analysts pump their estimates higher, giving love to this medical
device company love and not heartache. As a
Zacks Rank #2 (Buy), it
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.
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 companys 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
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
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.
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 Zacks.com. 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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