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Abiomed Reaffirmed at Neutral

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We retain our Neutral recommendation on Abiomed Inc (ABMD - Free Report) following the company’s record first-quarter fiscal 2013 results which edged past the Zacks Consensus Estimates.

Adjusted earnings per share came in at 8 cents, surpassing the year-ago loss of 11 cents, while revenues soared 42% year over year to $38.8 million. The results reflect the burgeoning Impella utilization in the domestic market. Moreover, the company’s operational efficiency contributed to margin expansion.

Abiomed exited the first quarter with a solid balance sheet represented by a 37.4% year-over-year surge in cash and cash equivalents and short-term marketable securities (to $81.2 million) and no long–term debt. We find management’s revised outlook for fiscal 2013 encouraging, with revenues expected to grow at a healthy double-digit clip.

The company has a wide portfolio of products that are life-sustaining in nature. This factor hedges it from any sales shortfall during economic downturns. The anticipated launch of Impella cVAD in the U.S. next month and the expansion of the company’s footprint in Japan in 2013 are expected to be accretive to the top-line.

Headquartered in Danvers, Massachusetts, Abiomed is a medical device company with a blue streak growth path as reflected in the company’s revenues that portrayed an upward trend over the past few quarters with consistent healthy double-digit growth. The sales are expected to be helped by volume growth, brand building and product development in the years ahead.

On the flip side, we are concerned about Abiomed’s overdependence on its recognized flagship brand Impella. In the most recent quarter, revenues from Impella accounted for roughly 89% of the company’s total sales. The company also anticipates that this product will continue to drive growth in the near term. Thus any disruption or delay in Impella sales will harm its business. Moreover, the company’s legacy (non-Impella) business is shrinking.

Also, Abiomed faces intense competition from organizations developing permanent heart assist products including Thoratec Corporation , HeartWare International , Teleflex (TFX - Free Report) , Jarvik Heart and MicroMed Technology. This includes both product and price competition.

While we are upbeat about the prospects of Impella, we remain cautious about the reimbursement risk and current dismal condition of the European economy. Our Neutral recommendation is backed by a Zacks #3 Rank, which translates into a short-term Hold rating.

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