We reaffirm our Neutral recommendation on resuscitation devices maker ZOLL Medical (ZOLL) following its mixed first-quarter 2011 results. Earnings for the quarter beat the Zacks Consensus Estimates driven by sustained strong performance of the company’s LifeVest wearable defibrillator business. Revenues spiked 8% year over year, yet trailed the Zacks Consensus Estimate.
ZOLL Medical’s North American hospital market continues to recover with sales rising 2%, supported by healthy revenues from its U.S. military-focused business, which shot up 32% in the quarter. The Propaq MD defibrillator represents a boon for this business, which has struggled in fiscal 2010. ZOLL Medical’s North American pre-hospital market, however, remains soft with sales sliding 10% in the quarter, partly attributable to a still weak capital spending backdrop.
LifeVest business continues to grow at a healthy quarterly run rate with revenues cruising 50% year over year in the first quarter, benefiting from increased awareness of the product, associated sales force enhancements and wide reimbursement coverage. LifeVest recently reached another major milestone as it was prescribed to over 35,000 patients.
ZOLL Medical is a leading player in the global market for external defibrillators, which is worth more than $1 billion. The company is the innovator of a wide range of product features that have become the standard of care in the external defibrillator industry.
ZOLL Medical’s overseas business remains on a healthy growth track with sales climbing 10% in the first quarter. The company is expanding its presence in the international markets, which should significantly push growth.
Moreover, ZOLL Medical remains committed to broadening its product range to sustain growth in the U.S. defibrillation market. Healthy momentum for the company’s U.S. military business is expected to continue driven by the adoption of Propaq MD and the new Propaq M heart monitor.
We remain impressed by ZOLL Medical’s solid fundamentals, its broad product range, strong international presence, healthy revenue/margin mix and upbeat prospect for LifeVest. The company has completed multiple acquisitions in the past and is seeking more such lucrative transactions to aid growth.
However, ZOLL Medical operates in a highly competitive U.S. defibrillation market. It competes with Physio-Control, a wholly-owned unit of Medtronic (MDT) and Philips (PHG). Moreover, the North American emergency medical services (“EMS”) market remains sluggish due to budget constraints with lack of visibility for material improvement in the near-term. Our recommendation on the stock is backed by a short-term Zacks #3 Rank (Hold).
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