ZOLL Downgraded to Neutral - Analyst Blog

We have downgraded ZOLL Medical Corporation (ZOLL) to Neutral from Outperform with a price target of $29.50. Even though we are pleased with the company’s significant international presence -- which coupled with its wide range of products also drive growth -- the intense competition confronting its products concern us. Furthermore, ZOLL’s strategy of growth by acquisition has inherent risks.

Headquartered in Chelmsford, Massachusetts, and founded in 1980, ZOLL Medical Corporation designs, manufactures, markets and sells non-invasive resuscitation devices and related software solutions both in the U.S. and overseas. The solutions include defibrillation devices with/without the pacing option, such as ZOLL's M Series, E Series, R Series, automated external defibrillator (AED) Plus, AED Pro, and LifeVest Wearable Defibrillator.

Furthermore, these solutions include a circulatory assist device called AutoPulse. The product pipeline also includes a unique fluid resuscitation product, called the Power Infuser, manufactured by Infusion Dynamics, a division of ZOLL. These devices help healthcare professionals, emergency medical service providers, and first responders to diagnose and treat cardiac arrest, wherever it occurs. ZOLL Data Systems, its subsidiary, designs and markets software that automates collection and management of clinical and non-clinical data.

ZOLL has operations in the United States, Canada, Germany, Austria, France, the Netherlands, New Zealand, the United Kingdom and Australia, and has distributorships and sales representative business relationships in the world’s major markets. Even though ZOLL’s international presence helps to widen its customer base among other positives, fluctuations in currency exchange rates can adversely impact the company’s international sales.

ZOLL operates in a highly competitive market. The industry is highly fragmented and includes numerous players. In the U.S. the company competes with the Physio-Control division of Medtronic Inc. (MDT) and Philips Electronics (PHG) in the area of defibrillation (in hospital and EMS).

Furthermore, ZOLL competes with Cardiac Science Corporation (CSCX), HeartSine Technologies, and Defibtech in the AED market. In the international market, ZOLL competes with Physio-Control, Philips, most AED competitors among others. Competitors will always look to grab market share by offering lower prices, new services or services that are different from those offered by ZOLL.

ZOLL has made multiple acquisitions including the acquisition of the assets of Lifecor, Inc., the manufacturer of the LifeVest Wearable Defibrillator, the purchase of the temperature management assets of Radiant Corporation and the acquisition  of intravascular temperature management (IVTM) assets from Alsius Corporation. These acquisitions have aided ZOLL’s growth and it is on the lookout for similar profitable transactions. However, the growth-by-acquisition strategy has inherent risks.

The above concerns have prompted us to downgrade ZOLL with a price target of $29.50. The price target is based on 37.3x our 2010 EPS estimate of $0.79.

Read the full analyst report on "ZOLL"
Read the full analyst report on "MDT"
Read the full analyst report on "PHG"
Read the full analyst report on "CSCX"
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