Robert W. Baird and Co. analyst Lawrence Neibor upgraded four medtech stocks and helped get the “January effect” in full swing. Cyberonics (CYBX), Edwards Lifescience (EW), Thoratec (THOR) and Volcano (VOLC) were all upgraded to Outperform from Neutral. Volcano was up 9% to 19 in late afternoon trading on 640k shares and is up about 30% from January 2008 levels. Volcano is a leading provider of intravascular ultrasound(IVUS) and functional measurement (FM) products that aid in the diagnosis and treatment of vascular and structural heart disease with annual revenues in the $225M range. Over 2500 consoles have been installed.
In his January 4, 2010 report, Mr. Neibor raised his price target to $23 saying that “it is one of the best- positioned stocks in devices, offering superior sales growth due to innovative IVUS and FFR technologies”.
Drivers for 2010 will be clinical studies (FAME) which will demonstrate cost savings and efficacy, increased market penetration, systems integrated marketing approach, and market launches of four products in IVUS and FFR pressure wires.VOLC revenues have been running in the $54M range for the last two quarters with a loss of $4M in Q3 2009. Mr Neibor is forecasting a profit of $0.09/share for 2010 compared to an estimated loss of 37 cents a share in 2009; revenues are forecasted at $290.7M. The price target of $23 would be 4X revenue and “should be awarded a higher multiple because we think investors will look toward companies with a significant technological advantage once the details of healthcare reform are more clear.”
The balance sheet looks strong with little long term debt and shareholder equity of $212M for 2009. The Company has $115M in cash.
The Medtech sector has outperformed the market over the past decade because of much smaller losses in 2008 and strong gains in good years.

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