Monday, March 2, 2009

Marcial: CardioNet's Heartening Outlook

Marcial: CardioNets Heartening Outlook

Not many companies can boast that their shares have climbed this year in the face of the stock market's continuing decline. Even so-called recession-resistant enterprises haven't escaped the market's wrath.

So it's quite a feat for a little-known company—CardioNet (BEAT)—to thrive in the current environment and handily beat the market: Its stock has vaulted to 25 a share on Feb. 27, up from 17 on Dec. 9.

What's CardioNet's secret? The company is a leader in wireless medical technology that's associated with coronary care. Its chief product, a portable wireless monitoring device, is designed to keep track of a person's heartbeat 24 hours a day for an extended period of time.

For instance, a person being treated for a heart disorder, such as arrhythmia (an abnormality in the rate or rhythm of the heartbeat), need not be consigned to a hospital bed while doctors keep track of his or her heartbeat. CardioNet's Mobile Cardiac Outpatient Telemetry, or MCOT, device allows a patient to go about his life as the wireless device monitors the heartbeat. CardioNet digitally reads the data from labs at its headquarters in Conshohocken, Pa., and alerts the patient or his physician quickly if an emergency condition develops.

"Many of our patients wear our device 24 hours a day, and could even play sports and live normal lives," says CardioNet Chairman, President, and CEO Randy Thurman. Demand for this life-saving device—the size of a BlackBerry, he adds—is rising at a fast clip.

Heartbeat-By-Heartbeat Monitoring

Analyst Sara Michelmore of investment firm Cowen (COWN) (it has done banking for CardioNet) forecasts that the company's sales, which totaled $120 million in 2008, will jump to $173.7 million in 2009 and to $244.1 million in 2010. By 2011 sales could shoot up to $300 million, she figures. Rating the stock "outperform," Michelmore estimates that CardioNet's earnings will grow along with rising revenues. She figures earnings will climb from 2008's 39 a share to 69 in 2009, $1.37 in 2010, and $1.89 in 2011.

More than 44 million Americans, notes the analyst, suffer from arrhythmia. Outpatient case studies are being done for a significant number of patients each year, she notes. Currently, CardioNet has captured about 5% of the growing market. But the market opportunity for the company could expand to as much $1.5 billion, estimates Michelmore. Growth in demand is being powered by the device's efficiency as it offers continuous "heartbeat-by-heartbeat cardiac monitoring for an extended period of time (up to 21 days), automated wireless data reporting, and improved patient compliance," says the analyst.

Double-Digit Growth Ahead?

Analyst Rick Wise of investment bank Leerink Swann (it has done banking for CardioNet) recently raised his 12- to 18-month price target from 31 to 35, based on 25 times his 2010 estimated earnings of $1.40 a share. With its "proven management team and…superior technology addressing the substantially large and underpenetrated [heart] monitoring market," CardioNet could realize sustainable strong double-digit sales and earnings growth through 2012, says Wise.

Merrill Lynch (BAC) analyst Bob Hopkins, who rates the stock a buy with a higher price target of 38 a share, considers CardioNet's FDA-approved device for abnormal heartbeats to be "three time better than the current standard of care." And the stock, he adds, is mispriced, trading at a "significant discount to its peers."

That notion should be enough to make investors' hearts beat, well, faster.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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