VOLC Plunges Following Notes Offer

Volcano Corporation (VOLC) is offering $100 million of 2.875% convertible senior notes due September 1, 2015. In addition, the underwriter has an option to purchase up to $15 million of additional notes. The initial conversion rate of 33.7339 shares per $1,000 of notes works out to a conversion price of $29.64 per share, 27.5% higher than the closing price of the stock yesterday. Following this announcement, in anticipation of higher interest expense and shareholder dilution, shares of Volcano Corporation closed 9.36% lower at $23.25.

This offer is expected to generate $96.1 million, after considering issue-related expenses. Apart from working capital and general corporate purposes, Volcano Corporation expects to invest the funds to expand its manufacturing capacity, complementary products or suitable technologies.

Volcano Corporation develops a wide range of intravascular ultrasound (IVUS) and functional measurement (FM) products. These products aim at enhancing the diagnosis and treatment of vascular heart disease by improving the efficiency of existing percutaneous interventional (PCI) therapies in the coronary or peripheral arteries.

Volcano Corporation believes that IVUS and FM markets remain under-penetrated. By the middle of the decade, the penetration rate of integrated consoles in catheterization laboratories is expected to reach 80% from the current level of 30%. Banking on its ability to reduce costs and continuous technology development, the company is confident of reaping maximum advantage from this opportunity. Volcano Corporation expects its core IVUS and FM businesses to grow by over 20% annually, coupled with additional revenues from its product pipeline. We believe the funds raised would assist the company to achieve its objective.

Our Recommendation

Volcano Corporation continues to execute strategies in 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 potential approval in Japan and 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.

We have a Neutral rating on the stock, which also corresponds to a Zacks #3 Rank (short term hold recommendation).

VOLCANO CORP (VOLC): Free Stock Analysis Report

About Zacks Investment Research 1767 Articles

Zacks Investment Research is one of the most highly regarded firms in the investment industry. In 1978 Zacks originated the concept of utilizing earnings estimates revisions to make profitable investment decisions. Zacks offers multiple investment products and services to help investors achieve superior returns.

Visit: Zacks.com

Be the first to comment

Leave a Reply

Your email address will not be published.