Mentor Shares Drop Following Analyst Downgrades

[Guest guest]

Is Mentor putting a positive spin on their sales

downturn, or are women wising up? - Rogene

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Mentor Shares Fall on Analyst Downgrades

Wednesday October 19, 1:28 pm ET

Mentor Shares Drop Following Analyst Downgrades; Co.

Releases Preliminary 2nd-Quarter Results

NEW YORK (AP) -- Shares of cosmetic implant maker

Mentor Corp. fell Wednesday following analyst

downgrades when the company released preliminary

second-quarter results below Wall Street estimates,

and blamed the sales downturn on women waiting for a

new breast implant to be approved.

Mentor shares fell $4.69, or 9.4 percent, to $45.03 in

afternoon trading on the New York Stock Exchange on

more than five times their average volume. Shares hit

a 52-week high of $56.31 in September, climbing from a

52-week low of $28.93 in November.

Investment firm Piper Jaffray downgraded the company

to " Market Perform " from " Outperform, " and Merriman

Curhan lowered its rating to " Neutral " from " Buy, "

after Mentor said it expects second-quarter earnings

of 24 cents to 25 cents per share on sales of $112

million to $115 million, below a consensus estimate

from analysts polled by Thomson Financial of 34 cents

per share on $120.7 million in sales. Both Piper

Jaffray and Merriman Curhan adjusted their

second-quarter outlook accordingly.

Mentor said sales of breast implants have fallen off

recently because women are waiting for the company's

anticipated FDA approval of silicone-gel implants.

Silicone-gel implants were banned in the U.S. 13 years

ago, after thousands of women claimed that leaking

implants had damaged their health. However, scientific

advisers to the Food and Drug Administration convened

in April, clearing the way to reintroduce the implants

to the market.

Both Mentor and rival Inamed Corp. currently market

saline-filled breast implants in the United States,

and are awaiting marketing approval for the

higher-margin silicone-gel implants. Some consumers

believe the silicone-gel implants look and feel more

natural than their salt-water counterparts.

However, Piper Jaffray analyst Thom Gunderson called

Mentor's reasoning " flawed " in a research note, and

said the falloff in sales was more likely the result

of declining consumer confidence than women holding

out for the new implants.

" Small cap med tech companies are not going to be

leading indicators of a consumer slowdown; with our

downgrade we are instead moving to the sidelines to

see if aesthetic surgery (breast implants) takes a nap

while consumers re-think their shrinking discretionary

income, " Gunderson told investors.

The analyst lowered his target price to $46 from $56,

and cut 2006 estimates even though Mentor reiterated

its earnings per share guidance of $1.60 to $1.65 for

that year. Gunderson lowered 2006 earnings per share

estimates to $1.57, from $1.76, on revenue of $527.1

million, down from a previous estimate of $544.8

million.

Similarly, Merriman analyst Haresco reduced his

2006 earnings per share estimates to $1.57 on revenue

of $533.8 million from $1.63 on revenue of $538

million.

The average of analysts' estimates puts earnings per

share of $1.70 on revenue of $539.8 million in 2006.

Inamed shares fell $1.10, or 1.5 percent, to $71.22 on

the Nasdaq.