SurModics Drops to Neutral - Analyst Blog


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We have downgraded SurModics Inc. ( SRDX ) to Neutral from Outperform with a target price of $16.00.

In November 2011, Surmodics sold the assets of its Pharmaceuticals division to Germany's Evonik Industries AG for $30 million cash. Even though pleased by the company's move which is aimed at focusing on its core business to improve efficiency, we prefer to be cautious till the move starts delivering. We believe that it will take some time before it yields the desired results. Consequently, we have not altered our earnings estimates for fiscal 2012 (ending September 30, 2012) and fiscal 2013.

Moreover, we are also mindful of setbacks such as Johnson & Johnson's ( JNJ ) decision to stop manufacturing Cypher and Cypher Select Plus sirolimus-eluting coronary stents from which SurModics earned royalties.  Setbacks of a similar nature will negatively impact SurModics' stock price.

We remind investors that SurModics has taken a number of steps to improve efficiency following its disappointing showing in fiscal 2010. In August 2011, with a view to optimizing its resources and maximizing long-term growth potential, SurModics announced that it will its trim work-force by 9%. Earlier in October 2010, the company had trimmed its work-force by 13% and made certain changes to its organizational structure.

Moreover, following the disappointing performance in fiscal 2010, SurModics revamped its board of directors and also brought about a change at its helm, with the appointment of a new CEO, Gary R. Maharaj. We note that Maharaj is the former President and CEO of Arizant Inc., which was sold to 3M Company ( MMM ) in October 2010.

While encouraged by the steps taken by the company, we see limited upside potential for the stock from current levels. Consequently we have reverted to a Neutral stance on the stock.

JOHNSON & JOHNS ( JNJ ): Free Stock Analysis Report
3M CO ( MMM ): Free Stock Analysis Report
SURMODICS ( SRDX ): Free Stock Analysis Report
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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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
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