Greatbatch's 2014-second quarter earnings per share of $0.60 grew
7.1% y-o-y and met the Zacks Consensus Estimate. However, revenues
of $172.1 million went up only 0.4% and missed the mark by 2.8%. 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 maintain our Neutral recommendation on the stock and set a
target of $48.00.
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
businesses are now divided into Greatbatch Medical and QiG.
The Greatbatch Medical segment (99.6% of total revenues in the
first half of 2014) 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
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 (0.4%) 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.
Greatbatch, Inc. (GB): Read the Full Research
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