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Balanced View on Cyberonics

Zacks Equity Research

On Apr 2, we issued an updated research report on Cyberonics Inc. (CYBX), a medical technology company with core expertise in neuromodulation. Cyberonics has consistently delivered strong results in the last few quarters, topping the Zacks Consensus Estimate on the earnings front. Although revenues missed the mark, results reflected healthy year-over-year growth.

The company posted an 8.5% rise in its third-quarter fiscal 2014 earnings per share to 51 cents, and a healthy 8.8% increase in revenues to $70.1 million. The figures also surpassed the Zacks Consensus Estimate of 49 cents and $70 million, respectively.

Cyberonics continues to rein in surging demand for its VNS Therapy for the treatment of refractory epilepsy. Recent data considers epilepsy as the fourth most common neurological disease after migraine, stroke and Alzheimer's.

Cyberonics encouragingly noted that the market for epilepsy is huge and is as yet, to a great extent, underpenetrated in the U.S. While nearly 9 million people live with epilepsy in the U.S., Europe and Japan, we note that the global market remains about 80% underpenetrated.

Moreover, continuous solid overseas growth amid several macroeconomic uncertainties in the European market offers hope. Pipeline development, at the same time, bolsters confidence. Meanwhile, Cyberonics has been rewarding its shareholders with attractive share repurchases.

However, the CMS decision on treatment-resistant depression (:TRD) indication was a major downfall for the company. Moreover, gross margin pressure remains an overhang. While we derive comfort from the advantages of VNS therapy and the strong untapped potential of the epilepsy market, we are wary about competitive pressures from larger players in the neuromodulation space.

Other Stocks to Consider

Cyberonics currently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the medical instruments sector are DexCom, Inc. (DXCM), Hologic Inc. (HOLX) and ArthroCare Corp. (ARTC), with the same rank as CYBX.

Read the Full Research Report on CYBX
Read the Full Research Report on HOLX
Read the Full Research Report on DXCM
Read the Full Research Report on ARTC

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