On Nov 28, 2014, Zacks Investment Research downgraded STAAR Surgical Company (STAA) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
STAAR Surgical reported disappointing third-quarter 2014 results. Adjusted loss came in at 4 cents per share, much wider than the Zacks Consensus Estimate of earnings of 3 cents. Notably, STAAR Surgical had reported earnings of 2 cents per share in the year-ago quarter.
Net sales increased 6.3% (9% at constant currency) year over year to $18.2 million, which missed the Zacks Consensus Estimate. The year-over-year sales growth was negatively impacted by 44.6% and 3.9% sales decline in Korea and the U.S., respectively.
STAAR Surgical's gross margin was negatively impacted by higher distribution costs, increased inventory reserves, ICL unit costs and preloaded acrylic mix. Unfavorable product mix (higher unit sales of lower-margin IOL injectors) also affected results.
STAAR Surgical expects this trend to continue to hurt gross margin expansion as IOL injector sales are likely to increase in 2015.
In May, STAAR Surgical received a warning letter from the U.S. Food and Drug Administration that alleged violations of manufacturing practiced at the company's facility in Monrovia, CA. Although the company has responded to the FDA, we believe this to persist as a significant headwind in the near term.
Owing to the current headwinds, analysts remain reasonably apprehensive, as is evident from the downward estimate revisions. Over the last 30 days, the Zacks Consensus Estimate for full year 2014 widened to a loss of 15 cents from an earlier estimate of earnings of a penny.
For 2015, the Zacks Consensus Estimate plunged to 9 cents from the earlier estimated earnings of 36 cents over the same time frame.
Stocks to Consider
While we choose to avoid STAAR Surgical at present, better-ranked stocks include Patterson Companies, Inc. (PDCO), CR Bard Inc. (BCR) and Merit Medical Systems, Inc. (MMSI). All the three stocks carry a Zacks Rank #2 (Buy).
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STAAR SURGICAL (STAA): Free Stock Analysis Report
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