Leading neuromodulation company, Cyberonics Inc. (CYBX) is scheduled to report its first quarter fiscal 2013 results before the market opens on Tuesday, August 28, 2012. The company expects earnings per share (EPS) of 36 cents on revenues of $58 million during the quarter, according to the Zacks Consensus Estimates.
Cyberonics exceeded its expectations in the last four quarters. Over the past four quarters, average earnings surprise is a positive 15.73%. This implies that the company has surpassed the Zacks Consensus Estimate by this magnitude over the last four quarters.
Previous Quarter Highlights
Cyberonics reported EPS of 38 cents in the fourth quarter of fiscal 2012, up 46% year over year and surpassing the Zacks Consensus Estimate of 35 cents. For the full year, EPS came in at $1.28, a penny short of the Zacks Consensus Estimate but ahead of previous year’s adjusted EPS of $1.01.
Revenues increased 13% year over year during the quarter to $58 million, marginally beating the Zacks Consensus Estimate of $57 million. Cyberonics recorded robust growth in U.S. epilepsy sales (up 10% to $48 million) and international sales (up 33% at constant exchange rate or CER to $9 million). The company provides the vagus nerve stimulation (“VNS”) therapy for treatment of refractory epilepsy. During fiscal 2012 revenues were up 15% to $219 million, ahead of the Zacks Consensus Estimate of $217 million.
Cyberonics also provided guidance for fiscal 2013. The company expects to report revenues of $241-$244 million and $70-$72 million of income from operations resulting in EPS of $1.49-$1.59.
The company noted that the anticipated amount of medical device tax, scheduled to be implemented from January 1, 2013, has not been considered in the guidance for income from operations but included in the EPS forecast.
Agreement of Estimate Revisions
Estimate revision trends among the analysts for the first quarter and the full fiscal year 2013 have been insignificant. Out of the nine analysts covering the stock during the quarter, only one analyst made a downward revision over the past 7 and 30 days, while no upward revision took place. The current fiscal year has experienced no estimate revision from the nine analysts covering the stock over the past 7 and 30 days.
We expect unfavorable currency to adversely impact Cyberonic’s first quarter performance. Moreover, the company’s prominent presence in the European market, which is shrouded with macroeconomic challenges, might affect the company’s sales growth. The analysts await better visibility on this matter.
However, they are encouraged with the company’s persistent revenue growth in the under-penetrated field of refractory epilepsy and treatment-resistant depression (TRD) on the back of the company’s proprietary Vagus Nerve Stimulation (VNS) Therapy System. The analysts believe that as the first implantable medical device to receive FDA approval for the treatment of epilepsy, VNS Therapy system should help the company sustain its growth rate in the coming years.
Moreover, they are also encouraged with Cyberonics’ improvement in the international business. Data shows that the company has encouraging prospects in these regions, especially in Europe and Japan. The recent World Health Organization study on Epilepsy revealed that there are over 3.0 million individuals with epilepsy in Western Europe, with over 150,000 new cases diagnosed each year.
Magnitude of Estimate Revisions
Given the dearth of estimate revisions, the consensus estimate for the current quarter remained static at 36 cents over the past 7 days and one month. The consensus estimate for fiscal 2013 also remained unchanged at $1.56.
Recommendation
Cyberonic’s strong position in the epilepsy market is evident from a consistent increase in new patients over the last three years. Additionally, the company’s investments in market development in Europe are encouraging. In order to expand its international base, Cyberonics is strengthening its pipeline as well as investing in sales and marketing. However, we are apprehensive of the ongoing macroeconomic headwinds. Moreover, the company is posed with stiff competition with the presence of players such as Medtronic (MDT) and St. Jude Medical (STJ).
Cyberonics currently retains a Zacks #1 Rank (“Strong Buy” in the short term).
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