Cyberonics climbs as Street reviews 1Q report

Cyberonics rises as analysts take positive view of its fiscal 1st-quarter net income and sales

Associated Press

NEW YORK (AP) -- Shares of Cyberonics Inc. rose Wednesday as Wall Street took a positive view of the neurological device maker's fiscal first-quarter results.

THE SPARK: Cyberonics reported its quarterly results Tuesday morning. The company said its net income grew 17 percent during the quarter despite a $2.5 million write-down of an investment, and its revenue climbed 15 percent. That was about $2 million more than analysts expected. The company's adjusted per-share net income was 2 cents ahead of analyst forecasts, according to FactSet.

THE BIG PICTURE: Cyberonics, based in Houston, makes implants designed to treat epilepsy and depression by stimulating the vagus nerve. The devices are intended for patients who have not been helped by other treatments.

Potiga is a drug made by GlaxoSmithKline PLC and Valeant Pharmaceuticals International Inc. It is approved for patients who cannot control their seizures with one or more medications already on the market. European Union regulators approved the drug in March 2011 and the Food and Drug Administration approved its marketing in June 2011. GlaxoSmithKline said sales of the drug totaled about $3 million over the first six months of 2012.

THE ANALYSIS: Canaccord Genuity analyst William Plovanic upgraded the shares to "Buy" from "Hold" based on the results, and raised his price target on the stock to $56 per share from $34. Plovanic said he was concerned that a new epilepsy drug called Potiga could hurt sales of Cyberonics' nerve stimulation implants, but that has not happened. He added that Medicare is close to finishing a review of the company's devices, which could lead to coverage and help sales.

Jefferies & Co. analyst Raj Denhoy said the company had an "excellent quarter" and maintained a "Buy" rating on the shares. Denhoy noted that sales of epilepsy implants rose 17 percent in the U.S., and said sales of the company's newest device are improving.

"AspireHC continues to be well-received by clinicians and accounted for about 15 percent of total units in the period (versus about 10 percent in the prior quarter)," he said. Denhoy wrote that the company's and profitability should stay strong.

SHARE ACTION: Cyberonics stock gained $3.31, or 7 percent, to close at 49.67. Earlier the stock reached a multi-year high of $50.36. The shares rose 2.3 percent Tuesday after Cyberonics reported its quarterly results. They have risen 80 percent in the past year.

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