I look at a lot of medical and healthcare stocks because as an
investor-trader with time frames of one month to one decade, the
future of medicine is where some of the biggest opportunities are.
And even though two Zacks industries covering over 250
"biopharma" companies have led the market advance this year, there
are definitely some underperformers in these groups as well.
Integra LifeSciences (IART) is a $1 billion medical device and
implant company that has been a Zacks #4 Rank (Sell) since early
January when it was trading above $40.
Then after revealing a series of product recalls in April, the
stock fell from $38 to $31. But it made quite a bounce in May even
in the face of continued analyst downgrades to its earnings
outlook, getting all the way back to $38 to "fill the gap" as
chartists like to say.
Integra makes specialized products for numerous types of
surgical procedures, from extremity and spinal reconstruction to
major burn treatment and neurosurgeries.
On April 10, the company initiated a voluntary recall of some of
its products manufactured during Dec 2010-May 2011 and Nov 2012-Mar
2013 at its Anyasco, Puerto Rico facility.
The recall was announced as the company detected that certain
lots of offerings under DuraGen, NeuraWrap, NeuraGen and other
families of products had slipped the quality standards due to
deviations from an approved production process.
Earnings Not As Bad, But Guidance A Concern
Following the recall, Integra warned that first-quarter revenues
would be lower by roughly $8-$11 million compared with prior
expectations in the range of $194 million to $197 million. They
also guided EPS lower in a range of 30 to 40 cents from the Zacks
Consensus of 48 cents.
On May 2, the company reported adjusted EPS of 39 cents, and
though this represented a decline of 45% from the year-ago quarter,
the hit wasn't as bad as expected with the topline only being
impacted by $2.9 million from the recall.
But it was the estimated lost sales in the range of $6 to $7
million due to production issues and shortages that seemed to worry
analysts most on the conference call. After the company lowered
their outlook for the year, analysts spent the next week taking
down estimates as the reverberations of the recall were to be felt
into the second half.
And it wasn't just 2013 estimates that were taken down.11.5%
since the recall and then another 9.4% since their quarterly
report. 2014 full-year estimates have been shaved from EPS of $3.45
to $3.18 in the same time period.
Investing in medical device and biopharma companies offers high
reward and high risk to go along with it. We can't buy them all,
after all, and even the most dedicated biopharma investors must
focus on specific sub-industries and then concentrate on the best
While Integra has an exciting and diverse portfolio of
advanced-technology durable and one-time use products in demand by
surgeons and hospitals, we need to see the earnings story get out
of intensive care before we can play a recovery in this name.
Kevin Cook is a Senior Stock Strategist at Zacks.com where he
runs the Follow The Money (FTM) Portfolio.
INTEGRA LIFESCI (IART): Free Stock Analysis
ISHARES NDQ BIO (IBB): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
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