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Cardiovascular Systems (CSII): Q1 Solid, Net Losses Linger

Zacks Equity Research

On Dec 27, we issued an updated research report on St. Paul, MN-based Cardiovascular Systems, Inc. CSII. The company is a medical device manufacturer that develops and commercializes innovative solutions to treat patients suffering from peripheral and coronary arterial diseases, including those with arterial calcium.

In the last six months, Cardiovascular Systems has consistently outperformed the Zacks classified Medical-Product industry trend with respect to price performance. The trend improved further with the company delivering better-than-expected results in first-quarter fiscal 2017. Currently, the stock is up 48.5%, way better than the 4.8% decline of the Medical products industry.

In the last reported quarter, the company witnessed an improvement in operating expense which mainly drove the year-over-year improvement in the loss figure. During the first quarter of fiscal 2017, Cardiovascular Systems’ gross margin expanded year over year to 80.9%, driven by a significant reduction in the company’s unit costs and slightly higher device ASPs. Going forward, management expects engineering enhancements and higher production volumes to reduce unit cost. This will help the company register a higher gross margin in the coming quarters as well.

Notably, Cardiovascular Systems has been conducting multiple clinical trials with an aim to display the efficacy of its technology. This has allowed physicians to select the company’s products to offer the best treatment options to their patients. Recently, the company presented 30-day favorable results from the LIBERTY 360° study. The results displayed high rates of procedural lesion treatment success. On the other hand, management continues to expect commercialization of the micro-crown in Japan in fiscal 2018 after the positive results from the company’s COAST study are released.

On the flip side, the company operates in the competitive medical device industry, which gets significantly affected by new product introductions. Failure to expand business overseas might hamper growth. Currently, CardiovascularSystems’ revenues are derived from domestic operations. However, the company plans to start selling internationally in the future and has already commenced the process of seeking approval for commercial sales in both Europe and Japan. Nevertheless, uncertainty with regard to regulatory approvals and sales potential has been affecting operations in international markets.

Zacks Rank & Key Picks

Cardiovascular Systems carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are NxStage Medical Inc. NXTM, Align Technology, Inc. ALGN and Haemonetics Corporation HAE. NxStage Medical and Align Technology sport a Zacks Rank #1 (Strong Buy) while Haemonetics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NxStage Medical gained 18.1% over the last one year compared with the S&P 500’s 9.2%. The company has a four-quarter average positive earnings surprise of 46.3%.

Align Technology rallied 49.8% year to date, way better than the S&P 500’s 11%. It has a trailing four-quarter average positive earnings surprise of 23%.

Haemonetics recorded a 25.9% gain year to date, better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 0.82%.

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