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Thoratec Corp. Down to Strong Sell on Dismal Q2

Zacks Equity Research

On Aug 12, 2014, Zacks Investment Research downgraded Thoratec Corp. (THOR) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On Aug 6, Thoratec reported disappointing 2014 second-quarter results with both the top and the bottom line coming in below expectations. The company also lowered its earnings and revenue guidance for 2014. Following the earnings release, shares of the company have dropped nearly 27.9% till the last closing date.

The lackluster results have set a negative earnings estimate revision trend for Thoratec. For 2014, five estimates moved south over the last one month, with no upward revision over the same time frame, causing the Zacks Consensus Estimate to drop 30.8% to 90 cents per share. For 2015, again five estimates were down in the past one month, leading to a 34.8% fall in Zacks Consensus Estimate to $1.03.

In the second quarter, adjusted earnings per share of 29 cents went down 34.1% from the year-ago quarter and missed the Zacks Consensus Estimate by 2 cents. Revenues in the quarter ebbed 9.5% to $118.1 million, missing the Zacks Consensus Estimate of $130 million.

The decreased revenues can be attributed to a decline in HeartMate II sales, partially mitigated by continued double-digit revenue growth in CentriMag business. Revenues from the flagship HeartMate product line nosedived 11.8%, as shipments of HeartMate pumps fell during the quarter.

Thoratec enters the third quarter of 2014 with a conservative view of the markets due to strong competition and adverse market dynamics throughout Europe and Japan. Revenues in 2014 are expected in the range of $455 to $470 million as compared to the prior range of $520–$535 million due to lower assumptions for the HeartMate II product sales. The current Zacks Consensus Estimate of $474 million lies beyond the revised guided range.

The company expects adjusted earnings per share in the band of $1.25−$1.35 compared with the prior band of $1.39–$1.49 for the year. The current Zacks Consensus Estimate of 90 cents lies way below the projected range.

Moreover, the long-term expected earnings growth for this stock is pegged lower at 10.2% compared with industry growth of 17.6%.  

Other Stocks to Consider

Some better-ranked medical instruments stocks include Alphatec Holdings, Inc. (ATEC), RTI Surgical Inc. (RTIX) and ERBA Diagnostics, Inc. (ERB). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on THOR
Read the Full Research Report on ATEC
Read the Full Research Report on RTIX
Read the Full Research Report on ERB

Zacks Investment Research