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On Sep 19, we have upgraded our recommendation on Thoratec Corporation (THOR - Analyst Report) to Neutral from Underperform. We are impressed by the company’s second quarter results that beat the Zacks Consensus Estimate on both earnings and revenues fronts as well as its strong performance in the overseas markets.

Why Upgraded?

On Jul 31, Thoratec Corporation posted a 12.8% rise in adjusted earnings to 44 cents per share in the second quarter of the year from 39 cents a year ago while net earnings improved 9.2% to $25.7 million from $23.6 million in the 2012-quarter. With this, earnings surpassed the Zacks Consensus Estimate by 8 cents per share.

Revenues in the quarter rose 10.0% to $130.5 million, exceeding the Zacks Consensus Estimate of $121 million. Thanks to the company’s HeartMate product line that contributed $115.7 million to overall revenues, reflecting a 9% year-over-year increase due to the expansion of its international business, including the recent commercial launch in Japan.
 
Following the release of second quarter results, the Zacks Consensus Estimate for 2013 earnings remained the same at $1.33 per share. The Zacks Consensus Estimate for 2014 earnings also remained unchanged at $1.45 per share. With the Zacks Consensus Estimates remaining unchanged, THOR now has a Zacks #3 Rank (Hold).

Thoratec has benefited from rapid acceptance of HeartMate II on a global basis. HeartMate II is clinically adequately effective enough to provide favorable long-term survival outcomes for patients who do not have access to donor hearts.

Thoratec also enjoys a monopoly in the U.S. market with this only device of its kind. In the U.S. DT market, the company faces no near-term competitive threat as HeartWare’s LVAD is not expected to be launched before 2015.

However, the small size of THOR may restrict its ability to raise resources. The absence of strategic alliances may hinder its ability to develop new products

Other Stocks to Look For

Other stocks that are currently performing well in the medical instruments industry include Cynosure, Inc. (CYNO - Snapshot Report), Delcath Systems, Inc. , and Echo Therapeutics, Inc. (ECTE - Snapshot Report). All of them carry a Zacks Rank #2 (Buy).

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