STAA : NASDAQ : US$14.72
HOLD Target: US$14.00
Founded in 1982, STAAR Surgical is a fully integrated medical device company competing in the global ophthalmology sector, and plays in two primary segments: phakic intraocular lenses (PIOL) used to treat refractive errors such as myopia and astigmatism, and intraocular lenses (IOL) used to treat cataracts.
Guidance Disappoints Followers
We remain favorably disposed to STAA on pullbacks, owing primarily to our continued bullishness regarding the long-range growth opportunity inherent in the ICL franchise, which we expect will continue to take share in the global refractive surgery market. While there will be puts and takes in the business – as we saw in 2012 (distributor variability in Asia) and 2013 (strong ICL growth in nearly every geography as CentraFLOW adoption accelerated) – we maintain our positive bias on the growth trajectory for the ICL business, thus STAA as a whole. The stock indicated down post-market owing to initial 2014 guidance (8-10% revenue growth; 20% ICL growth), which fell below consensus expectations going into the call. That said, we take a contrarian viewpoint on guidance, which we see as prudently conservative. While we maintain our HOLD rating ahead of the rescheduled Toric ICL ophthalmic device FDA panel on March 14, we increase our price target to $14 from $12 as we roll over our valuation to 2015 revenue estimates.
Q4 revenue was $18.9M (+15%), a bit shy of our $19.2M estimate and the Street’s $19.3M projection. ICL sales grew 31% in Q4 to $11.5M, while IOL sales declined 2% to $6.6M – the former a smidge below our estimate; the latter slightly above.
STAA provided initial 2014 guidance calling for revenue growth of 8-10% vs. our +12% projection and the Street’s +15% estimate. Potential revenue from U.S. TICL and Chinese CentraFLOW approval (estimate year-end ’14 and mid’14, respectively) was not included in guidance, however; therefore, we think STAA has provided a prudently conservative set of expectations for 2014.