The Motley Fool: High Expectations for Growth: Is CR Bard Overvalued?

C.R. Bard (NYSE: BCR  ) finds itself in an interesting and unfamiliar situation – for the first time in quite a while, the Street actually has relatively demanding growth expectations. Bard has long based its business upon strong share in lower-average selling price consumables-driven businesses that don't offer spectacular underlying growth. Now management is looking to deliver more growth, as it prepares to leverage its new Lutonix drug-coated balloon and acquisitions driven by the incoming cash from Gore's patent infringement damages.

Bard has indeed returned to a level of growth that hasn't been seen in years. As is so often the case, though, my concern now is with the expectations that are getting baked into the valuation. With today's valuation not leaving much (if any) margin of safety, I'd prefer other names in the med-tech space.

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High Expectations for Growth: Is CR Bard Overvalued?

The Motley Fool: High Expectations for Growth: Is CR Bard Overvalued?

C.R. Bard (NYSE: BCR  ) finds itself in an interesting and unfamiliar situation – for the first time in quite a while, the Street actually has relatively demanding growth expectations. Bard has long based its business upon strong share in lower-average selling price consumables-driven businesses that don't offer spectacular underlying growth. Now management is looking to deliver more growth, as it prepares to leverage its new Lutonix drug-coated balloon and acquisitions driven by the incoming cash from Gore's patent infringement damages.

Bard has indeed returned to a level of growth that hasn't been seen in years. As is so often the case, though, my concern now is with the expectations that are getting baked into the valuation. With today's valuation not leaving much (if any) margin of safety, I'd prefer other names in the med-tech space.

Read the full article here:
High Expectations for Growth: Is CR Bard Overvalued?

The Motley Fool: Covidien No Longer Sneaking Up on the Market

One of the most enjoyable experiences for an investor is to find a stock before Wall Street catches on to the company's quality and then hold it throughout that awakening and revaluation processing. The last two years have been good ones for Covidien (NYSE: COV  ) shareholders as this underrated med-tech player got its due. Now the question is what comes next.

Covidien has an enviable hold on its key markets, with a #1 or #2 position in most of its segments, despite competing with some major rivals like Johnson & Johnson (NYSE: JNJ  ) , Bard (NYSE: BCR  ) , Masimo (NASDAQ: MASI  ) , Stryker (NYSE: SYK  ) , and Abbott (NYSE: ABT  ) . Although I believe Covidien will continue a long run of operational success, I'm not nearly so certain that investors should expect another year of 20%-plus returns.

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Covidien No Longer Sneaking Up on the Market

Investopedia: AngioDynamics Still Struggling To Get Back On Track

Throughout what has proven to be a difficult time for small-cap medical device company AngioDynamics (Nasdaq:ANGO), I've been optimistic about the company's long-term potential. While businesses in vascular access, dialysis, and fluid management are not high-growth areas of medical technology, I thought the company's focus on product development would lead to better revenue and margin leverage than the Street seemed to be expecting.

So far that has been a bad call. While products like NanoKnife, BioFlo, and AngioVac do still hold the potential to drive long-term growth rates in excess of the industry norms, sales execution and market shares need to improve. Likewise, investors should not underestimate the potential risk of rejuvenated large competitors like Covidien (NYSE:COV) and CR Bard (NYSE:BCR).

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Seeking Alpha: Keep A Close Eye On Cooper's Improvements

Cooper Companies (COO) (or, more formerly "The Cooper Companies") has done a fine job over the past few years of making up for lost time. While the company had to play catch up in the silicone hydrogel contact lens market, it is once again growing its market share and expanding its margins. Although the valuation today on these shares does not look all that compelling, investors shouldn't ignore the potential for further multiple expansion tied to ongoing share growth and margin expansion - two things that med-tech investors prize greatly.

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Keep A Close Eye On Cooper's Improvements

Seeking Alpha: Can Intuitive Surgical Make It To $1,000?

There's little question that Intuitive Surgical (ISRG) has been one of the all-time great med-tech stocks and arguably has claim to a spot on the all-time list irrespective of industry. Not only has the company managed to drive strong adoption in selected indications, but virtually no credible competition has emerged in the robotic surgery space. Along the way, Intuitive has successively blown through price targets and typical standards of what makes for a fair price.

Q1 - More Of The Same
In most respects, the first quarter of 2012 was a pretty typical quarter for Intuitive Surgical. Revenue rose 28% (and beat estimates), as the company coupled 32% instrument/accessory growth to 24% system revenue growth. System sales rose 17% to 140 despite some weakness in Europe, and procedure growth remained strong (up 28%).

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Can Intuitive Surgical Make It To $1,000?

Seeking Alpha: This Bard's Tale Still Worth Hearing

Medical device manufacturer C.R. Bard (NYSE: BCR) has never been really owned for its exceptional growth potential or its exciting product lineup. What it has been appreciated for, though, is years of excellent free cash flow production, consistent performance, and a largely defensive portfolio of assets that has generated some of the best returns in the sector. While a poor operating environment has shown that Bard too is mortal, investors may yet want to consider this stock as a conservative addition to their portfolio.

One Of The Best Of The Rest
A great deal of attention in medical devices goes toward major product categories like coronary stents, cardiac rhythm management, and orthopedics, with the occasional hot growth story like surgical robotics or transcatheter heart valves. Where Bard excels, though, is in the “other” - a broad of array of devices that address significant medical issues, but just don't capture quite as much attention.

Read the full piece here:
This Bard's Tale Still Worth Hearing

Investopedia: Is Hologic A Coiled Spring?

It's frankly more difficult to find overvalued health care stocks today than undervalued ones, assuming that the market can transition through this dry spell and that procedure volumes pick up with an eventual economic recovery. Given that Hologic (Nasdaq:HOLX) serves markets largely seen as mature, many investors question whether the company can grow fast enough to be worthwhile. Although that is a legitimate concern, investors have become pessimistic to a point where even modest growth could lead to a strong rebound in the stock.

A Respectable End to the Year  
Hologic's business is a combination of solid higher-growth businesses and some smaller, more sluggish operations. Overall growth rose 9% this quarter, with breast health and diagnostics up 11 and 12% respectively, while the surgical and skeletal health businesses grew 1 and 2%. Given that this is still a pretty unhealthy market for capital equipment and doctor office visits, these are pretty solid results. (For related reading on heath care, see How To Avoid Medical Debt.)

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Investopedia: If CareFusion Can Execute, This Is A Major Bargain

Admittedly, it's not hard to create a basket of too-cheap health care stocks, today, and almost every one of these stories has a sizable "but." In the case of CareFusion (NYSE:CFN), though, slimming down that "but" seems relatively manageable. The company still has a ways to go in improving its returns on capital, but CareFusion's market positioning should make solid returns achievable. However, Wall Street presently gives CareFusion little credit.

A Mixed Start to the Year 

For its first fiscal quarter, CareFusion reported that revenue rose 4%. Growth was led by the "Medical Systems" business at 9%, while the "Procedural Solutions" business saw revenue decline 2%. Dispensing technologies, which is part of Medical Systems, saw 16% reported topline growth. Infusion was surprisingly strong at 7%, while respiratory care and specialty disposables were laggards.

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Investopedia: Bard Not So Bulletproof

Diversified medical device maker C.R. Bard (NYSE:BCR) does not often get a lot of attention from small investors, but it has long been a popular name with institutional investor. The company has a long track record of consistent topline growth and one of the best histories of return on capital in the sector. Because of its consistency, its execution, and its well-diversified base of business, Bard has carried a premium valuation for some time. 

Thursday's earnings shook up that idyll. Bard missed on both the top line and gross margin, and the company's vulnerability to the U.S. market once again came front and center. Perhaps, then, those shorts (Bard had an unusually high short ratio going into these earnings) had the right idea. 


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Seeking Alpha: How The Healthcare Sector Became Another Way To Play The Jobs Report

There used to be a time when healthcare was one of those all-weather “safe” plays. No matter the ups and downs of the economy, healthcare stocks never sank too far. As second quarter earnings are highlighting quite clearly, those days are clearly long past now. Healthcare investors need to hope for real improvement in job and wage statistics if the sector is to grow. Though there is still some leverage to be had in hospitals boosting their capital spending from the unsustainably low levels of 2008-2010, that play has its own expiration date.


Where Have All The Patients Gone?
Take a look at the earnings from companies like Johnson & Johnson (NYSE: JNJ), Bard (NYSE: BCR), and St. Jude (NYSE: STJ) and problems pop out. None of these companies are seeing much real volume growth in their device businesses, as patients are staying home and out of doctors' offices and hospitals. Even at a company like Covidien (NYSE: COV), that is actually doing relatively well, the underlying organic growth is not terribly robust outside of taking share from other med-tech rivals.

To read the full piece at Seeking Alpha:
How the Healthcare Sector Became Another Way to Play the Jobs Report

Investopedia: Endo Choosing The Less Traveled Path

Investors may not realize it, but there was a time when a lot of large pharmaceutical companies had device businesses as well. Most companies decided it was better to focus around their branded drugs, though, and sold or spun-off those businesses, leaving a few companies like Johnson & Johnson (NYSE:JNJ) and Abbott (NYSE:ABT) as the exceptions.

Endo Pharmaceuticals (Nasdaq:ENDP) seems to be comfortably swimming against the tide, though. As this smaller pharmaceutical company works to diversify its model and find multiple growth opportunities ahead of generic competition for its key product Lipoderm, the company is looking to devices as part of its future.

The company announced another big move on Monday - the acquisition of urology device specialist American Medical Systems (Nasdaq:AMMD).

Terms of the Deal
Endo is paying $30 a share for American Medical, better than a 34% premium to Friday's closing price. Under the deal, Endo will be paying all cash for the device company, and assuming over $300 million in AMMD debt - bringing the total deal value to about $2.9 billion.


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Seeking Alpha: Not All Great Med-Tech Is Exciting

There is no question that investors can find a lot of exciting growth stories in the medical technology space. From surgical robotics to gene sequencing to radiation therapy, a winning idea can produce not only eye-popping revenue growth, but very solid margins and returns on capital. Better still, customers have yet to show much price sensitivity and the FDA approval process means that competitors cannot exactly sneak up on a company overnight. 

And yet, a lot of would-be world-beating ideas never quite work out as expected. Companies have tried drilling holes in the heart with lasers to improve angina, using pacemakers to treat depression and obesity, and developing entirely new sequencing technologies only to meet with failure.

The good news for investors, though is that there are a lot of "boring" medical technology companies out there that avail themselves of most of those positives – decent (if not great) growth, solid margins, and good returns on capital, and protected market share – without the risks of trying to push risky moon-shots into the market. With these names, investors can often look to remarkable consistency over time, with the shot at occasional break-out winners. All in all, then, investors should give a serious look at some of the less-exciting ideas in medical technologies.

To read the full piece, please go to Seeking Alpha:
Not All Great Med-Tech Is Exciting

Investopedia: Heavily Shorted Stocks Near Their Highs

Virtually every stock of any real size is going to have a certain amount of short interest. When a stock's short interest reaches double-digits, though, investors should pay a little attention. By and large, retail investors do not short stocks and neither do most mutual funds. Moreover, the rules and hassles of short selling combined with the theoretically unlimited loss potential often mean that short positions are not entered into lightly.

While some short positions are simply a byproduct of a fund manager's belief that a stock is simply overvalued, often it is a bet on the notion that there is something more fundamentally wrong with the basic business. Accordingly, it is interesting to see that there are a number of stocks with high short interests trading near their 52-week highs. Is this simply a product of a bull market that has gone on too long, or is there something worse lurking beneath the surface? (For more, see Stocks With Increasing Short Interest.)

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Interesting Rumors Around Boston Scientific

It sounds like there are some interesting rumors bubbling up around Boston Scientific (NYSE: BSX) these days. With the stock in the toilet and little momentum in the business (but plenty of debt!) I am sure management is fielding quite a few "do something!" calls from our lovely and ever-so-patient friends in Hedge Fund-Land.

The first rumor is that BSX is about to sell its neurostim business to Stryker (NYSE: SYK). I saw this rumor in Bloomberg this morning, and talked with some friends in the industry. It all seems to make a fair bit of sense to us.

First, BSX has bigger fish to fry in its stent and CRM businesses, and has not really been doing all that great against Medtronic (NYSE: MDT) or St. Jude (NYSE: STJ) in that (neurostim) market. Like so many other niche businesses at BSX, this one too has suffered from neglect and under-investment.

For Stryker, this would offer another business platform and access to a market that has decent underlying growth. Now, I think the "synergy" that Bloomberg mentioned between Stryker's spine business and neurostim is a little silly (yes, back pain is a big indication for neurostim, but they do not go together quite so tightly), but the deal still makes sense. I happen to think that Stryker wants to add some more businesses to its portfolio, and most of the exciting ideas like Intuitive Surgical (Nasdaq: ISRG) or Nuvasive (Nasdaq: NUVA) are rather pricey.In buying BSX's neurostim business, Stryker could be getting an underappreciated fixer-upper that delivers good growth with just a little care and reinvestment.

Beyond the neurostim business, BSX is also apparently looking to jettison the neurovascular business. BSX has a very good franchise in treatments for cerebral aneurysms like embolization coils and they have been a major player for a number of years. This is interesting timing given that Johnson & Johnson (NYSE: JNJ) recently announced a deal for Micrus Endovascular (Nasdaq: MEND) - one of BSX's up-and-coming rivals.

What is BSX telegraphing here? Is the company saying, in effect, that only BSX's superior marketing abilities and long-term customer relationships were keeping them afloat and that MEND's products in the hands of JNJ's salesforce is too overwhelming to fight?

That is probably hyperbole, but it is an interesting development nonetheless. So who might buy this business? I would think Medtronic or St. Jude might give it a courtesy sniff, but I would expect the likes of Cook or Bard (NYSE: BCR) to be the more logical candidates right now. But who knows? Covidien (NYSE: COV) is out there buying every other damn thing, so maybe they will take a look too.

All in all, these are interesting developments at BSX. Does this mean the company is really circling the wagons and choosing to focus on major product categories like stents and CRM? Or is this just a process of cleaning out a few under-performing (but still marketable) businesses where a recovery is unlikely?

I am not sure yet, but I would keep a close eye too on whether they jettison the IVUS business. A sales of that business to a motivated buyer (like, say, GE (NYSE: GE) or Siemens (NYSE: SI)) would be bad news for Volcano (Nasdaq: VOLC). Volcano has great technology (the best, actually) and products, but they have clearly also benefited from BSX's unwillingness to support and develop the business any further. A sale to a new rival, then, would be a clear threat.

At the end of it all, though, I still would not be a buyer of BSX. But then, I am sort of accustomed to not liking BSX, so I do not pretend to be unbiased.

Disclosure - I own shares of JNJ

Johnson & Johnson - The Hits Keep On Comin'

Day by day (or rather, quarter by quarter) it is getting harder to hang in there with Johnson & Johnson (NYSE: JNJ). I own this one in a retirement account and I have owned it for a while now - during which time it has faithfully spun off dividends, but done little else for me. At some point, I am going to have to consider swapping this out for Abbott Labs (NYSE: ABT) or Roche (Nasdaq: RHHBY) if things do not turn around.

This quarter was textbook mediocre.

Sales growth was sub-1% and the $15.3B total was almost $400M below the average guess (though that's pretty close given the scale). Pharma was okay - up 1% to $5.6B. Consumer was not - down almost 7% in constant currency. Devices was in the middle - up 4% (I say "in the middle" because I expected more of devices and less of pharma). What bothers me about devices, though, is that nothing looked very good - Ethicon and DePuy did not look good, and clinical diagnostics was pretty iffy too.

Going down the line, earnings quality was not so hot - gross margins were down and the company needed a lower tax rate to pick up some incremental earnings power. All in all, EPS of 1.21 was in-line.

Along with these earnings, the company also cut guidance by about $0.15 due to for-ex and the recalls in the Consumer business. Okay, a few pennies here or there in the for-ex pot does not bother me, but I am frankly surprised at the magnitude of the revision due to the recall. I guess that the company is going to have to write down a lot more inventory than I thought and the cost of getting those plants back in order is likewise steeper than I surmised. Of course, some of this could also be due to anticipated revenue/margins decline from the perception hit that the business is taking.

All in all, this is another frustrating and lackluster report.

What makes matters worse is that there is no quick fix. JNJ is so large that it is like moving a supertanker. So even though I like the acquisition of Micrus Endovascular (Nasdaq: MEND), that is not going to single-handedly reverse the fortunes of the device segment. Likewise, unless the company can come up with a true new blockbuster drug, the Pharma business is not going to change quickly.

All that said, I would like to see the company get more active. They should be signing early-stage partnerships and in-licensing biotech compounds (I would especially like to see them get involved in siRNA drugs). They should also be aggressively pursuing early stage medical technology companies and bringing prospectively high-growth technologies in house (this is the model that Medtronic has used quite successfully). None of that would help today, or even next year, but it would make investors feel a bit better about the future.

I hold JNJ largely because it seemed like valuation was baking in pretty much pathetically flat performance, and I thought the company would be able to surpass that. Perhaps I was wrong - maybe 1% growth is all that this company can do under present management. I do not really believe that (yet), but I have to at least incorporate that into my scenario analysis.

I just do not know. I am going to continue to hold JNJ for the time being, but I have to say that I am looking more and more at supplementing or replacing it with names like Abbott, Roche, Bard (NYSE: BCR), Becton Dickinson (NYSE: BDX) and so on. I am doing this to make money, afterall.

Disclosure - I own shares of JNJ.

JNJ Paying Up For Quality

It was only a week ago that I wrote about Micrus Endovascular (Nasdaq: MEND) as a hot med-tech stock that investors should take a look at and consider for a growth-oriented portfolio. Well, I hope they looked quickly, because Johnson & Johnson (NYSE: JNJ) announced this morning that it was acquiring Micrus for $23.40/share in cash.

That is a total deal value of $480 million, but a rather small premium of only about 5%. The stock has had a strong run since mid-May, though, and some of the move from $16-and-change could have been a product of rumors and whispers about a deal. Given the relatively recent deal between Covidien (NYSE: COV) and ev3 (Nasdaq: EVVV), it seems even more probable that people were connecting the dots and assuming that MEND would get a bid.

Although I am a JNJ shareholder, I have ripped the company plenty of times for its M&A strategy -- the company often pays too much and gets too little.

I really actually do like this deal, though. First, JNJ is by no means overpaying. JNJ is paying about 4.2 times trailing sales for Endus, and that is a good price. Growing small-cap med-tech companies often normally trade at 4 or 5 times trailing sales, and buyout premiums usually push that to a 6-8x range.

Second, Micrus has good technology on the market that integrates nicely with Johnson & Johnson's existing neurovascular intervention business. Not only have Micrus's products shown strong clinical results, they have actually sold well in the market and become something of a threat to rivals like Boston Scientific (NYSE: BSX). In my analysis, then, the combination of MEND's high-quality embolization coils and JNJ's existing business is a strong one.

I have to say, though, that I wonder if these deal actually goes through at this price. There are several other companies that could make a lot of hay from the Micrus assets, and the deal price is not so high that these other companies could not come in with a sweeter offer. If you are a Micrus shareholder, that is something to look forward to; if you are a JNJ shareholder, it is something to dread.

Who else could get involved? How about Medtronic (NYSE: MDT), Cook, or Bard (NYSE: BCR)? Certainly BSX could be interested as well, but I doubt that they have the balance sheet liquidity to do the deal, and I really doubt that Micrus shareholders would be thrilled about getting BSX shares instead of JNJ cash.

At the bottom line, I had modeled that MEND was worth about $25 a share. Given that MEND's management was willing to take less than that, I wonder where my model might have been a bit too optimistic. In any case, that spread between my fair value and the deal price is what a former boss of mine would describe as "close enough for jazz", so I am not going to worry about it too much. Moreover, I have also felt that JNJ needed to get more aggressive in finding new growth opportunities, so this is a deal and a price than I can live with pretty happily.

I would still recommend investors buy shares of JNJ. I also wonder if MEND shares are not worth a shot as an arbitrage play - so long as you can get the shares at a price that will still leave you with a profit after commissions, it might be worth the gamble to see if another bidder appears. 

Disclosure - I own shares of JNJ.

Covidien Shuffles The Deck

One of the least-surprising take-outs I've seen was today's announcement that ev3 is getting bought out. That said, I'm not sure you could have found 10 people who would have put Covidien in the top three most likely buyers. Bard would have made sense to me, as well as Cook or even Boston Scientific or JNJ. But Covidien? 

Strange times... 

By the way, I do own shares of JNJ.

Medical technology companies, particularly the larger ones, tend to be quite acquisitive. So, another sign that normalcy may be returning to the economy and the market is when acquisitions start to tick up again. The good news is, this appears to be happening now. In the wake of the Medtronic (NYSE:MDT) and ATS Medical deal a little while ago, Tuesday saw the announcement of a larger deal between Covidien (NYSE:COV) and ev3 (Nasdaq:EVVV). 

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