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Stifel cuts STAAR Surgical stock target, maintains buy amid China concerns

EditorNatashya Angelica
Published 11/07/2024, 11:04 PM
STAA
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On Thursday, Stifel, a financial services firm, revised its stock price target for STAAR Surgical (NASDAQ:STAA), a leading manufacturer of implantable lenses, from $42.00 to $38.00 while maintaining a Buy rating on the stock.

This adjustment follows the company’s third-quarter earnings call for the fiscal year 2024, which highlighted a swift downturn in the refractive surgery market trends in China. This development has cast a shadow on the company’s financial outlook for 2025.

The analyst from Stifel noted that STAAR Surgical did not provide initial sales guidance for the upcoming year, a move that was anticipated to potentially alleviate concerns about overly optimistic future earnings projections.

The decline in the China Implantable Collamer Lens ( ICL (TASE:ICL)) market is seen as a significant factor that may lead to a lower-than-expected sales growth forecast for the fiscal year 2025, possibly in the low single-digit to mid-single-digit percentage range.

Despite the challenges in the near term, primarily hinging on the economic conditions in China and the anticipated government stimulus measures, Stifel's outlook for STAAR Surgical remains positive over a multi-year horizon.

The firm believes that the company’s ongoing market share gains in the ICL segment will eventually enable it to resume robust double-digit growth. This rebound is expected once the market weakness stabilizes, potentially resulting in an expansion of the company’s trading multiples.

The analyst expressed that the current market dynamics are fragile and uncertain, suggesting that investing in STAAR Surgical with a short-term perspective of 6 to 12 months could be difficult. However, the firm’s Buy rating is based on a longer-term view, reflecting confidence in the company's ability to recover and capitalize on its market share gains in the ICL sector.

The analyst concluded with a forward-looking statement, "when(ever) end market weakness bottoms out, we believe STAA can easily recapture strong double-digit growth, which likely comes with multiple expansion."

In other recent news, STAAR Surgical Company reported a notable 10% increase in its third-quarter net sales, which reached $88.6 million. This growth was primarily driven by a 10% rise in the sales of its Implantable Collamer Lens (ICL) products. Despite macroeconomic challenges, particularly in China, the company has upheld its fiscal year 2024 sales outlook, projecting revenues between $340 million and $345 million.

STAAR Surgical also reported significant regional sales growth and a robust financial position, with a gross margin of 77.3% and $236 million in cash and investments. However, the company experienced an 18% decline in the U.S. refractive market and a slight decrease in its Q3 EBITDA, which amounted to $16.2 million. Operating expenses also increased to $62.8 million due to higher general and administrative and research and development costs.

Despite these challenges, STAAR Surgical's CEO, Tom Frinzi, remains confident in overcoming competition in China, particularly from iBright, which is expected in 2025. He emphasized the company's advantages in material and product offerings and expects to maintain a price premium based on quality outcomes. These are the latest developments in the company's performance and projections.

InvestingPro Insights

To complement Stifel's analysis of STAAR Surgical (NASDAQ:STAA), recent data from InvestingPro offers additional context for investors. Despite the challenges highlighted in the China market, STAAR Surgical maintains a strong financial position with more cash than debt on its balance sheet. This financial stability could provide the company with flexibility as it navigates the current market uncertainties.

InvestingPro data shows that STAAR Surgical's revenue growth stands at 10.01% over the last twelve months as of Q3 2024, aligning with the analyst's expectations of potential low to mid-single-digit growth in the near term. The company's gross profit margin of 78.73% indicates a strong ability to control costs, which could be crucial in maintaining profitability during market fluctuations.

InvestingPro Tips suggest that while STAAR Surgical is trading at a high P/E ratio relative to near-term earnings growth, analysts predict the company will remain profitable this year. This profitability forecast supports Stifel's longer-term positive outlook on the stock.

For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for STAAR Surgical, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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