolling out Prestige Plus in US and
Europe, the latest addition to its FFR product line. During the
most recent quarter, Volcano initiated limited market release of
the Valet Micro catheter in the US. While revenue contribution from
the device will be nominal in the current fiscal, it is expected to
pick up gradually.In addition, we have high hopes from the
next-generation IVUS technology called FACT (Focused Acoustic
Computed Tomography), the commercial launch of which is slated for
2013 in US and Europe and in Japan during 2014. Besides, the
Forward-Looking IVUS (FL.IVUS) is scheduled to receive CE mark
approval before year end.
However, hospital capital spending
has been affected by the weak economic scenario. Moreover, the
company has decided to convert to direct sales in Spain and other
European countries gradually. We expect this move to negatively
impact sales from Europe in the near term. The company also
witnesses tough competition from players like Boston
Scientific (BSX) and St Jude Medical
(STJ).
Our recommendation is backed by a
Zacks #3 Rank (Hold) in the short term.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
VOLCANO CORP (VOLC): Free Stock Analysis Report
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