Rising earnings estimates on the back of solid third quarter
results, including a 4% earnings surprise, helped
) attain a Zacks #1 Rank (Strong Buy) on November 3. Moreover,
this medical devices company has delivered positive earnings
surprises in four of the last five quarters with an average beat
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With a decent year-to-date return of 17.9%, an updated outlook
for 2012 and a history of beating quarterly earnings estimates,
this stock offers an attractive investment opportunity.
The Rank Drivers
Several factors such as strong third quarter, raised guidance,
portfolio expansion, acquisitions synergistic to product line and
strategic initiatives to streamline its operations - are the
primary rank drivers for the stock.
On October 31, Teleflex reported adjusted earnings per share of
$1.04. It easily beat the corresponding Zacks Consensus Estimate
of $1.00 per share. The company witnessed 6.2% year-over-year
sales growth (at constant exchange rate) to gross revenues of
$368.1 million in the quarter. However, revenues narrowly missed
the Zacks Consensus Estimate of $371 million.
Based on the strong results for the most recent quarter, Teleflex
updated its guidance for 2012. The company now expects constant
currency sales growth in the range of 6% to 7% compared with the
earlier range of 4% to 6%. The company envisages adjusted
earnings per share in the band of $4.35 and $4.40 compared with
the prior guidance of $4.25 and $4.45. This implies
year-over-year earnings growth of 14%-15%.
Teleflex continues to expand its product portfolio via innovation
and acquisitions. It has closed four acquisitions year-to-date to
enhance its Critical Care, Cardiac Care and Surgical Care
segments. The twin acquisitions of Willemstad, Netherlands-based
LMA International N.V. and LMA's laryngeal mask supraglottic
airway business from Intavent Direct Limited provide the company
with an extensive anesthesia and airway management portfolio.
In an effort to enhance its portfolio, Teleflex has launched many
offerings in the recent past. Earlier this month, the U.S. Food
and Drug Administration (FDA) granted 510(k) clearance to its
line of Weck reusable obturators which complement the Weck Vista
line of bladeless laparoscopic access ports. The company recently
unveiled its complete Weck Access line. Teleflex also launched
its Arrow FlexBlock continuous peripheral nerve block catheter to
annex its market-dominating line of Arrow StimuCath continuous
peripheral nerve block catheters.
The recent divestiture of its OEM Orthopedic division will allow
Teleflex to leap on the growth trajectory. The divestment is
further expected to aid the company's strategy of new product
introduction, and investment in innovative technologies.
Estimates Inch Up
Teleflex's solid performance in the third quarter and the raised
2012 guidance encouraged 8 upward estimate revisions in 30 days.
With this, the Zacks Consensus Estimate for 2012 improved 0.7% to
$4.39 per share. The current estimate implies year-over-year
growth of 11.74%.
For 2013, 7 out of 8 estimates were revised higher over the same
time frame, raising the Zacks Consensus Estimate by 3.8% to $4.86
per share, implying year-over-year growth of 10.62%.
Valuation of Teleflex looks reasonable compared to its peers by
most metrics. Based on 2012 earnings estimates, the company is
trading at a price-to-earnings (P/E) ratio of 15.6x, a nominal
discount of 9.1% to the peer group average of 17.02x. Moreover,
the price-to-book ratio of 1.6x is at a substantial discount of
163.1% to the peer group average of 4.21x.
The trailing 12-month return-on-equity (ROE) ratio of the company
stood at 9.8% compared with 16.5% of the peer group average.
About the Company
Based in Limerick, Pennsylvania, Teleflex is a provider of
specialized medical devices used in surgical and critical care
settings. Over the last few years, the company has divested its
holdings in cargo containers and cargo systems (part of the
erstwhile aerospace division of the company) besides selling off
its marine operations. The company now sells its medical devices
in over 130 nations. It has a market cap of about $2.7 billion.
The market Teleflex serves is highly competitive with the
presence of well-capitalized peers like