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Conceptus

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Conceptus (CPTS) delivered a positive first-quarter earnings surprise of 30.8% on April 26, but shares of this birth control company have been on an upswing since January. Owing to an uptrend in earnings estimates, stemming from an improved guidance, this company carries a Zacks #2 Rank (Buy).

Higher Sales in the First Quarter

Conceptus reported a first quarter loss of 9 cents per share, which was narrower than the Zacks Consensus Estimate for a loss of 13 cents. The stock price shot up 8.6% following the announcement.

Net sales increased 9.3% year over year to $29 million and surpassed the Zacks Consensus Estimate by almost 4%. After several quarters of declining or stagnating revenue, the improvement came on the back of a gradual increase in domestic physician office visits, the company’s recently expanded field sales presence and a favorable impact from its direct-to-consumer campaign.

Conceptus derives a major share of its revenues from Essure. Domestic sales of Essure experienced an increase of 15.1% year over year to $21.7 million. However, international sales declined 5.2% to $7.3 million.

The company reported a gross profit of $23.9 million, up 11.7%. A continued reduction in production cost and an increase in the average selling price led to a higher gross margin (up 180 basis points to 82.2%).

Conceptus increased its revenue guidance range for fiscal 2012 by $1 million at both ends to $135 million to $139 million. The company also raised its forecast for adjusted EBITDA to between $23 million and $25 million, compared with $22 million to $24 million earlier.

On April 30, Conceptus announced the settlement of its patent infringement litigation related to Hologic’s (HOLX) competing Adiana Permanent Contraception System. As per the agreement, Hologic agreed to withdraw its Adiana system from the market.

Earnings Estimates on the Upswing

In response to the improved outlook, earnings estimates have moved up over the last 90 days. The Zacks Consensus Estimate for 2012 has more than doubled to 9 cents per share, representing year-over-year growth of more than 300.0%. For 2013, the Zacks Consensus Estimate has increased over 26% to 19 cents per share, reflecting an implied growth of 111%.

Stretched Valuation

Conceptus trades at a premium to its peers by most metrics, such as forward P/E, price-to-book and price-to-sales. The price-to-book ratio of 4.16x is 39.1% higher than the peer group average of 2.99x. Similarly, on a price-to-sales basis, the stock is trading at 4.96x, 53.1% higher than its peer group average of 3.24x. P/E measures in this case are rendered largely meaningless, given the loss-making nature of the enterprise. Its estimated long-term earnings growth rate of 17.5% is in line with the industry average.

Chart Suggests a Breakout

After drifting in tandem with its 50-day moving average during the second half of 2011, the chart reveals an upward trend over the past few months. It is currently trading above both its 50- and 200-day averages. The one-year return for the stock is a lofty 75.3% compared to a 2.1% return from the S&P 500 Index.

Headquartered in Mountain View-California and established in 1992, Conceptus (with a market cap of $643 million) primarily manufactures and markets the Essure permanent non-surgical birth control system. Essure has been available in the domestic market since 2002 and over 550,000 procedures have been carried out globally.

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