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Shares of Thoratec Corp (THOR - Analyst Report) reached a 52-week high of $39.50 on Tuesday, December 11, 2012. The medical device stock continues to edge past resistance levels and soared to another 52-week high. The closing price as of December 11, 2012 was $39.23, which represented a solid annual return of about 28%.

The stock carries a short-term Zacks #1 Rank (Strong Buy).  

Growth Drivers

A profound mix of solid third quarter earnings, raised guidance, HeartMate II approval in Japan, expanded geographical reach and share buybacks are driving the stock price.

With respect to earnings surprise, Thoratec has topped the Zacks Consensus Estimates in six of the last seven quarters with an average beat of 14.3%. Its third quarter adjusted earnings per share of 44 cents easily surpassed the Zacks Consensus Estimate of 33 cents as well as the year-ago earnings of 34 cents per share.

Total revenues improved 15% on a year-over-year basis to $117.8 million in the quarter, surpassing the Zacks Consensus Estimate of $112 million. Growth was led by higher volume of the HeartMate II product line (up 27% year over year) as well as the higher adoption of Destination Therapy (DT) in the domestic market.

Thoratec revised its financial forecast for 2012. The company expects revenues between $477 million and $483 million compared with the prior guidance of $460 million and $470 million. The updated guidance includes higher sales estimates for the HeartMate II product line and solid expansion of the ventricular assist device (VAD) market.

For 2012, earnings per share are expected to be in a band of $1.79 and $1.83 compared with the prior guidance of $1.67 and $1.73.

Thoratec continued its momentum in the offshore market, especially in Western Europe. The company witnessed higher adoption of its offerings in newer markets like Turkey, where it expects to capture further market share in the near-term. However, HeartWare (HTWR - Snapshot Report) was the first to gain a foothold in Turkey.

Meanwhile, the recent approval of HeartMate II for bridge-to-transplantation (BTT) in Japan, the second largest market for medical devices, is a lucrative route to enter the Asia-Pacific market and garner incremental revenues. The demographic trends and increasing healthcare expenditure in Japan should allow for improved growth profile.

Capital allocation in the form of share buybacks should further boost investor sentiment. Last month, Thoratec announced a share buyback program of $150 million.

Estimates Inch Up

The Zacks Consensus Estimate for 2012 increased approximately 8.1% to $1.61 per share over the last 60 days. The current estimate implies year-over-year growth of 16.49%.

For 2013, the Zacks Consensus Estimate rose by 5.1% over the same time frame to $1.66 per share, implying year-over-year growth of 3.42%.

Valuation

Based on 2012 earnings estimates, Thoratec is trading at a price-to-earnings ratio (P/E) of 24.4x, a 20% premium to the peer group average of 20.3x. The price-to-sales (P/S) ratio of 4.9x represents a 39.6% premium to the peer group average of 3.51x. The company’s strong business fundamentals justify the premium.

About the Company

Pleasanton, California-based Thoratec is a leading developer of innovative devices for advanced heart failure. Founded in 1976, the company has a market capitalization of roughly $2.11 billion. Thoratec has strong presence in the U.S. and Europe with a first mover advantage in the market it serves. 

We currently have a long-term Outperform recommendation on Thoratec. Medical devices stock carrying a Zacks #1 Rank are Merit Medical (MMSI - Snapshot Report), Mesa Laboratories and Cantel Medical .

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