WEEKLY TECHNICAL COMMENTARY: FUNDAMENTAL FEATURE

Monday, August 25, 2008

FUNDAMENTAL FEATURE - Syneron (ELOS)

Syneron’s Superb Q2 Treatment

Writing about Syneron (ELOS) brings back fond memories. My first trade in ELOS was nearly 4 years ago on 10/19/2004 for 100 shares at $20.48. I sold the shares 2 weeks later at $26.861 for a 31.15% return, banking a profit of $638.10 (woo hoo!). In 2004-2005, shares wildly swung $1-$2 intraday, multiple times a week (but not anymore). ELOS was the perfect very short-term trade, giving me the opportunity to trade ELOS 18 times in the next 12-months. Those were the days.

On Thursday, August 14 before the market open, ELOS reported Q2 ’08 earnings of $0.40 per share or $11 million (7% higher) on $38.2 million in revenue vs. $0.37 per share or $10.3 million a year ago. Excluding compensation (stock-based), ELOS earned $13.7 million or $0.50 per share. Analysts expected $0.32 per share (excluding items, including compensation) on $37.1-$37.6 million in revenue, beating both earnings and revenue targets.

This was primarily fueled by an increase of 17% in international sales to $19.1 million. International and U.S. sales each account for 50% of total revenues. ELOS increased its cash position by 5% to $220.6 million while reducing marketing expenses by 10% to $14.3 million. What I love about ELOS, and also CLZR and CUTR, is that they all have zero debt.

Shares reacted in the morning by gapping up $0.74, opening at $16.52, hitting a high of $17.25 and selling off throughout the day to close at $15.89, or up $0.11.

ELOS was able to capture 15% of the non-aesthetic medical market within 4 years (Currently at over 20%) and its installed platforms now number over 6,000 units worldwide. The company’s elōs™ technology combines bi-polar RF and optical energy (lasers) for cosmetic treatments including fat reduction, skin whitening, tightening and rejuvenation, wrinkle reduction, leg veins, and other non-invasive treatments. Headquartered in Israel, they have global headquarters in the US, Canada, Germany, and Hong Kong.

LipoLite™, a fat-reduction device, was launched at the end of the quarter and management expects significant sales from the device. ELOS also implemented LEAP (LipoLite Energy Access Program) which is a cost-effective annual subscription (fee: $30,000) offered to all physicians to take advantage of using the device for lipolysis treatment. This program is favorable to physicians as it decreases upfront costs and the risks associated with a long-term lease lock-up period.

Despite economic conditions in the U.S., I still expect ELOS to benefit from an increasing global demand in healthcare, meeting the needs of physicians for non-invasive technology, an increasing population of persons 55 years and older, and a solid high-end patient base. ELOS commands the largest market cap ($438.8 million) among competitors as well as the highest percentage return on revenue (22%) within the medical laser sector.

Currently, 2 “Buy” ratings and 4 “Hold” ratings are recommended by the 6 analysts that publish reports on ELOS. In the past 3 months, there has been a +6.7% net change in institutional ownership with a net 1.94 million shares purchased.

Technically, ELOS is sitting near all-time lows since the IPO in 2004. For the past 10 months, ELOS has been trading in a neutral range of $13-$18. A breakout above $18 is considered bullish and confirms a new uptrend, while a breakdown below $13 suggests a continuation down. The MACD indicates a bullish trend, while the RSI is neutral. Sitting above both the 50-day and 200-day MA, ELOS is in a better position to breakout, but still remains in a neutral range.