Cardiovascular Systems Portfolio Strong, Competition Rife

On Sep 12, we issued an updated research report on Cardiovascular Systems, Inc. CSII. Tough competition, consistent operating loss and an anticipated failure to grow business overseas continue to pose threats to this stock. The player carries a Zacks Rank #5 (Strong Sell).

Notably, in recent times, Cardiovascular Systems has been facing a cut-throat competition in its niche space. Its Orbital Atherectomy System (OAS) products contend with a variety of other products or devices for the treatment of vascular disease including stents, balloon angioplasty catheters and atherectomy catheters as well as products used in vascular surgery. Larger players contesting in the stent and balloon angioplasty market segments include bigwigs like Abbott Laboratories (ABT).

Moreover, on the profitability front, Cardiovascular Systems has been struggling with a long history of net loss since its inception in 1989 with no immediate recovery in sight. Further, its failure to successfully enter the international markets and manage business efficiently might affect the company’s financial results.

On a positive note, over the past six months, shares of Cardiovascular Systems have outperformed its industry. The stock has soared 62.3% compared with the industry’s rise of 11.4%. The company exited fourth-quarter fiscal 2018 on a solid note with a year-over-year increase in both Coronary device and peripheral device segments.

The company is putting in efforts on product innovation through R&D investments. Further, management seems to be upbeat about the recently-signed exclusive international distribution agreement with OrbusNeich to sell the company’s coronary and peripheral orbital atherectomy systems outside the United States and Japan. The market is also looking forward to the recently-launched coronary device in Japan, reflecting the company’s focus on international expansion.

Currently, Cardiovascular Systems firmly stands to gain from several favorable trends existing in the peripheralarterial disease (PAD) as well coronary arterial disease (CAD) market spaces. Per estimates delivered by the American Heart Association (AHA), as many as 8 to 12 million Americans suffer the PAD syndrome. Moreover, an aging population coupled with increasing incidence of diabetes and obesity, is likely to propel the prevalence of PAD further.

This offers a huge scope for the unique PAD OAS system of Cardiovascular Systems. Moreover, according to management, another major concern is underdiagnosis with patients failing to display symptoms and/or physicians misinterpreting them. So we believe, the PAD market space is still underpenetrated at large, which provides Cardiovascular Systems with significant opportunities to expand in the market place.

Additionally, the company is now focused on innovating solutions for the most severe form of PAD that induces amputations and costs the U.S. healthcare system more than $ 10 billion annually. The company is already engaged with small number of physicians at high value amputation institutions with the goal of adopting a simple patient algorithm.

Meanwhile, per AHA estimates, 15.4 million people in the United States suffer the CAD condition. Thus, the potential customer network of CAD is even bigger than that of PAD.

Cardiovascular Systems’ unique CAD OAS device facilitates easy stent delivery and prevents stent malposition. Moreover, the company has commissioned a report to study how its plan and technology drive economic benefits for the participating hospitals. Once implemented, the company expects to lower amputations, improve patient outcomes, reduce hospital costs as well as replicate the same plan across the country thereafter.

Key Picks

Some better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, Amedisys, Inc. AMED and Masimo Corporation MASI.

Intuitive Surgical’s expected long-term earnings growth rate is 14.7%. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Amedisys’ expected long-term earnings growth rate is 18.6%. The stock has a Zacks Rank of 1 at the moment.

Masimo’s expected long-term earnings growth rate is 14.8%. The stock carries a Zacks Rank #2 (Buy) at present.

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