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On Mar 21, we retained Abiomed Inc. (ABMD - Analyst Report) at Neutral following its impressive third-quarter fiscal 2013 results. Although its earnings managed to beat estimates, we remain on the sidelines on the back of its rising expenses and risks associated with current regulatory needs.

Why the Retention?

On Feb 6, the leading cardiac assist devices maker reported third-quarter fiscal 2013 adjusted earnings per share of 7 cents, which went up 16.7% from the prior year and beat the Zacks Consensus Estimate of 6 cents. Revenues climbed 19% year over year to $38.3 million, which was roughly in line with the Zacks Consensus Estimate of $38.0 million.

This marked the 13th straight quarter, in which Abiomed recorded a double-digit gain in earnings. The increase was led by solid sales of the Impella heart pumps. Additionally, the company posted record patient utilization of the Impella device in the quarter. However, gross margin contracted in the quarter due to rising manufacturing costs.

The company’s earnings have also managed to beat the Zacks Consensus Estimates in the last four quarters with a solid average surprise of 90.0%. Following the release of third quarter results, the Zacks Consensus Estimate for 2013 remained unchanged at 34 cents per share, while that for 2014 moved up by 9.8% to 45 cents per share.

Abiomed is a medical device company with a blue streak growth path. Multiple near-term drivers, including new products and clinical trials, should further boost the use of Impella. The company has a solid cash position. However, regulatory and reimbursement risks are major headwinds for the company.

Other Stocks to Consider

Medical instrument companies such as Cyberonics (CYBX - Analyst Report), Given Imaging and Mindray Medical International (MR - Analyst Report) are worth considering. While Cyberonics and Given Imaging carry a Zacks Rank #1 (Strong Buy), Mindray retains a Zacks Rank #2 (Buy).

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