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Analyst Blog

On Apr 11, we upgraded Thoratec Corp. (THOR - Analyst Report), a leader in mechanical circulatory assistance devices to Neutral, based on its prospects. The company is expected to report first quarter 2013 results toward the end of Apr.

Why the Upgrade?

Revenues for Thoratec rose 17% year over year to $128 million in the fourth quarter, beating the Zacks Consensus Estimate of $119 million. Its fourth-quarter 2012 adjusted earnings per share of 34 cents narrowly beat the Zacks Consensus Estimates of 33 cents. Thoratec has reported positive earnings surprises in three of the last four quarters with an average surprise of 13.9%.

Over the last 90 days, the Zacks Consensus Estimate for 2013 has advanced by 2.5% to $1.67 while the same for 2014 has inched up 0.5% to $1.98 over the same timeframe.

Thoratec’s monopoly in the U.S. market, in the case of the bridge-to-transplant (“BTT”) therapy, has come to an end. It followed FDA approval, in November 2012, for Heartware International’s (HTWR) Ventricular Assist System as a BTT for patients with end-stage heart failure. Thoratec still enjoys pre-eminence in the U.S. in the Destination Therapy (“DT”) market. Thoratec faces no near-term competitive threat in DT as the HeartWare device is not expected to be launched in the near future.

Thoratec has a proven track-record in R&D. The company is currently developing its next generation HeartMate III. Thoratec accomplished first human usage of HeartMate Percutaneous Heart Pump (HeartMate PHP) in Mar 2013. Next generation HeartMate devices under development will be less invasive and easier to implant. However, lack of pipeline visibility and relative lack of milestones represent concerns.

Other Stocks to Consider

Thoratec carries a Zacks Rank #3 (Hold). We are more optimistic about Cepheid (CPHD - Analyst Report), Cyberonics Inc. (CYBX - Analyst Report) and Given Imaging Ltd. , each of which carry a Zacks Rank #1 (Strong Buy) and are expected to do well.

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