Aesthetic-laser maker Candela (NASDAQ:CLZR) will report second-quarter 2007 financial results on Tuesday, Jan. 23. Let's hone in on what to expect.

What analysts say:

  • Buy, sell, or waffle? Three analysts cover Candela. Two rate it a buy while the third has a cool beam for it and rates it a hold.
  • Revenues. Quarterly revenues are expected to rise 14% to $42.9 million.
  • Earnings. Earnings, on the other hand, are expected to fall 21%, to $0.15 per share, down from the $0.19 reported a year ago.

What management says:
Management's always sunny at Candela. It's always the best of all possible worlds, so much so that CEO Gerard Puorro makes Dr. Pangloss seem like a pessimist. We needn't recount the many ways management has tried to put the shine to investors, but we've learned to take what management says with a grain of salt.

Puorro noted back in October, "We are pleased with the quarter ... We are where we expected to be following our first quarter." Not where he suggested to analysts they'd be, but it allowed him to pull off an October surprise that helped take the focus off the patent lawsuit the company got handed by Palomar Medical Technologies (NASDAQ:PMTI). Despite years of denial that Candela was not being targeted by Palomar, which was rampaging through the laser industry successfully asserting its patent claims, it was revealed that Candela had been receiving letters for years warning that it infringed on the patents.

What management does:
While Candela has been able to preserve, if not improve, its gross margins, operating profits took a hit from both the patent lawsuit and the generous stock options it has granted to management. The company has been a leader in the aesthetic laser market for years and it would definitely be a blow if Palomar is victorious. It has attempted to branch out to other types of laser technologies like intense pulsed light and a recently unveiled single footprint device for multiple technologies.

Margin %

09/05

12/05

03/06

06/06

09/06

Gross

48.8

49.1

49.7

49.4

49.5

Operating

10.8

13.0

15.4

13.8

12.9

Net

5.8

6.8

10.7

10.0

10.5
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Since Candela doesn't provide earnings guidance -- generally a good thing in this Fool's book, since management is then left to focus laser-like on long-term growth -- you've got to hone in on other things. The Palomar lawsuit is weighing heavily on this company. Despite management's assertion that it's actually Palomar that infringes on Candela's patents (a countersuit has been filed), the rival has built a strong case in previous decisions and has wrung out royalty payments from other laser companies.

It's probably why Candela filed a second lawsuit against Palomar in Texas, which has a reputation for getting cases to trial quickly. While it sounds a bit like lawsuit shopping -- finding a friendly jurisdiction to rule in your favor -- it might also serve to put some pressure on Palomar to negotiate, something it hasn't been willing to do in its fights against smaller rivals. The one thing we can trust Puorro on is his claim that this will be an expensive affair and a continuing drain on earnings.

Competitors:

  • Cutera (NASDAQ:CUTR)
  • Cynosure (NASDAQ:CYNO)
  • Syneron Medical (NASDAQ:ELOS)

Candela has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Fool contributor Rich Duprey owns shares of Candela but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.