We reaffirm our Neutral recommendation for therapeutic and diagnostic devices maker AngioDynamics (ANGO).
Its third-quarter fiscal 2011 adjusted (excluding one-time tax benefit) earnings matched the Zacks Consensus Estimate while revenues narrowly beat the forecast. Profit climbed 14% year over year on the back of solid oncology sales and lower tax.
Oncology revenues soared 19% year over year, boosted by sustained healthy adoption of the company’s popular tumor-zapping NanoKnife system and healthy contributions from international operations. NanoKnife sales more than doubled in the quarter. The total number of patients receiving treatment with the device stood at 538 at the end of the third quarter.
AngioDynamics’ larger Vascular segment remains challenged by significant pricing pressure, slowdown in procedure volume and intense competition, affecting the division’s sales. The company has tweaked its guidance for fiscal 2011 anticipating these issues to continue impact its Vascular business through the year.
AngioDynamics is a leading provider of therapeutic and diagnostic devices for treating peripheral vascular and other non-coronary diseases. It has market leading positions in several of its operating segments including angiographic products and thrombolytic catheters and products.
AngioDynamics is ramping up R&D investments to broaden its product portfolio. The company is driving product innovation by investing roughly 10% of its revenues in R&D. AngioDynamics has already launched 10 products in the current fiscal year (including four in the third quarter), thereby meeting its target for the year. Moreover, the company is exploring acquisitions for growth leveraging its healthy balance sheet and cash flows.
We expect AngioDynamics’ focus on interventional peripherals to help drive future growth. Moreover, the company should continue to benefit from the ongoing shift from open surgery to less invasive interventional procedures. NanoKnife remains the key driving force for AngioDynamics and the company is seeking its approval in additional indications to expand commercial opportunity.
Although gross margins have been impacted by pricing pressure, new products such as Smart Peripherally Inserted Central Catheter (“PICC”) bedside insertion kit and the recently launched DuraMax dialysis catheter are expected to support margins moving forward.
However, AngioDynamics’ product lines face strong challenges from the competitive offerings of its larger rivals such as Boston Scientific (BSX) and C.R. Bard (BCR). We also remain wary about the pricing and procedure volume headwinds, which continue to affect the company’s core Vascular business. Our recommendation is supported by a short-term Zacks #3 Rank (Hold).
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