In an effort to streamline its business, medical device major,
) has agreed to divest certain assets of its Electrophysiology
(EP) division to
) for $275 million. Management believes that the divestment will
help the company to focus on other high-growth businesses, which
in turn should boost its top line.
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The EP division under the core Vascular business offers medical
equipment, catheters and accessories used in cardiac EP
surgeries. The Encompass is considered to be the main growth
driver for this franchise. However, despite tailwinds in the end
markets, the company was unable to boost sales of this division.
Net sales of EP products declined 6% on a reported basis to $111
million in 2012. Moreover, sales declined 1% in the first quarter
The deal is expected to conclude in 2013. CR Bard anticipates the
divestiture to dilute 2013 adjusted earnings per share (EPS) by
about 5 cents. This represents a decline of roughly 4% in the
company's earlier predicted adjusted EPS of $1.35-$1.39 for 2013
at the mid-point. However, the divestment is not expected to
impact 2014 results.
Despite the dilutive impact of the deal, share prices of CR Bard
increased 0.12% on Friday, Jun 28 to close at $108.68, reflecting
positive investor reaction. This encourages us to believe that
the stock price will move higher in the near term.
CR Bard's well-diversified end-markets and a vast product
portfolio insulate it from fluctuations in any single therapeutic
category. We are of the opinion that the divestment of the
underperforming EP division complements CR Bard's long-term
strategy to focus on its business in lucrative markets that will
deliver higher returns. The capital from the divested business
will help the company to invest in areas with increasing
However, the company has lately been struggling to maintain its
top-line growth, especially in the U.S. Although we see no
near-term catalysts, we believe that the recent acquisitions and
initiatives to expand in emerging markets augur well for the
CR Bard carries a Zacks Rank #3 (Hold). However, other medical
stocks, which look attractive at the moment are
Luxottica Group SpA
). Both the stocks carry a Zacks Rank #1 (Strong Buy).