Analyst Picks and Pans: Discover, Hansen Medical, Vital Images

Discover Financial Services (DFS)Friedman, Billings, Ramsey & Co. maintains outperform

On July 6, the credit card lender said it would raise $500 million through a common stock offering and was planning to eventually complete a senior notes offering.

The moves to raise capital without the support of the government are required steps before repaying the Treasury Department money received as part of the Troubled Asset Relief Program last fall. Hundreds of financial firms received capital from the government last year amid the worsening credit crisis.

Discover Financial received about $1.3 billion as part of the program.

In a research note, Friedman, Billings, Ramsey & Co. analyst Scott Valentin maintained an outperform rating and $11 price target for the stock.

Valentin did note, however, that shares could initially fall in the coming days because of the timing of the offering, which was sooner than expected.

To account for the additional shares that will be outstanding after the stock offering and for the eventual repayment of the government funds, Valentin now estimates Discover will report a fiscal 2009 operating loss of $1.22 per share, compared with a previous estimate for a loss of $1.32 per share. He now forecasts a loss of 1 cent per share for 2010, compared with his previous estimate for a loss of 17 cents per share.

The additional outstanding shares would dilute the loss per share, thus making it smaller.

Hansen Medical Inc. (HNSN)Lazard Capital Markets downgrades to hold from buy Thomas Weisel Partners reaffirms market weight

After the close of trading July 6, Mountain View, Calif.-based Hansen said an economic slump caused customers to hold off on buying its Sensei Robotic Catheter Systems. It now expects to report $3.1 million to $3.3 million in revenue for the quarter. Analysts polled by Thomson Reuters expected $8.8 million in revenue.

Lazard Capital Markets analyst Dr. Sean Lavin downgraded the shares to hold from buy on July 7, saying the results are "highly" disappointing.

"Hansen has become a show-me story as we and investors had low conviction but liked the technology," he said, in a note to investors. "We now see these results as highly disappointing and question whether Hansens near-term challenges are only due to weak capital spending, or if the company is still searching for a golden procedure"

Meanwhile, Thomas Weisel Partners analyst Raj Denhoy reaffirmed a market weight rating and $6 price target on July 7, but said that outlook could get worse if the company gives a weak sales forecast.

"The sharp sequential fall off in Sensei system sales is troubling and the company's outlook is far from settled, he said.

The company shipped six systems during the second quarter, down from 10 systems during the first quarter. Denhoy said the second-quarter sales results are the weakest in years.

"Hansen noted that the ongoing economic slowdown is causing hospitals to seek additional approvals for capital equipment purchases and to find additional credit sources, which has lengthened the sales cycle for the Sensei system," Denhoy said.

He said other capital equipment-based companies have similar problems. He also said Hansen could experience a "significant" cash burn during the quarter.

Hansen is expected to release its second-quarter report in early to mid-August. Analysts, on average, expect the company to report a loss of 36 cents per share, though Denhoy said the loss could be greater.

Vital Images (VTAL)Thomas Weisel upgrades to overweight from market weight

Thomas Weisel analyst Steven Halper said on July 6 that Vital's medical imaging software platform rolled out last year is an improvement over past company offerings.

Halper said the ViTAL Enterprise technology is more functional and cost-effective for three big hospital and consulting customers he surveyed than the company's older Vitrea software product. As hospitals' purchasing picks up, he said, Vital Images revenue could get a big boost.

He upgraded the company to overweight from market weight and boosted his target price by $2 to $14.

Halper said the customers he checked in with indicated that Vital Images' Enterprise was superior to the offerings of its biggest competitor, privately held TeraRecon.

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