Wednesday, October 12, 2005

Vanity Pays: Reiterating Hold on Cutera

The aesthetics market is booming as vanity takes centerstage in America.

The worldwide market for laser and light-based hair removal procedures is expected to reach $3.3 billion this year, for example.

One company in particular has been giving the Street one earnings surprise after another for the last year.

That company is Cutera (CUTR).

Cutera, which makes lasers for cosmetic surgery, is one of biggest players sure to benefit from the growing demand for aesthetic reconstruction.

Cutera's core products for non-invasive surgery can do everything from remove hair and vascular lesions to reduce wrinkles and redness on the skin.

Since launching its first CoolGlide product in 2000, Cutera's annual sales have averaged 40% growth.

Cutera's target market is huge.

We recommended drugstore chain CVS last week as a play on mushrooming baby boomer needs (80% of CVS' revenues come from drug prescriptions and pharmacy-related operations).

We believe the same catalyst can drive up Cutera's stock price.

The oldies continue to seek out new and better ways to remain youthful looking.

While the market for laser cosmetic devices is extremely competitive, and Cutera's valuation is anything but cheap, we believe CUTR is well positioned to expand.

People's desire to look better: that's what we're betting on.

It the stock market's version of The Picture of Dorian Gray-- while Oscar Wilde's Victorian novel ended on grim note, we think a better fortune awaits Cutera.

One of three things will happen to Cutera: It could get killed by the competition (analysts are all over rivals Candela, Syneron Medical, and Laserscope, but largely oblivious to Cutera), get acquired by a larger player like JNJ, or venture forward solo, beef up, and make a name for itself.

Bottom line -- we're not recommending Cutera for the college fund side of the portfolio.

The last thing you want to do is leave your portfolio with an indelible wrinkle.

Coverage was initiated on 10/22 -- we're reiterating our Hold Rating.

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