CMD Cantel Medical Corp

On Jan 14, we downgraded Thoratec Corp. (THOR), a leader in mechanical circulatory assistance devices, to Neutral based on growing competition and a more challenging outlook. The company’s third quarter 2012 revenues and earnings per share beat the Zacks Consensus Estimates.

While past results have often been good, Thoratec faces growing competition from HeartWare International (HTWR). Thoratec’s monopoly in the U.S. market, in the case of the bridge-to-transplant (BTT) indication, has come to an end following FDA approval, in November 2012, for HeartWare’s Ventricular Assist System as a BTT for patients with end-stage heart failure. HeartWare has already received CE Mark approval in Europe.

Expected market share losses to HeartWare for the BTT indication will result in a slower growth profile for Thoratec. The growth rate in the Destination Therapy (DT) market where the company faces no near-term competition will therefore determine its prospects in the medium term. Overall, the market may be broad enough to accommodate several players, assuming clinical comparability.

Lack of pipeline visibility and relative lack of milestones represents a concern. Thoratec’s third-generation pump (HeartMate III) is still in the early stages of development. Its next-generation device may not be commercially available in the U.S. for the next couple of years.

The small size of the company may restrict its ability to raise resources. The absence of strategic alliances may hinder its ability to develop new products. The unified product line of the company and its lack of product diversification are related areas of concern.

While we are non-committal on Thoratec at this time, other medical device stocks worth a look are Cantel Medical Corp. (CMN) and Merit Medical Systems, Inc. (MMSI). Both are Zacks Rank #1 (Strong Buy) stocks.

 
CANTEL MED CORP (CMN): Free Stock Analysis Report
 
HEARTWARE INTL (HTWR): Free Stock Analysis Report
 
MERIT MEDICAL (MMSI): Free Stock Analysis Report
 
THORATEC CORP (THOR): Free Stock Analysis Report
 
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