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Bull of the Day: HeartWare (HTWR)

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Heartware International (HTWR) Has seen analysts pump their estimates higher, giving love to this medical device company love and not heartache. As a Zacks Rank #2 (Buy), it is the Bull of the Day.

Be Still My Heart

Heart failure is a degenerative, terminal disease affecting more than 20 million patients worldwide and causing more than 7.25 million deaths each year. Approximately 1 million patients suffer from Class IV heart failure, the most severe stage of the disease. Heart transplantation is a proven treatment option for Class IV heart failure patients, but a limited number of donor hearts become available each year.

Company Description

HeartWare International Inc. is a global medical device company dedicated to delivering safe, high-performing and transformative therapies that enable patients with heart failure to get back to life. The company’s innovative technologies are creating advances in the miniaturization of Ventricular Assist Devices (VADs) leading to less invasive surgical procedures and increasing the patient population who may be suitable for VAD therapy.

HTWR Beats Estimates In Each Of the Last Two Quarters

Dating back to the December 2012 quarter, Heartware has beaten the Zacks Consensus Estimate in two consecutive quarters. The December 2012 quarter saw the company post a positive earnings surprise of 10.4%. The following quarter saw an even larger surprise of 24.35%. The increases in the beats means that the company is outperforming the increased expectations creating some solid earnings momentum.

Price Targets Move Higher

Normally, you won't find me talking about how price targets have influenced a stock. The fact is that price targets are made up numbers that have a formula that ends up justifying them. So while they are made up numbers, the chart below shows how the stock price has been impacted by recent changes in the average price target for the stock.

Projected Growth is Impressive

Topline growth has been fairly impressive but the pumps are looking like they are going to be working overtime in 2013. Revenue grew at a 34% annual rate in 2012 but is expected to balloon to 82% in 2013. When compared to an industry average of top line growth of -1.6% in 2012 and 4.3% in 2013, its clear this company ranks among the top in growth. The story doesn't have any blockage for 2014 as the topline is expected to grow by another 27% vs the industry average of 6.2%.

Most investor care most about how the top line growth flows through to the bottom line. While 2012 was a hard year for HTWR with -56% earnings growth, good things are expected in each of the next two fiscal years. 47% growth in 2013 and 56% bottom line growth in 2014 are outpacing the industry average in a significant way.


The valuation picture for HTWR is a challenging one due to the negative earnings. The stand by valuation metrics like Price to Earnings are all not meaningful due to the negative earnings. Price to book of 8x is double that of the industry average. The price to sales metric also shows a significant premium as well. The big idea on valuation is not what the company is worth now, but what it will be worth at this point next year after it posts 81% revenue growth and 47% earnings growth... that is when the story becomes interesting.

The Chart

A quick look at the two year chart shows the stock has recently reached new highs. Stocks that are and have been hitting new highs over the last 5 months have turned out to be great investments. The idea with that is that you stick with what works, and HTWR is clearly working.

Brian Bolan is a Stock Strategist for He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

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