Cyberonics Outlook Lowered

Cyberonics, Inc.’s (CYBX - Analyst Report) growth expectation has been reduced from the unsuccessful attempt at gaining national reimbursement coverage for the depression indication for VNS Therapy System. Yet, it reported first-quarter EPS that beat our estimate by $0.06 on sales that also exceeded our forecast. CYBX continues to progress in its strategic priorities. To execute its depression strategy, the company continues to seek a financial partner.

At its current price of $25.10 per share, CYBX is trading at 4.9x our fiscal year 2009 revenue estimate of $137 million, which is at a premium to the group average multiple of roughly 3.7x. As evident in the stock price, CYBX continues to progress in its growth plan for the epilepsy market. At this stage, any multiple expansion may be limited. Execution risk related to CYBX’s overall growth plan may limit multiple expansion. Further risk exists regarding a possible reimbursement change.

According to published proposed rates for 2009, reimbursed customers may receive lower reimbursements from Centers for Medicare and Medicaid Services (CMS) for implanting leads. Not all cases are reimbursed. Before final rates are published that is expected around November 1, CYBX has initiated an effort with CMS to address the proposed rate change. The rate change if adopted could affect according to CYBX roughly 3% of its total revenue. At roughly 5.1x our 2009 revenue estimate, our price target moves to $26.

Read the full analyst report on CYBX