Sonic Innovations Progressing

Sonic Innovations, Inc. (SNCI) finally gave up on its auditory testing equipment unit Tympany and the referral concept and instead has expanded its distribution relationships. The sale of Tympany has helped the company clear a path to meaningful earnings growth. It is also acquiring and opening new clinics to help drive meaningful sales growth from new product launches.

The improvements made to the distribution, management and sales structure have been helping to drive meaningful sales growth. The company’s emphasis on research and development has resulted in new product launches that continue drive sales growth in the high double digits.

The weak economy continues to negatively impact North American sales. Hence, the company has been consolidating operations in Europe to reduce operating costs and to focus resources on markets that offer the greatest profitability.

At its current price of $2.93 per share, SNCI is trading at 0.6x our 2009 revenue estimate of $148 million, which is at a discount to the average group multiple of 1.0x. We believe the focus on profitability and expected improvements this year and stronger expected growth thereafter should drive the stock to trade at a premium to the group. Our price target remains at $6, around a 1.1x FY09 revenue estimate.

Read the full analyst report on SNCI