Leerink Swann starts AtriCure at outperform
Leerink Swann has initiated coverage of AtriCure (NASDAQ: ATRC) with an “outperform” rating and a $14 valuation, citing market growth ahead for the leader in the surgical ablation market for the treatment of atrial fibrillation (AF). The stock closed at $9.79 on Monday.
“AtriCure appears to be nearing a positive sales growth inflection point with a key recent FDA approval in December of 2011 for an expanded AF indication for its Isolator Synergy surgical ablation system,” writes analyst Rick Wise.
“Now we expect that the specific AF labeling, the ‘halo’ effect of training/physician interactions for other approved products (e.g., AtriClip), other pipeline products, a recently reorganized sales and marketing team, the stepped-up outside-the-U.S. growth focus, and a number of ongoing clinical trial initiatives, all should help drive more consistent and sustainable double digit revenue growth, beginning in the second half of 2012 and beyond,” he added.
Over the next 12-to-18 months, Mr. Wise figures AtriCure shares can reach $14 or about 2.6 times his 2013 revenue estimate of $82.7 million. “Our valuation still represents a modest discount to peers, reflecting a lower revenue growth profile but still would be meaningful expansion above AtriCure’s current enterprise value/sales multiple,” he added.
In the U.S., surgical ablation in open heart procedures could represent about a $250 million market, which is perhaps only about 20% penetrated now.
He said the expanded AF indication for AtriCure’s Isolator Synergy system now gives the company the opportunity to train, educate, market, bundle, in short, “drive use of its products in a more consistent and organized way after a few years of stop-and go activity due in no small part to the Department of Justice overhang.” A DOJ investigation into off-label marketing practices was resolved in February, 2010.
Given AtriCure’s relatively small sales base of $64 million in 2011, “every 1% incremental market penetration in this single product/geographic market alone would represent an additional about 4% revenue growth off the 2011 base,” he added.