On Feb 27, 2013, we retained
Wright Medical Group
) at Neutral after the company beat Zacks Consensus Estimates for
earnings and revenue for fourth quarter 2012.
Why the Retention?
Wright Medical released its results for the fourth quarter on
Feb 21. The company posted adjusted earnings of 1 cent per share,
beating the Zacks Consensus Estimate of a loss of 1 cent a share.
Revenues in the reported quarter dropped 3% year over year to
$123.5 million, beating the Zacks Consensus Estimate of $121
Over the past 30 days, the Zacks Consensus Estimate for 2013
has moved down by 5 cents to 4 cents while for 2014 it has
dropped by 4 cents to 31 cents during the same timeframe.
On March 1, Wright Medical revealed it completed the takeover
of BioMimetic Therapeutics. The deal will mesh BioMimetic's
line-up of biologic offerings with Wright's range of orthopedic
products and its strong sales set up. As per the terms, the deal
has a possible value of about $380 million for BioMimetic
Including the effect of the acquisition of BioMimetic, the
sales forecast for 2013 is in a band of $485 million to $495
million. The deal adversely affects earnings per share by about
32 cents to 34 cents resulting in loss per share in the range of
26 cents to 34 cents (including stock based compensation expense)
for 2013. Free cash flow is expected in the range of nil to $5
Orthopedics is one of the largest medical device market
segments worldwide. Current lukewarm demand is exacerbated by
sustained pricing pressure. In particular, the reconstructive
market fundamentals (pricing and volume) have languished in the
recent past but are showing signs of recovery. The joint
replacement market has been hit by patient deferral of elective
procedures, leading to weak demand for hip and knee implants.
Pricing compressions on hips, knees and spine products, which
have impaired the performances of several orthopedic companies,
remain a key concern at the macro level. We note Wright Medical's
inadequacy to post sales growth in recent times.
Our views on the company are moderated by intense competition
from larger players and pricing pressure. Wright Medical
competes with much bigger names such as
Other Stocks to Consider
Wright Medical carries a Zacks Rank #3 (Hold).
) carry a Zacks Rank #2 (Buy) and are expected to do well.
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