On Sep 26, we retained Neutral recommendation on
Wright Medical Group
). Although the company is aggressively trying to turn the
business toward high-growth areas of the market, we remain on the
sidelines regarding WMGI due to internal as well as external
issues plaguing the company.
Why the Retention?
On Aug 5, Wright Medical reported second-quarter 2013 adjusted
loss per share from continuing operations of 13 cents, which was
in line with the Zacks Consensus Estimate. The loss was wider
than the year-ago level of 2 cents per share.
Net revenues from continuing operations in the quarter were
$60.6 million, up 17% year over year. However, it significantly
missed the Zacks Consensus Estimate of $123 million. Revenues
were mainly driven by 30% growth in the worldwide Ankle and Foot
franchise. The company has considered its OrthoRecon unit as a
part of its discontinued operations due to its recent agreement
to divest the same.
The company's earnings have managed to comfortably beat the
Zacks Consensus Estimate in 3 out of the last 4 quarters, while
meeting the same in the second quarter, with an average surprise
of 111.11%. However, following the earnings release, the Zacks
Consensus Estimate for 2013 and 2014 remained unchanged at 55
cents and 41 cents per share, respectively, over the last 30
The decision to sell off the OrthoRecon business bodes well
for the company, as it can now focus on expanding its high-growth
Extremities and Biologics segments. The Ankle and Foot product
line is growing at a healthy double-digit rate, a trend which is
expected to continue. Wright's focus on niche technologies lends
some support amid economic cyclicality. Moreover, new deals in
extremities are expected to bolster growth.
However, the recent regulatory issue regarding the
newly-acquired BioMimetic's flagship product has moderated our
view regarding near-term catalysts for revenue growth. We are
also cognizant regarding pressure on the company's operating
margin, which is likely to increase with various restructuring
activities following the divestment of the OrthoRecon
Other Stocks to Consider
While we remain on the sidelines regarding Wright Medical,
other medical stocks that are worth considering include,
), carrying a Zacks Rank #1 (Strong Buy), and
), both carrying a Zacks Rank #2 (Buy).
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WRIGHT MEDICAL (WMGI): Free Stock Analysis
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