Turnaround stories can pay handsomely in the med-tech space, and CONMED (NASDAQ:CNMD) has certainly been doing a lot of the right things since activist investors catalyzed a major shake-up in 2014. Not only has the board of directors changed, but the company brought on former Stryker (NYSE:SYK) executive, Curt Hartman as CEO and has named several new executive vice presidents.
More importantly to me, the company has not tried to take any
shortcuts or resort to flashy serial M&A to mask the turnaround
process. Hartman has instead focused on establishing a better sales and
commercialization infrastructure and driving better execution there, as
well as longer-term improvements in product development. That's not to
say there hasn't been M&A - the SurgiQuest deal was the first
notable transaction in a long time and it seems like a very interesting
business to own.
The problem I have is which valuation metrics to follow and just how
much credit to give for these self-improvement efforts. Like many
smaller med-techs, CONMED doesn't look appealing on FCF unless the
company can drive GAAP operating margins into the high teens -
something that is not impossible, but not easy either. The value
proposition is better in EV/revenue terms, but it's going to be hard for
CONMED to make real progress unless it can establish itself as more than a peripheral player in its core markets.
Conmed's Renewed Quest For Growth