Aesthetic laser maker Candela (NASDAQ:CLZR) will report third-quarter 2007 financial results on Monday, April 24.

What analysts say:

  • Buy, sell, or waffle? Four analysts hone in on Candela, but only one thinks it will burn up the market and rates it a buy. The other three say hold.
  • Revenues. Revenues are expected to inch upward a tepid 1% to $42.8 million.
  • Earnings. Profits, meanwhile, are expected to crumble by two-thirds, from $0.21 per share last year down to just $0.07 this year.

What management says:
What a difference a year makes when the realities of the market hit you. Candela had achieved some surprising revenue numbers early last year and was confident of seeing its Vbeam laser gain acceptance. Then the fourth quarter hit and sales tumbled to just 7% growth; but a number of new product introductions were planned, so 2007 looked hopeful. When the first quarter showed nearly 20% growth in revenues, it looked like the company might have regained its stride, even though adjusted earnings were flat. CEO Gerard Puorro pegged revenue growth at 15% to 18% for the year.

Needless to say, last quarter's decline in revenues had Puorro doing some soul searching, and he admitted growth was more likely to be in the 7% to 9% range. If analyst expectations are correct, it will take some heroic fourth-quarter efforts to achieve even the bottom end of management's forecast.

What management does:
While margins have been compressing with some regularity, the decline accelerated in the last quarter due to the ongoing patent infringement legal battle with Palomar Medical Technologies (NASDAQ:PMTI). Legal fees were the primary cause of selling, general, and administrative expenses jumping 33% in the quarter.

Margin

12/05

03/06

06/06

09/06

12/06

Gross

49.1%

49.7%

49.4%

49.5%

48.9%

Operating

13.1%

15.4%

13.8%

12.9%

9.8%

Net

6.8%

10.7%

10%

10.5%

8.3%
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:
Candela is one of the top aesthetic laser companies and at one time was the largest in terms of revenues. Yet the difficulties the laser maker has been encountering in getting its product into the market, and introducing innovative devices, has caused that lead to erode. While Candela is still the revenue leader among virtually all of the publicly traded aesthetic laser companies, Palomar, Cutera (NASDAQ:CUTR), and Laserscope, a subsidiary of Iridex (NASDAQ:IRIX), are all gaining ground. And in terms of market valuation, Candela has fallen far behind.

The key to Candela's future will not be in lasers, but actually in the courtroom. And Candela may have tilted the odds in its favor by "jury shopping" for an East Texas jurisdiction, because the court has a reputation of ruling for patent holders. The grudge match with Palomar, though, will continue to be expensive and will serve to further erode margins for the future.

Related Foolishness:

Candela has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the 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.