Wright Medical Stays Neutral - Analyst Blog

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We maintain our Neutral recommendation on Wright Medical Group ( WMGI ). Its fourth quarter earnings beat the Zacks Consensus Estimate. The company reported a minor profit in the quarter, though this was affected by several charges.

Declines across hip and knee artificial joint franchises more than offset a modest gain in the extremity implants business. However, the company issued favorable guidance for fiscal 2012. The company's revenue growth will be supported by the launch of new products, including internally developed products and those from acquisitions.

Wright's focus on niche technologies lends some support amid economic cyclicality. Its fastest growing segment, Extremities enjoyed a growth of 8% year over year in fiscal 2011 and accounted for 26% of total sales. Foot and ankle products are expected to be major growth drivers. Going forward, Wright Medical is expected to benefit from the expansion of the Extremities sales force.

Wright Medical announced in fiscal 2011, that it was exercising a cost restructuring initiative to improve profitability, promote growth and strengthen cash flow, in order to enhance shareholder value. The restructuring initiative will lead to a more cost efficient enterprise, which will boost earnings in 2012. As per the plan, Wright Medical Group launched several measures to curtail expenditure, including cutting down the range of its overseas product offerings, streamlining its R&D efforts and fine tuning factory operations. This was effected to keep in tandem with mix/volume forecasts.

The global artificial orthopedic market (primarily knees and hips) continues to experience weak demand, which is not expected to pick up until the second half of fiscal 2012. Procedure volume and pricing continue to be headwinds for Wright Medical.   

The company's restructuring initiatives should boost future profitability. However, our views are moderated by lingering compliance issues and intense competition from larger orthopedic players. Wright Medical faces strong competition from larger players like Zimmer Holdings ( ZMH ), Stryker ( SYK ), Johnson & Johnson/DePuy ( JNJ ), and Smith & Nephew ( SNN ). The stock currently retains a Zacks #4 Rank, which translates into a short-term 'Sell' recommendation.


 
JOHNSON & JOHNS ( JNJ ): Free Stock Analysis Report
 
SMITH & NEPHEW ( SNN ): Free Stock Analysis Report
 
STRYKER CORP ( SYK ): Free Stock Analysis Report
 
WRIGHT MEDICAL ( WMGI ): Free Stock Analysis Report
 
ZIMMER HOLDINGS ( ZMH ): 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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: JNJ , SNN , SYK , WMGI , ZMH

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