BTIG Research: Thoratec 'Drops A Bomb' In Its Second Quarter Results

Shares of Thoratec THOR were down more than 27 percent during Thursday's pre-market session on robust volume following the company's poor second quarter results reported on Wednesday.

Thoratec earned $0.42 per share, in-line with the consensus estimate but revenue declined 9.5 percent from a year ago to $118.06 million and fell short of expectations by more than $10 million.

Thoratec issued full year fiscal 2014 guidance and sees its revenue being in a range of $455 million to $470 million, while non-GAAP earnings per share is estimated to be in a range of $1.25 to $1.35.

On Thursday, Sean Lavin, M.D. of BTIG Research released a note to clients. The analyst states “Thoratec drops a bomb with large miss and chopped guidance; gives dire outlook.”

“We cannot recall a more disappointing quarter for Thoratec.”

Thoratec's Problems: No Easy Fix

Lavin is “stunned” by Thoratec's results and notes that the poor guidance points to a deeper problem than physician hesitation around thrombosis.

“Virtually anything that went wrong did including thrombosis worries, lost reps OUS, small players creating a Japanese launch where no more 2014 sales are expected, and open heart centers running into problems clearing patients with transplant centers,” Lavin wrote. “None of these seem easy fixes.”

Lavin expects Thoratec will be forced to ramp up expenses by hiring reps both in the U.S. and internationally to better position itself against competitors.

All is not doomed, according to Lavin, who believes that Thoratec could reverse its fortunes if it hires many new reps or sees its Heartmate III CE device launched in Europe which is anticipated to be completed by the end of 2014 and approval by late 2015. However, the analyst adds that both outcomes may take many quarters before the company sees any benefits.

Downgraded To Neutral

Lavin explains that he does not like downgrading a stock after a quarterly miss, but there appears to be no viable alternative given the “poor performance this quarter” and “lack of positive near term catalysts.”

Using a 20x 12-24 month GAAP EPS yields a price target of around $29, however the analyst has no confidence that shares will be fairly valued at this multiple. The analyst adds that there is little reason to believe that Thoratec will see a reversal in its share loss stops. As such, the analyst has no assigned price target to his rating.

Thoratec was trading at $24.20 just after the opening bell, down 25.8 percent.