We recently reiterated our ‘Neutral’ rating on Cyberonics, Inc. (CYBX) with a target price of $21 based on a P/E of 21.4x our fiscal 2011 EPS estimate of 98 cents. The company reported a strong third quarter fiscal 2010 results. However, our earnings estimates for fiscal 2011 and 2012 portray a downtrend that prevents us from upgrading the stock.
Cyberonics reported third quarter fiscal 2010 earnings per share of 26 cents, surpassing the Zacks Consensus Estimate of 25 cents and the year-ago earnings of 15 cents.
Total revenues in the third quarter increased 16% year-over-year to $40.8 million. Excluding a favorable foreign currency translation, net sales increased 14% year over year.
On a geographic basis, the U.S. contributed roughly 78% to total revenues and increased 12% year over year. International revenues account for the balance and increased 34% year over year.
Cyberonics reported an expansion in margins in the third quarter. Gross margin increased 190 basis points (bps) year-over-year to 87.9%. Growth was primarily driven by increased production volumes, higher average selling prices due to a favorable product mix and greater manufacturing efficiencies. Operating margin increased 790 bps year-over-year to 22.1%.
Cyberonics is a neuromodulation company that develops and markets the VNS Therapy System for the treatment of refractory epilepsy and treatment-resistant depression. VNS Therapy improves a patient’s quality of life by minimizing seizure reduction.
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