Why Cyberonics Shares Popped
Aug 28th 2012 1:15PM
Updated Aug 28th 2012 4:22PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of implantable medical device company Cyberonics (NAS: CYBX) jumped as much as 10% earlier in the trading session after reporting better-than-expected first-quarter earnings results.
So what: For the quarter, Cyberonics reported a 14.4% increase in total sales to $60.3 million with a profit of $0.38. The sales figures marked the sixth straight quarter of record revenue, while the profit slid in $0.02 ahead of consensus expectations. Cyberonics' fiscal 2013 forecast also came in line with Wall Street's expectations. The company noted that its key epilepsy unit saw sales jump 13%, with sales in the United States rising 17%. Management noted its primary focus in the near future will be expanding internationally -- specifically throughout Europe and into Japan.
Now what: Today's beat was another step in the right direction for Cyberonics, but call me less than excited about its current valuation. Based on the company's own forecasts, Cyberonics is valued at a pricey 30 to 32 times forward earnings. That's exceptionally high considering the headwinds Cyberonics will face as it tries to expand into Europe in the midst of the sovereign debt crisis, as well as with the onset of the medical excise tax of 2.3% as mandated by the Affordable Care Act. I'm going to need to see significantly stronger growth if this valuation is to be supported.
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