ZOLL Reaffirmed at Neutral - Analyst Blog

We reiterate our Neutral recommendation on Resuscitation devices maker ZOLL Medical (ZOLL) following its mixed fourth-quarter fiscal 2010 results. Earnings for both fourth quarter and full-year fiscal 2010 beat the Zacks Consensus Estimates driven by strong contributions from the company's LifeVest wearable defibrillator business. Revenues for the quarter and fiscal 2010 grew 12% and 15%, respectively, but both missed the Zacks Consensus Estimates.

ZOLL Medical's North American hospital market showed signs of recovery with sales rising 3% in the fourth quarter following a decline in the previous quarter. The company's U.S. military-focused business registered flat sales in the quarter.

LifeVest business continues to grow at a healthy quarterly run rate with revenues rocketing 64% year over year in the fourth quarter, benefiting from increased awareness of the product and associated sales force enhancements. Improved pricing and favorable mix contributed to the gross margin expansion.

ZOLL Medical is a leading player in the global market for external defibrillators, which is worth more than $1 billion. The company is the innovator of a wide range of product features that have become the standard of care in the external defibrillator industry. ZOLL Medical is expanding its presence in the international markets, which should significantly push growth.

Moreover, ZOLL Medical remains committed to broadening its product range to sustain growth in the U.S. defibrillation market. The company's U.S. military business is poised for a turnaround in fiscal 2011 driven by its Propaq MD defibrillator and the new Propaq M heart monitor.

We are pleased with ZOLL Medical's solid fundamentals, its broad product range, healthy revenue/margin mix and upbeat prospect for LifeVest. Moreover, its significant international presence should also drive growth. The company has completed multiple acquisitions and is seeking more such lucrative transactions to aid growth.

However, ZOLL Medical operates in a highly competitive defibrillation market in the U.S. It competes with Physio-Control, a wholly-owned unit of  Medtronic (MDT) and Philips (PHG). Moreover, the North American emergency medical services (“EMS”) market remains sluggish, in part, due to a still soft capital spending backdrop. Our recommendation on ZOLL Medical is supported by a short-term Zacks #3 Rank (Hold).

 
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