As such, we rate the shares a Hold at this time.
AtriCure Trading at a Premium
AtriCure, Inc. (ATRC) announced the 510(k) clearance of its Coolrail Linear Ablation Pen. We previously lowered our FY08 revenue and EPS estimates to within the initial management guidance and initiated FY09 estimates. Strong demand for the off-label use of ATRC's products from all three markets (domestic open-heart products, domestic MIS products, and international) continues to drive revenue higher.
At its current price of $12.80 per share, ATRC is trading at 3.1x our fiscal 2008 revenue estimate of $59 million, which is at a premium to the group average multiple of roughly 2.2x. The growth of this limited operating history company is uncertain as sales of the AtriCure bipolar ablation system account for the majority of revenue. The slower than expected progression in the RESTORE-SR trial reinforces the inherent risks of the FDA approval process.
ATRC has redesigned the RESTORE-SR trial and expanded the RESTORE-SR II feasibility trial. The redesigned trial called ABLATE was initiated in the first quarter 2008 and the RESTORE-SR IIB is expected to begin in the second quarter 2008. Due to some uncertain variables, visibility on MIS growth is limited over the near term. Overall, given the risk to growth, we believe the stock is more appropriately valued at roughly 3.1x our 2008 revenue estimate. Our price target remains at $13.
Amicus Drugs in Early Stages
Amicus Therapeutics Inc. (FOLD) is developing small, oral molecule drug candidates for rare genetic diseases using its pharmacological chaperone technology. There are three lead candidates: Amigal in phase II for Fabry disease, Plicera in phase II for Gaucher disease, and AT2220 in phase I for Pompe disease. Although we are optimistic about the prospects of the three candidates and pleased to see the alliance with Shire PLC (SHPGY), all three candidates are in early or middle stage of development.
We are also concerned about the competition in each of the disease area. We are optimistic with Amicus pharmacological chaperone technology and its three lead candidates accordingly. Amigal, Plicera and AT2220 target the rare genetic Fabry disease, Gaucher disease and Pompe disease respectively. We believe Amicus small drugs have advantages over existing therapies in each of the above disease area. We are also impressed by the deal with Shire PLC for the company's three lead programs.
Unfortunately, all of Amicus' three candidates are still in early or middle stage of development and they will face substantial competition from big pharmaceutical or biotech companies if approved. We maintain our Hold rating for Amicus Therapeutics with a price target of $12.5. We arrive at our price target of $12.5 by applying biotech industry average P/S ratio of 10x, multiplied by our estimated 2009 revenue of $40 million, divided by 26.5 million shares outstanding at that time and discounted at 25% for one year.
Neutral on Sanderson Farms
Sanderson Farms, Inc. (SAFM) is the fourth largest producer in the USA of dressed chickens and processes over 340 million chickens annually. The company is a vertically-integrated producer of fresh and frozen chicken products, including the production of hatching eggs, hatching, feed manufacturing, and growing, processing and packaging of chickens, thereby providing the company with economies of scale. The company produces a wide range of processed chicken products and processed and prepared food items, which enables the company to produce value-added products.
The improved efficiencies at the company's poultry complexes in Georgia and Mississippi, along with the opening of the new facility in Waco, Texas, which opened during the fourth quarter of 2007, is expected to add 18% to the existing capacity. In addition, current favorable market prices for the company's chicken products are adding to the top-line. However, grain costs are expected to continue increasing in 2008 and depress margins and earnings.
Due to the company's volatile earnings and loss reported in fiscal 2006, the stock is best valued on a price-to-sales basis. During the last five years, the stock has traded in the range of 0.33 to 0.94 times sales. There is considerable commodity risk involved with the production of chicken products, both on the pricing of end-products and the costs of feed, processing, and storage.
With stock currently trading at 0.51 time sales, the target is a mid-range valuation at a 0.55 price-to-sales ratio or $40 per share. The Hold rating is maintained.
