Oscar Gruss and Son has downgraded Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN) to "Hold" from "Buy" and cut its price target from $20 to $16.
Oscar Gruss analyst Tal Ziv says, "Although we view the recent litigation settlement as a favorable development, we prefer to moderate our estimates and downgrade our rating to 'Hold'. We believe that the litigation settlement with Olympus Corp. (TSE:7733) may escalate the competition in the capsule endoscopy landscape, but simultaneously opens the door for Given Imaging’s potential acquisition by Olympus. In our opinion, before revisiting our rating, Given Imaging’s management should leverage its geographical expansion into revenues growth which exceeds the current range of 15-20% according to the annual guidance."
Yesterday, Given Imaging and Olympus signed a term sheet to settle their patent litigation, under which Olympus will pay Given Imaging $2.3 million and the two companies will "cooperate on mutually beneficial joint market development projects". Ziv says, "In the long term, we believe that this type of future cooperation may increase the chances for Given Imaging to be acquired by Olympus. However in the short term, we project that this may intensify the current level of competition between the companies, thus resulting in the narrowing of margins. Moreover, we note that this development will improve Given Imaging's cash position, following the significant $8 million in litigation expenses it has incurred over the past year."
Ziv predicts that Given Imaging will publish "tepid results" for the first quarter of 2008, which is a traditionally weak quarter. He reiterates his forecast of non-GAAP earnings per share of $0.05 on $25.8 million revenue for the quarter. He also predicts that the company's gross profit margin will narrow in 2008 because of increasing competition and the need for higher R&D spending on the Pillcam Colon. He therefore cut his full-year revenue forecast to $130.2 million from $133 million and non-GAAP earnings per share to $0.42 from $0.46. As for 2009, he predicts 20% revenue growth, as the company expands in Japan, obtains reimbursement in France and Germany, and expands the applications of the Pillcam small bowel and Pillcam esophagus.
Published by Globes [online], Israel business news - www.globes-online.com - on April 22, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008