GIVN Given Imaging Ltd. - Ordinary Shares (MM)

Cyberonics’ (CYBX) net income shot up 38.7% on a year-over-year basis to $13.2 million in the third quarter of fiscal 2013. The company’s earnings per share (EPS) came in at 47 cents, reflecting a beat of 23.7% over the Zacks Consensus Estimate and surpassing the adjusted year-ago EPS by 11.9%, largely benefiting from a lower tax rate in the quarter. The result reflects the seventh successive positive earnings surprise for the company.

Quarter under Review

Revenues increased 15% year over year to $62.7 million, ahead of the Zacks Consensus Estimate of $61 million. Worldwide unit sales surged 14% year over year. On a geogprahic basis, Cyberonics recorded 11% growth in U.S. revenues (to over $50 million) and 6% unit growth in the third quarter. International sales, representing 19% of the company’s revenues, grew a robust 37% (on a reported as well as CER basis to a record high of $12 million) with unit growth of 36%. Growth in the overseas market was led by double-digit European unit sale growth for the seventh successive quarter.

In the reported quarter, the company witnessed higher utilization and adoption for its VNS Therapy generators, as reflected in the quarterly sales of over 3,200 units across the globe. AspireHC – Cyberonics’ newest VNS Therapy generator – gained traction, representing 20% of total sales in the domestic market.

Gross profit increased 13.7% to $57.3 million in the quarter. However, gross margin contracted 110 basis points (bps) to 91.4%. The impact from the medical device tax and associated costs since Jan 1 accounted for 50 bps decline. Despite a 6.8% increase in selling, general and administrative expenses to $26.6 million and a 12.6% increase in research and development expenses to $10.2 million, operating margin expanded a significant 250 bps to 32.6% in the reported quarter.

The company exited the quarter with cash and cash equivalents of $116.5 million, up from $96.7 million at the end of fiscal 2012. Cyberonics repurchased 145,000 shares during the third quarter and is left with 215,000 shares under its buyback program.

Guidance

Taking into account the third quarter performance, the research and development tax credit and medical device tax, Cyberonics tweaked its guidance for fiscal 2013. The company raised its revenues forecast to $248−$250 million (previous guidance was $246−$249 million). The current Zacks Consensus Estimate of $248 million hovers around the lower end of the company’s guidance.

Income from operations is expected in the range of $75−$77 million ($73−$75 million) resulting in adjusted net income of $46−$48 million ($43−$45 million) and adjusted EPS of $1.66−$1.72 ($1.56−$1.62). The current Zacks Consensus Estimates of $1.61 for fiscal 2013 lies well below the revised guidance.  

Our Take

Cyberonics posted another strong performance that encouraged market sentiments as reflected in the 5.23% rise in the stock price following the results. We believe that the stock is likely to appear more valuable on the back of the results.

The raised guidance which lies ahead of the Zacks Consensus Estimate also inspires confidence. As earnings estimates are expected to move higher for Cyberonics, the stock carries a Zacks Rank #1 (Strong Buy). Besides Cyberonics, other stocks in the medical sector carrying a Zacks Rank #1 are Given Imaging (GIVN), NuVasive (NUVA) and Medical Action (MDCI).
 

 
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