Lower Earnings, Guidance Cause Volcano Shares To Rupture

| About: Volcano Corporation (VOLC)

By Barry S. Cohen, real time trading reports

Shares of Volcano Corp. (NASDAQ:VOLC) ruptured last week after the San Diego based medical device maker reported disappointing results for the fourth quarter of 2012 and lowered its guidance for 2013. The company's stock dropped to a three-year low of just under $21 as investors fled for higher ground.

Now the news wasn't all bad. Volcano posted best-ever revenue of $102.5 million in the fourth quarter. That even beat Wall Street expectations by a bit. On the other hand, net income declined more than 90 percent to $2.5 million, or four cents per share, from a year earlier due to a huge jump in operating expenses and debt costs. Analysts expected a profit of nine cents per share, so the earnings drop plus the analyst shortfall caused lava to flow all over Volcano shares. Can Volcano recover from this earnings disaster? Our real time trading reports can help investors navigate the mine-field that has been VOLC thus far, but the general premise is that investors must be careful.

As expected, CEO Scott Huennekens chose to emphasize the positive, noting that the quarter's 10 percent revenue gain indicates Volcano is heading in the right direction. One of the company's devices used in coronary procedures grew 45 percent during the quarter, and Huennekens wants to duplicate that success in other of the company's units.

The company expects revenues in 2013 to be between $406 and $412 million, a seven percent jump from 2012. A great deal of that growth is expected to come from two acquisitions Volcano made in the fourth quarter: Inferior vena cava filter company Crux Biomedical, bought in December for $36 million, and software maker Sync-Rx, purchased for $17.3 million in November.

Huennekens plans to keep the acquisition train rolling, looking for add-ons that can help the company build its presence in the market for diagnostic and therapeutic devices for coronary and other applications. That's if Volcano, long a rumored takeover target, isn't scooped up by another major player in the market first. In fact, it's been speculated that Boston Scientific (NYSE:BSX) has had its eyes on Volcano for some time and may be ready to pull the trigger this year.

In fact, now that the Affordable Care Act, or ObamaCare, is firmly in place, many in the industry expect a big pickup in takeover activity in the medical device field. That's because the law and related provisions are going to increase cost pressures on the industry, making economy of scale even more important.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Barry Cohen for Stock Traders Daily, and neither receive compensation from the public companies mentioned in this article for writing this article.

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Tagged: , Medical Appliances & Equipment, Earnings
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