Wright Medical - No Fuss, No Drama, Just A Good Quarter

I’ve commented more than once recently that Wright Medical (WMGI) needs a run of steady, strong performance, and the March quarter was a good step in that direction. Revenue was good overall, gross margin was strong, and there wasn’t much that really needed explaining. What’s more, looking around the neighborhood, it looks like some of the competitive pressure has eased a bit, giving Wright Medical a smoother runaway to reestablishing reliable double-digit growth and its credentials as the leader in extremities.

With a quarter that offered few surprises, there’s not much to do on a modeling or valuation front, so I still think these shares deserve to trade closer to the mid-$30’s. The stock has been a little weak relative to the device space since the AAOS meeting, but I don’t see any near-term competitive concerns coming out of that meeting. While Wright Medical has earned a reputation for being more volatile than it probably should be, I do think the company is on a solid path now and represents a good GARP (“growth at a reasonable price”) set-up.

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Wright Medical - No Fuss, No Drama, Just A Good Quarter

Wright Medical Getting Its House Back In Order

It’s tempting to make a “shot themselves in the foot” pun with respect to the problems Wright Medical (WMGI) got itself into over the last couple of years, but this extremities-focused orthopedics company does seem to be getting its house back in order. Not only should the approval and launch of the injectable form of Augment spur meaningful adoption growth, but the company’s shoulder business continues to perform very well, and it looks as though management has the traditional foot and ankle business back on track.

Wright Medical shares have given investors plenty of trading opportunities over the last few years, as the company has struggled to establish a consistent growth path after the Tornier deal. I believe the company is getting there, and I’ve been impressed with the company’s internal R&D engine. The shares do still seem to offer some upside, and over the long-term a buyout is still a possibility, but investors should appreciate that there is a history of inconsistent execution here.

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Wright Medical Getting Its House Back In Order

AxoGen Offers An Exciting Story At Nosebleed Prices

When the stocks of real companies go up more than 250% in a year, it’s a safe bet that there are at least two factors in play – the company has a great growth story and institutions have caught wind of it. And so it would seem with AxoGen (AXGN), where the company’s products for peripheral nerve repair are legitimately exciting, but where the growth expectations are already quite robust.

AxoGen shares seem to be pricing in a scenario where the company holds close to one-third of its addressable market in 2027 with FCF margins in the mid-20%s. That’s achievable, but it doesn’t leave much room for stumbles or disappointments. I can’t make a value case for AxoGen, but I know there are investors who care more about story and growth, and maybe there’s still some appeal here for that group.

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AxoGen Offers An Exciting Story At Nosebleed Prices

Integra's Transformation Starting To Show Results

Mid-cap med-tech Integra LifeSciences (NASDAQ:IART) has been an odd stock over the years as the company has shifted its focus many times and struggled to generate the sort of revenue growth and margin leverage that the market typically demands from smaller med-techs. With that, the shares have lagged the broader medical device sector over the last decade, as well as larger names like Stryker (NYSE:SYK).

It looks like Integra has hit on a better mix in recent years, though, as revenue growth and margins have improved. While Integra isn't leveraged to the most attractive growth markets, the acquisition of Johnson & Johnson's (NYSE:JNJ) Codman neurosurgery business will improve margins and meaningfully improve the company's overseas sales and distribution capabilities. Although the high teens FCF growth I expect from Integra isn't enough to support an attractive fair value, the company's improving margin outlook argues for a richer multiple and some upside in the shares.

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Integra's Transformation Starting To Show Results

Seeking Alpha: Wright Medical Stumbling Toward Better Days

The share price performance of Wright Medical Group (NASDAQ:WMGI) has continued to languish in the wake of the company's announced intention to merge with Tornier (NASDAQ:TRNX). For what consolation it may bring investors, Wright Medical hasn't been alone here in 2015, as the stocks of other orthopedic players like Stryker (NYSE:SYK), Zimmer (NYSE:ZMH), and Exactech (NASDAQ:EXAC) haven't done particularly well either.

Short-term stock market performance isn't a particularly compelling way to view a stock, but there are other issues that investors need to consider here. While Wright Medical managed to avoid its fourth straight quarterly revenue miss, the company has seen the approval of its Tornier merger delayed by antitrust concerns and the approval of its Augment biologic product delayed by problems with a vendor. Wright Medical remains undervalued on the basis of what it could become in a few years' time, but investors who tend toward the less patient should probably look elsewhere for healthcare investment ideas.

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Wright Medical Stumbling Toward Better Days

Seeking Alpha: Med-Tech Due For More M&A

Buyouts have long been a staple feature of the med-tech landscape. While giants like Johnson & Johnson (JNJ), Medtronic (MDT), and Abbott Labs (ABT) are often knocked (and often unfairly) for their inability to innovate, they do excel at marketing. That creates a pretty steady conveyor belt where smaller, innovative companies create new devices that move the state of the art forward and large companies gobble them up to goose their own growth and leverage their existing production and sales infrastructures.

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Med-Tech Due For More M&A

Seeking Alpha: Stryker's Guidance Sets Up A Solid 2012

'Tis the season for company to pre-announce earnings and it always feels like there are more warnings than positive surprises. Moreover, with the JPMorgan (NYSE: JPM) Healthcare Conference going on, many healthcare companies are apt to be giving the Street a look at both how the end of 2011 went and how 2012 is looking. To that end, Stryker (NYSE: SYK) is shaping up as a solid defensive name for investors looking for healthcare exposure.

The Details Of The Quarter
Stryker's early announcement of fourth quarter were results were largely consistent with what most investors were already expecting … at least in a macro sense. The company announced that reported revenue would be up 11%, just shy of the average estimate of 11.7%, with organic growth up a little more than 4%.

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Stryker's Guidance Sets Up A Solid 2012

Seeking Alpha: Integra LifeSciences Sputters At Year End

When last I wrote on Integra LifeSciences (IART), I was worried about what looked liked slowing momentum in the company's orthopedics business, excessively optimistic guidance, and some issues with the FDA. Both of these concerns fell to earth with a “thud” Thursday night as the company announced a very poor performance for the fourth quarter and a formal warning letter from the FDA concerning its Plainsboro facility.

Bad To Worse In Q4
Integra LifeSciences is hardly alone in seeing weaker trends lately in markets like orthopedics and neurology. Much larger companies like Johnson & Johnson (JNJ), Medtronic (MDT), and Stryker (SYK) have been reporting the same sort of malaise as hospitals and distributors pare down inventory in the face of low patient volumes and a less certain reimbursement environment.

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Integra LifeSciences Sputters At Year End, But Is Still Undervalued

Investopedia: Synovis Has To Bow Out To Get Some Love

Biomaterials and medical tools company Synovis (Nasdaq:SYNO) has almost always been a source of frustration to me as a med-tech analyst. The company's products offer legitimate benefits and improvements over the state of the art, the company generated positive cash flow and management seemed no worse than competent and realistic.

And yet, this company just never got much love or attention. The trading volume was too low to attract sell-side analysts and the company too small to appeal to very many institutional investors. As a result, it takes a buyout by large-cap med-tech titan Baxter (NYSE:BAX) for the company to finally deliver some of its promise to its shareholders.

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Investopedia: Covidien Delivers Again

Maybe Covidien (NYSE:COV) goes overlooked because it doesn't have a hype-growth (or hyper-growth, if you prefer) market like surgical robotics or transcathether heart valves. On the other hand, it also doesn't have a big reliance on stagnant markets like orthopedics, stents, or implantable cardioverter defibrillators to weigh it down. Though Covidien admittedly lacks some pizazz, this continues to be an underrated and under-appreciated med-tech name that could deliver solid returns to a patient investor.

A Respectable Close to the Year  
Although Covidien didn't blow the doors off in its fiscal fourth quarter, its core performance, in a weak healthcare market, nonetheless holds up well against rivals like Johnson & Johnson (NYSE:JNJ), Bard CR (NYSE:BCR), Becton Dickinson (NYSE:BDX) and Stryker (NYSE:SYK). Reported growth of 15% certainly looked awesome, but sizable chunks of that were due to currency and an extra week in the quarter. Strip that away, and organic growth was a bit above 3% - not terrible in this market, but certainly not 15% either.

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Seeking Alpha: Integra Hitting That Same Ortho Wall

There was no shortage of skeptics regarding Integra LifeSciences' (Nasdaq: IART) aggressive build-by-acquisition strategy during the past decade, myself included. To management's credit, while the company has quite a lot of debt for a med-tech, it has emerged as an appealing niche player in attractive markets in orthopedics and neurosurgery. While the company is currently suffering from the same sluggish markets that have stalled out bigger rivals like Johnson & Johnson (NYSE: JNJ), Stryker (NYSE: SYK), and Medtronic (NYSE: MDT), this is an interesting stock to watch for investors who want to go a little deeper than the well-known big-cap names.

Reality Bites Into The Third Quarter
In an orthopedics world where hip, knee, and spine competitors like Biomet, JNJ, Medtronic, Stryker, Zimmer (NYSE: ZMH), and Smith & Nephew (NYSE: SNN) largely seem to be spinning their wheels, Integra had looked pretty good with a growing spine, orthobiologics, and extremities business. Unfortunately, it looks like the ortho malaise is spreading to the extremities.

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Integra Hitting That Same Ortho Wall

NuVasive Stumbles, Investors Get A Concussion

All growth investors really want is a perfect record of unbroken, break-out growth. If companies do not deliver, the consequences are severe. NuVasive (Nasdaq:NUVA) had established itself over the past couple of years as one of the prime medical device growth stocks, at least in the orthopedics space, but now that record means very little and investors are facing a painful fall on Friday. 

The Quarter That Was
NuVasive reported 27% revenue growth in third quarter, delivering about $120 million in sales. Unfortunately, the company hosted a pretty upbeat analyst meeting a couple of weeks before the end of the quarter and it seems probable that the enthusiasm from that meeting had investors expecting more than bottom-of-the-range revenue performance.

Gross margin did slip a bit on an annual and sequential basis, but the company's reported operating income did jump 57% and the operating margin jumped by 150 basis points.

Unfortunately, the company's guidance was very problematic. Management took fourth quarter revenue guidance down by about 10% and to a level that suggests minimal sequential growth. More troubling still, it is starting to look like the company is going to be hard-pressed to meet the old level of growth expectations for 2011, and those analyst revisions could be pretty harsh. (For more, see 7-Hot Medical Device Ideas.)

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http://stocks.investopedia.com/stock-analysis/2010/NuVasive-Stumbles-Investors-Get-A-Concussion-NUVA-SYK-MDT-EW-MASI-VOLC-IART1102.aspx