Syneron Warns, Falls Hard - But Still Is Attractive

| About: Syneron Medical (ELOS)

Last night, as I often do, I fell asleep on the couch. I woke up at 2:30 am and decided to see if anything interesting was on TV before heading off to bed. I got to the entertainment channel and they had a special about Hollywood stars that had cosmetic surgery, and how it impacted their careers. Fascinating it wasn’t but it was a prelude of what was coming later in the day. Like a bad nose job, Syneron(NASDAQ:ELOS) announced today that they were lowering Q3 numbers. This sent the stock down 11%.

Syneron designs and sells medical products based on their own proprietary Electro-Optical Synergy, or ELOS technology. They promote their non-invasive procedures, like wrinkle reduction, hair removal, and skin rejuvenation. They blamed the lower numbers on manufacturing delays in the new VelaShape System and Matrix IR applicator, which caused a 4 week delay in their launch. Syneron now expects Q3 revenues of about $33 mln vs. $36.2 mln consensus, and net profit of $7-8 mln. They estimate Q4 revenue of $36-38 mln, vs $40.2 mln consensus.

This news is a big setback for the company. In the previous few quarters it appeared that they had finally started executing the business model, and growing the company. In the first quarter, Syneron signed a collaborative agreement with Procter & Gamble(NYSE:PG) for the commercialization of Syneron’s ELOS-based, home-use device. The stock has fallen to levels not seen in 15 months, and that was during last summer’s war with Hezbullah. Does this mean that under $20 we have reached attractive levels for an investor? My hunch is that we will see even lower levels, as I wouldn’t be surprised if we get another warning before Q4 numbers are announced.

This product delay may take another quarter to work it’s way through the system. I think that the growth story for Syneron, will only play out in ‘08. That being said, for long-term investors wanting to play the aging baby boomer search for youth, Syneron may yet turn out to be the procedure to put a smile on your face.

Disclosure: Author has a position in ELOS as of 10/18/07. Author has no holdings in any other stock mentioned.

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