Lowering Our Estimates for Syneron Before It Reports Monday

Just a quick update before Syneron (ELOS) reports earnings next week on November 6th.

We at CrossProfit are lowering our forecast for Q3 and Q4 EPS to 0.46 and 0.53 respectively. Full year 2006 EPS is now at 1.68 (previously 1.89). The lowered estimates reflect Q2 coming in shy by 0.09 and a downward revision for Q3 and Q4 at 0.06 each.

Projected sales growth remains strong. The primary catalyst for the lower EPS is that Syneron has incurred heavy promotional expenses for the new dental laser line. We expect this to continue for most of Q4. Hopefully the company will gives us a breakdown between the aesthetic laser division and the dental division on 11/6.

That is the good news. The bad news is that Syneron has not responded to date to inquiries about the Palomar (PMTI) patent issue. Usually this does not bode well with institutional investors and unless the company issues a comprehensive statement during the conference call, we could see a sell-off. Past statements were more of a brush-off by management depicting an ‘ignore and it will go away’ attitude. To the best of my knowledge, Syneron has not published or quoted from its response letter to Palomar. We will have to wait and see.

I am looking forward to a pleasant surprise on both the earnings and patent issue/non-issue as Syneron is a company with great potential. A single pleasant surprise could send ELOS into orbit; a double surprise would make the old highs an obtainable reality. Naturally, on a double miss we could be heading towards 20 again, though this is unlikely. Syneron’s competent management will make sure that even if there is an earnings miss, at least the patent issue will be put to rest and management can now focus on the core business.

ELOS 1-yr chart:

Disclosure: author doesn't own shares of ELOS.