Cardiovascular Systems Down on Bleak Q1 Preliminary Results

Zacks Equity Research
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Shares of medical device developer Cardiovascular Systems, Inc. CSII tanked 15% in after-hours trading yesterday, following the release of dismal preliminary results for its upcoming first-quarter fiscal 2016.

The company expects to deliver net loss in the range of $13.1–$13.9 million or loss of 41–43 cents per share in the first quarter, a significant deterioration of 64.6% or 61.5% from the respective year-ago loss figures (taking into consideration the mid-points of the respective estimated loss ranges). In comparison, the current Zacks Consensus Estimate for loss is pegged at 39 cents per share.

On the other hand, Cardiovascular Systems expects to report revenues of approximately $43.9 million, reflecting a year-over-year improvement of 11.1% (excluding $1.9 million from the sale of Asahi guide wires in the prior-year period). The current Zacks Consensus Estimate for revenues is currently pegged at $49 million, higher than the company's preliminary revenue number.

According to the company, certain recent review of results indicates that some aspects of Cardiovascular Systems’ business transition faced challenges leading to an expected dismal performance in the yet-to-be-reported quarter.

However, the company has taken necessary measures to address such complications and continues to expect that the vast majority of its optimization efforts will be over by the third quarter of fiscal 2016.

On a positive note, Cardiovascular Systems is currently involved in registering consistent progress with its sales optimization strategy. Alongside, the company is cross training its sales representatives to allow them to efficiently sell both peripheral as well as coronary devices.

Moreover, management is confident about Cardiovascular Systems’ ability to address the large underserved population of patients with calcified artery disease, by virtue of its groundbreaking orbital atherectomy technology (OAS). Currently, the company believes it is strongly positioned with respect to its opportunities in the multi-billion dollar market wherein it serves, as well as its potential to address the same.

Going forward, management is confident that Cardiovascular Systems, backed by its sales optimization strategy, which incorporates a large and focused sales force, will capitalize on the lucrative opportunities. This, in turn, should rake in attractive double-digit revenue growth and profitability for the company.

Our Take

We are disappointed with Cardiovascular Systems’ preliminary fiscal first quarter results which fell short of the Zacks Consensus Estimate on both the top and bottom-line fronts. On a year-over-year basis, the preliminary numbers were mixed as revenues showed an improvement but the bottom line slipped further. However, management states that these preliminary results might change, once the company completes its customary closure procedures and independent auditor review.

Moreover, Cardiovascular Systems, at the moment, is the only company offering a unique OAS solution for both coronary and peripheral artery diseases. The monopoly it enjoys thus offers it immense competitive leverage in the multi-billion dollar arterial disease therapy market.

Zacks Rank

Currently, Cardiovascular Systems carries a Zacks Rank #3 (Hold). Some better-ranked medical product stocks are Enzymotec Ltd. ENZY, ICU Medical, Inc. ICUI and NuVasive, Inc. NUVA. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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NUVASIVE INC (NUVA): Free Stock Analysis Report
 
ICU MEDICAL INC (ICUI): Free Stock Analysis Report
 
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CARDIOVASCLR SY (CSII): Free Stock Analysis Report
 
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