October 24, 2007

Syneron Medical

Is a MF Rule Breakers Pick:

Syneron's gum in the gears
This former five-star stock certainly did surprise investors. Last week, the company announced preliminary results for its third quarter, and they weren't pretty. The company said that revenue would come in at $33 million and net income would fall in the $7 million to $8 million range. This was less than investors had been expecting, and it was particularly disappointing considering management raised its full-year guidance to 25% top-line growth in reporting a positive second quarter. Management blamed the shortfall on manufacturing delays and lowered full-year guidance back to the 20% growth target they had set earlier in the year.

The stumble was a costly one for the stock, which hasn't been able to muster a particularly high P/E ratio given some past questions over execution. However, assuming these really were unusual manufacturing issues, Syneron's story is still intact. The company has been at the leading edge of new light-based technologies that can be used to perform cosmetic fixes that were previously more difficult and costly. Earlier in the year, the company signed an agreement with Procter & Gamble (NYSE: PG). The agreement hasn't yet contributed to the company's bottom line, but it should provide both financial benefit and increased exposure when it does ramp up.

The stock has been far from what I expected this year, but the long-term prospects still look good. And manufacturing problems aside, the company has continued to perform well this year. A number of CAPS players have also rallied around the stock since the recent drop, including mrsudbury, who said that Syneron has "strong brand exposure with little debt on [its] balance sheet" and claimed that it "has been beaten up unnecessarily by impatient investors."

No comments: