Discount VNUS Medical

Weak generator sales and increased competition at VNUS Medical (VNUS) concern us. Weaker gross margin and higher SG&A [sales general & administrative] expense are expected to negatively impact profitability. At the current price, VNUS trades at 2.3x 2007 revenues, a discount to the 2.7x revenue group average and a discount to the industry averages. Given the losses and continued competition headwind, we believe a discount is appropriate. At 2.2x 2007 revenues, a roughly 20% discount to the group and a discount to the industry averages, our target moves to $9.00. VNUS Medical Technologies, Inc. is a leading provider of medical devices for the minimally invasive treatment of Saphenous Vein Reflux Disease. Saphenous Vein Reflux Disease is a progressive condition caused by saphenous vein valve failure, and is characterized by the poor return of blood from the legs to the heart. As blood pools in the vein, the disease results in symptoms such as leg pain, swelling, fatigue, skin ulcers, and painful varicose veins. The company’s main product line, the Closure RF System, consists of a proprietary radio frequency (RF) generator, and proprietary disposable endovenous (inside the vein) catheters to close diseased veins, through the application of temperature-controlled RF energy. Read the analyst report on VNUS

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