Greatbatch, Inc. (GB): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Despite a 3.8% rise, Greatbatch's 2013-fourth quarter earnings per share of $0.55 missed the Zacks Consensus Estimate by a penny. Revenues of $176.6 million grew 11.0% and were in line with the mark. We appreciate the company s effort to become a provider of complete medical devices system by heavy investment on R&D. Furthermore, the company's product pipeline looks healthy. However, we are cognizant regarding softness in the smaller Electrochem division. The company also faces significant customer concentration risks. As such, we have downgraded the recommendation to Neutral from Outperform and set a target of $47.00 on the stock.

Overview:

Greatbatch, Inc. (GB), headquartered in Clarence, N.Y., is a leading producer and supplier of batteries, capacitors, and components used in implantable medical devices (IMDs). The company also produces batteries for commercial and industrial applications such as oil and gas exploration, oceanographic equipment, seismic surveying equipment, and others. The National Aeronautics and Space Administration (NASA) uses Greatbatch batteries in various aspects of its aerospace programs.

Greatbatch realigned its operating segments in 2013. Its buisneeses are now divided into Greatbatch Medical and QiG.

The Greatbatch Medical segment (99.5% of total revenues in 2013) includes the former Implantable Medical and Electrochem Solutions segments, excluding QiG. The larger Implantable Medical buisness designs and manufactures medical devices and components for the cardiac, neuromodulation, vascular and orthopaedic markets. It offers complete medical devices including design, development, manufacturing, and regulatory submission. The business also offers individual components for implantable medical devices as well as value-added assembly and design engineering services for its component products. Examples of these components include batteries, capacitors, filtered and un-filtered feedthroughs, machined components, enclosures, leads, introducers, catheters, as well as orthopaedic implants, instruments and cases and trays.

The smaller Electrochem buisness designs and manufactures total power solution for critical applications with market-leading original equipment manufacturers (OEMs), largely in the portable medical and energy space. The division acquired Ore.-based battery supplier, Micro Power Electronics, to gain access to its rich product portfolio, which complements Electrochem's offerings for the portable medical, energy, military and environmental industries.

Electrochem offers its customers components, consultation, design, development and testing for medical device applications in high-value markets, including those that support the transition of delivery of health care from clinical to outpatient and home settings, as well as those that enhance the quality of life for an aging population. Examples of these devices include powered surgical tools, automated external defibrillators, portable ultrasound devices, portable oxygen concentrators, and ventilators, among others. Electrochem provides cell and battery pack configurations for rechargeable and non-rechargeable battery power systems, charging and docking stations, and power supplies, for devices where failure is not an option.

Implantable Medical customers include leading OEMs, such as Biotronik, Boston Scientific, Johnson & Johnson, Medtronic, Smith & Nephew, Sorin Group, St. Jude Medical, Stryker and Zimmer. On the other hand, Electrochem's customers are primarily companies involved in demanding markets with sophisticated total power solutions needs, such as in the portable medical and energy markets. Some of Electrochem's larger OEM customers are Carefusion, Covidien, Ethicon Endo-Surgery, Halliburton, Phillips Healthcare, Physio-Control, and Weatherford International.

The QiG segment (0.5%) develops medical device systems by research and development in QiG. The segment invests in three areas - new medical device systems commercialization, collaborative programs with OEM customers, and strategic equity positions in start-up companies - to build a diversified and distinctive portfolio. The medical device systems developed by QiG are manufactured by Greatbatch Medical.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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