We recently upgraded
SurModics Inc.
(
SRDX
) to Outperform from Neutral following its impressive results in
the third quarter of fiscal 2012 (ended June 30, 2012). The stock
carries a Zacks #2 Rank (Buy rating) in the short run.
SurModics' third quarter fiscal 2012 adjusted earnings of 17
cents per share beat the Zacks Consensus Estimate of 13 cents. The
earnings beat was attributable to higher-than-expected revenues.
Strong sales from vitro diagnostics and hydrophilic coatings
boosted revenues.
Encouraged by the strong performance, SurModics raised its
forecast for fiscal 2012 on a reported basis. The company now
expects to earn between 56 cents and 59 cents per share on revenues
of $51 to $52 million. The previous guidance hinted at earnings
between 45 cents and 53 cents on revenues in the range of $47 - $51
million.
The strong third quarter results prompted us to increase our
fiscal 2012 and fiscal 2013 earnings estimates to 60 cents (up 9
cents) and 72 cents per share (up 9 cents), respectively.
Moreover, we believe that the share buyback program, announced
by SurModics along with the results, of $55 million will increase
shareholder value.
We are also pleased with the sale of SurModics' Pharmaceuticals
unit as this has allowed the company to focus on its core
businesses. We note that performance of the company has been
steadily improving since a disappointing fiscal 2010.
Following the disappointing performance in fiscal 2010,
SurModics revamped its board of directors and appointed a new CEO,
Gary R. Maharaj. We note that Maharaj is the former President and
CEO of Arizant Inc., which was sold to
3M Co.
(
MMM
) in October 2010.
We are also impressed by SurModics' financial position. At the
end of the third quarter of fiscal 2012, the company had cash and
investments totaling $108.2 million and no long-term debt burden.
The company generated operating cash flow of $5.8 million in the
third quarter of fiscal 2012, up 8.3% sequentially. We believe the
strong cash position augurs well for further acquisitions in
addition to investment in the current business and share
repurchases.
In view of these positives, we believe that the stock is
undervalued at current levels with significant scope for
appreciation.
3M CO (MMM): Free Stock Analysis Report
SURMODICS (SRDX): Free Stock Analysis Report
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