Symmetry Medical, Inc. (SMA): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We have upgraded our recommendation on Symmetry Medical to Outperform from Neutral. The company's 2014-second quarter earnings surged 50.0% to $0.15 and beat the Zacks Consensus Estimate by 33.3%. Revenues of $101.3 million rose 2.3% and also surpassed the mark. The company's decision to divest U.K. based Clamonta will benefit in the long-run but negatively affect 2014 earnings and revenues. The new high-margin Surgical business continues to face headwinds, but we believe that long-term prospects of this business are still intact. The recent decision to divest the OEM Solutions business is also expected to improve liquidity and enhance growth. We set a target of $11.00 on the stock.

Overview:

Symmetry Medical, Inc. (SMA), headquartered in Warsaw, Ind., was established in 1976 as an instruments supplier to orthopedic device manufacturers. The company went public in Dec 2004. The company is now the world's largest independent provider of implants and related instruments and cases to orthopedic device manufacturers.

Symmetry Medical also designs, develops, and produces for companies in other segments of the medical device market, including dental, osteobiologic, and endoscopy sectors, and provides limited specialized products and services to non-healthcare markets, such as the aerospace market. The company provides its customers with a broad range of products, comprehensive services, and production capabilities through its Total Solutions approach. Symmetry Medical markets its Total Solutions approach through its experienced sales force in the United States, Europe, and Japan.

Segments

Symmetry Medical operates in two reportable segments: (1) Original Equipment Manufacturer ("OEM") Solutions and (2) Symmetry Surgical.

Symmetry Medical's core Original Equipment Manufacturing (OEM) Solutions business (79.3% of total revenue in the first half of 2014) derives its revenues principally from four segments: implants, instruments, cases, and other products and services. The company provides implants for use in specific implant systems, mainly knee and hip implants. Orthopedic implants are used in reconstructive surgeries to replace or repair hips, knees, and other joints, primarily shoulders, ankles, and elbows.

Symmetry Medical also manufactures implant products for trauma, spine, and other implant systems. The company makes precision surgical instruments used in hip, knee, and shoulder reconstruction procedures, and in spinal, trauma, and other implant procedures. It also provides implant-specific and procedure-specific instruments.

The company produces plastic, metal, and hybrid cases to store, transport, and arrange surgical instruments and related implant systems for orthopedic device manufacturers. Dental cases are used in dental implant and general dental procedures. Other cases are used for arthroscopy, osteobiologic, endoscopy, cardiovascular, ophthalmology and diagnostic imaging as well as ear, nose, and throat procedures.

In the second quarter of 2014, Symmetry Medical announced the sale of OEM Solutions business to privately-held Tecomet for $450 million in cash or $7.50 per share after fees and elimination of outstanding debt, shortly before its second-quarter earnings announcement. Under the terms of the agreement, SMA will transfer its remaining Symmetry Surgical business to its shareholders in a newly traded standalone public company. Shareholders will receive one share in the new company for every four Symmetry Medical shares held. Subject to customary regulations, SMA expects the transaction to be completed by the end of 2014. According to the company, the proposed sale will recognize the value of the OEM Solutions business and enhance the growth potential of Symmetry Surgical, in addition to providing liquidity to shareholders.

Symmetry Surgical business segment (20.7% of total revenue in the first quarter of 2014), headquartered in Nashville, Tennessee, was created in 2011. The segment arose from the integration of the Codman surgical instruments and Olsen Medical lines with the company's already existing hospital direct business, Specialty Surgical Instrumentation ("SSI").

Symmetry Surgical offers a broad range of reusable stainless steel and titanium surgical hand-held instruments and retractor systems, sterile disposable surgical products (vein strippers, SECTO dissectors, tonsil sponges and surgical marker pens), and sterilization containers. These products are typically used in the surgical specialties of spine, general/obstetrics/gynecology, microsurgery/neurosurgery, orthopedics, laparoscopy, cardiovascular, thoracic and general surgery in the hospital setting as well as surgery centers and in select physician offices.


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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.



This article appears in: Investing , Stocks

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