Volcano Stays Neutral

We recently reiterated our Neutral recommendation on Volcano Corporation (VOLC) with a target price of $23.00.

Volcano reported earnings of 10 cents per share in the second quarter of 2010, surpassing the year-ago quarter’s net loss of 11 cents per share. Revenues jumped by 36% to $73.5 million, surpassing the Zacks Consensus Estimate of $69 million as the company witnessed growth across all reporting segments.

Volcano is focused on the development of a wide range of intravascular ultrasound (IVUS) and functional measurement (FM) products. These products aim to enhance the diagnosis and treatment of vascular heart disease by increasing the efficiency of the existing percutaneous interventional (PCI) therapy procedures in the coronary or peripheral arteries.

Volcano derives a major part of its revenues from its IVUS product portfolio. We believe sales of the IVUS products will continue to account for a significant portion of the company’s revenues going forward. IVUS technology is widely used for determining the placement of stents in patients with coronary disease. While the procedure penetration rate in Japan is quite high, the penetration rate in the US for the same type of procedure is relatively low. The low penetration rate in the US provides a lot of scope for increasing its share.

Volcano has a strong portfolio, which should boost the company in the long term. During the reported quarter, the company launched the Primewire Prestige FFR wire and Eagle Eye Platinum IVUS catheters. The company also received CE Mark approval for its first combination of IVUS/therapeutic device (a balloon IVUS catheter–Vibe vascular imaging balloon catheter) and commercial shipment is expected to begin in Europe in the third quarter.

The company continues to execute strategies for driving strong top-line growth in the IVUS/FM market backed by the new product launches, product enhancements and support from partners in marketing and distribution agreements. Moreover, increased acceptance of the Vibe vascular imaging balloon catheter in Europe and approval in Japan and the US should provide further upside to the company. While tight hospital budgets could restrict growth in the near-term, we believe that increasing demand for the company’s products will support strong results going forward.

VOLCANO CORP (VOLC): Free Stock Analysis Report

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