Following its third quarter results, we are upgrading our
) to 'Neutral' with a target price of $28.
The company's earnings per share of 43 cents in the reported
quarter beat the Zacks Consensus Estimate. Profit was also up
13.5% in the reported quarter, led by acquisitions and cost
containment measures. Moreover, the guidance provided for 2013 by
the company is higher than that of 2012, which reaffirms our
belief that the company is showing signs of improvement.
Conmed derives roughly 80% of its total revenues from single-use
disposable products, which remain the mainstay of its business.
Sales of these products grew 7% in the reported quarter and
continue to drive top-line growth.
The company offers a wide range of surgical products. It is
benefiting from the increasing trend of using minimally invasive
techniques as a large percentage of the company's products are
designed for these procedures. Products, such as the Altrus and
Sequent along with new products from the Endoscopic Technologies
business, are expected to drive top-line growth going forward.
Further, Conmed completed the acquisition of Massachusetts-based
healthcare company, Viking Systems Inc. in the third quarter.
Viking has developed the innovative 3D-HD Vision System, which is
used during minimally invasive laparoscopic surgeries. The
acquisition is expected to boost Conmed's surgical video products
For 2013, Conmed's revenues are anticipated between $785 million
and $795 million which are higher than that for 2012 ($765
million and $770 million), indicating an improvement in results
in the foreseeable future. Conmed expects adjusted earnings in
the band of $1.80 to $1.90 per share for 2013, reflecting 5%
growth in earnings per share.
The prevailing global economic headwinds and the difficult
capital purchase environment continue to affect growth. Moreover,
manufacturing difficulties and slower product adoption,
significant competition and pricing pressure remain additional
challenges. Conmed operates in a highly-competitive orthopedic
surgery market against much larger, more technically-competent
companies, such as
Our upgraded 'Neutral' recommendation on the stock is supported
by a short-term Zacks #3 Rank (Hold rating).
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