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Bear of the Day: Syneron Medical (ELOS)

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Estimates have moved into the negative territory after ugly second quarter results, sending Syneron to a Zacks Rank # 5 (Strong Sell) last month.  
About the Company

Syneron Medical Ltd (ELOS) is a leading global aesthetic device company with a 29% worldwide market share.  It focuses on non-invasive aesthetic procedures and operates under two segments: Professional Aesthetic Devices and Emerging Business Units.

The Company provides advanced solutions for a broad range of medical-aesthetic applications including body contouring, hair removal, wrinkle reduction, improving the skin's appearance, and the treatment of acne, leg veins and cellulite. The Company sells its products under two distinct brands, Syneron and Candela.  

Disappointing Results
ELOS reported its second quarter FY 2013 results on August 14, 2013. Revenues in Q2 2013 were $68.8 million, up 1% from $68.1 million in the second quarter of 2012. Net operating loss for quarter was $0.01 per share, substantially worse than the Zacks Consensus Estimate of earnings of $0.03 per share.
Gross Margin for the quarter was 48.3%, down from 53.2% in second quarter of 2012. Revenue mix, increased production costs and volume discounts affected the gross margin.
Downwards Revisions
Due to disappointing results, quarterly and annual estimates have been revised sharply downwards in the past few weeks. Zacks consensus estimates for the current quarter and year are now in the negative territory—($0.05) and ($0.19) per share respectively, down substantially from $0.03 and $0.14 per share, 60 days ago.
The Bottom Line
ELOS seems to be undergoing management transition with a new CEO earlier this year and a new head of North America sales announced at the time of second quarter results. The result of these management changes remains to be seen.
Further while the company is well positioned in high growth geographies, which are witnessing a strong shift towards non-invasive procedures, recent sales force initiatives may take some time to pay off.
ELOS is now a Zacks Rank # 4 (Sell) stock and it has a longer-term recommendation of “Underperform”.  Further, Zacks Industry Rank of 198 out of 265 also indicates some weakness in the short- to mid- term. As such investors would like to avoid this stock for the time being.

Better Play?
Investors seeking exposure to the Medical Instruments industry could look at Pacific Biosciences (PACB) or Echo Therapeutics (ECTE); both are Zacks Rank#2 (Buy) stocks.
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