Wright Medical Gets Its Long-Awaited Bid From A Somewhat Surprising Buyer

Investors have long assumed that Wright Medical (WMGI) was a “when, not if” buyout target in the med-tech space. Indeed, any time I’ve written anything even remotely critical of the company over the years, there’s been at least one comment of, “it doesn’t matter … (CEO) Bob Palmisano” is just going to sell the company anyway.” These expectations came to fruition on Monday with the $30.75/share, $5.4 billion bid for the company from ortho giant Stryker (SYK).

I’ll admit I’m a little surprised that Stryker stepped up for this deal (for reasons I’ll explain later), but I can also see the logic. For Stryker, this is a somewhat pricey deal with sound long-term strategic positives. For Wright Medical, this is a graceful exit for a company that has continued to struggle with its sales execution in the lower extremity space despite a strong product portfolio and a strong upper extremity business.

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Wright Medical Gets Its Long-Awaited Bid From A Somewhat Surprising Buyer

Groundhog Day At Wright Medical, As The Lower Extremity Business Disappoints

“History doesn’t repeat itself, but it often rhymes,” Mark Twain (disputed)

Wright Medical’s (WMGI) problems with its lower extremity business in the second quarter of 2019 aren’t the same as the company’s prior issues in that business, but the Street doesn’t care. The fact remains that while Wright Medical still offers comparatively attractive growth rates and operating leverage within the med-tech space, the company has shown itself to be unreliable and unpredictable, whatever the reason(s) may be, and investors hate paying premiums for unreliable performance.

This is probably the time you want to consider these shares, but it takes a patient contrarian viewpoint to do so. Wright Medical is still on its way toward gaining the top spot in shoulders, and despite the issues in the lower extremity business, the company still has a strong portfolio of next-gen technologies and products. Add in the prospects for meaningful inflection in profits over the next three to five years, and this is an interesting name to consider on this pullback even with the threat of increased competition from companies like Stryker (SYK) and Zimmer Biomet (ZBH).

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Groundhog Day At Wright Medical, As The Lower Extremity Business Disappoints

Wright Medical Still Walking A Tightrope, But Growth Should Pick Up

Wright Medical (WMGI) has long been a challenging med-tech investment story. On the positive side, the company has been a share gainer in shoulders, still holds a strong portfolio (and market position) in foot/ankle, and is leveraged to an underpenetrated market that should support high single-digit revenue growth for some time to come. On the other hand, sales execution has been inconsistent at best, and the company is seeing renewed competitive vigor from rivals like Integra (IART) and Stryker (SYK).

On balance, I still think there’s upside in these shares from here, but management must execute on a consistent and reliable basis to build real long-term value for shareholders, and the jury is still out on whether they’re up to the task.

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Wright Medical Still Walking A Tightrope, But Growth Should Pick Up

Stryker Restores Its Growth Cred In A Big Way

Even though Stryker (SYK) had built an exceptional growth record, the shares had nevertheless underperformed going into the fourth quarter. I attribute that underperformance to worries about the company’s ability to maintain that impressive growth rate, with some investors choosing to view the supposed overtures toward Boston Scientific (BSX) as a sign of internal lack of confidence at Stryker, not to mention concerns about renewed vigor at rivals like Zimmer Biomet (ZBH). With strong fourth quarter results, and robust guidance for 2019, though, it seems like those concerns are at least momentarily moved to the back burner.

Stryker remains difficult to value, as I do believe the company’s high-quality growth deserves a premium, but arguably not that much of a premium. Healthcare tends to outperform later in the economic cycle and Stryker has a lot going on for it in 2019, but it’s tough for me to want to chase the shares around $180.

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Stryker Restores Its Growth Cred In A Big Way

Wright Medical Improving, But At A Choppy Pace

Wright Medical’s (WMGI) deal for Tornier was well-timed – not because it has driven amazing synergies by combining strong lower and upper orthopedic extremity franchises but because the growth in Tornier’s strong shoulder product line-up has offset surprising and disappointing weakness in Wright’s core lower extremity business. It looks there are some signs of life in the lower extremity business, though, and ongoing maturation of the expanded sales force and new product introductions should drive better results throughout the year.

Wright Medical shares look a little undervalued now, but the company’s performance hasn’t really built up much trust with investors. The potential FDA approval of an injectable form of Augment could still be on the way, and Wright still has M&A takeout potential, but inconsistent performance has been the rule for here for a little while.

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Wright Medical Improving, But At A Choppy Pace

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

Wright Medical Checking The Boxes

Investors often seem to get bored with the actual execution of business plans, and I think that's at least partly responsible for the ongoing weakness in Wright Medical (NASDAQ:WMGI) shares. It's also been a weak stretch since early August for many of the company's peers, with Integra (NASDAQ:IART) and Zimmer Biomet (NYSE:ZBH) down as well, and Stryker (NYSE:SYK) just barely up.

Wright Medical continues to have a strong position in one of the fastest-growing segments of medical devices, and the company's Augment biologic has significant growth potential from here. The company has also largely tied up its hip implant litigation and at a cost that was within the prior bounds established by management.

Management has also been delivering successfully against its merger synergy targets, and I believe the company is on track for strong growth over the next ten years as new products drive more adoption of upper and lower extremity procedures. With a fair value in the mid-$20s, Wright Medical shares still offer worthwhile upside.

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Wright Medical Checking The Boxes

Good Execution At Wright Medical, And Risks May Be Fenced In Now

For a company that had a brief run of adverse developments, Wright Medical's (NASDAQ:WMGI) management seems to have responded effectively and quickly. Sales momentum is good, the integration with Tornier is going well, new products can continue to drive above-market growth, and there are strong indications that Augment is a winning product. Management has also moved to raise cash on relatively benign terms and seems to have made progress on settling its legacy metal-on-metal litigation.

With the improvement in the business and the apparent/potential capping of litigation and financing risk, my fair value estimate for the company moves into the mid-$20s. That's not impressive upside I'll admit, but there is still room for Wright Medical to outperform on revenue (particularly with its recently-launched products) and drive better/faster margin leverage. I'd also note that med-tech companies with the growth/margin profile that Wright Medical should have in 2017 and beyond often get 4x to 5x revenue multiples - suggesting potential upside into the high $20s and $30s.

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Good Execution At Wright Medical, And Risks May Be Fenced In Now

Seeking Alpha: Good Performance Helps Ease Some Of The Tension At Wright Medical

Wall Street hates uncertainty and there are still a lot of unknowns at Wright Medical (NASDAQ:WMGI). The full cost of the company's hip litigation has yet to be determined and there are still outstanding questions regarding the adoption of the Augment biologic product, competition from the likes of Stryker (NYSE:SYK), and management's ability to successfully integrate Tornier and become a strong extremity-focused specialty orthopedics company.

Good performance can help ease some of those concerns, and Wright Medical's first quarter results were good. There's still an above-average level of skepticism regarding smaller med-tech in the market, and that keeps Wright Medical shares priced at a discount. Given the growth prospects for the existing product portfolio and the opportunities to leverage further product development, these shares are worth a look from more aggressive investors.

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Good Performance Helps Ease Some Of The Tension At Wright Medical

Seeking Alpha: Wright Medical Has To Execute Against A Promising Backdrop

It's been a busy few months for Wright Medical (NASDAQ:WMGI). The company completed its merger with Tornier, creating a new entity with a strong share in the fast-growing orthopedic extremities sub-sector. Wright Medical also managed to secure FDA approval for its long-awaited Augment biological, a product that could be game changer with multi-hundred million dollar sales potential.

Now comes the harder, and decidedly less glamorous, part - execution. Wright Medical will have to deal with Johnson & Johnson (NYSE:JNJ), Stryker (NYSE:SYK), and Zimmer Biomet (NYSE:ZBH) on a daily basis, while also integrating the sales forces and ensuring a smooth transition into a blended entity. The high-single digit market growth of upper and lower extremities makes this a potentially strong multi-year growth story, but Wall Street won't be forgiving if the sales growth and cost synergies don't materialize.

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Wright Medical Has To Execute Against A Promising Backdrop

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: With The Tornier Deal On Track, Wright Medical Will Be Busy

Investors haven't been all that enthusiastic about Wright Medical (NASDAQ:WMGI) since its late October announcement of a merger with Tornier (NASDAQ:TRNX) and an approval letter from the FDA for its Augment biological product. The shares have fallen almost 20% since then, as I would imagine some investors who had held Wright Medical in anticipation of a favorable Augment outcome and/or a bid from a larger med-tech company might have decided to call it a day.

To be sure, Wright Medical's management is putting a lot on its plate. Integrating the two businesses is going to take quite a bit of energy and launching Augment will demand a high level of sales execution - it has all the hallmarks of a great product, but it won't sell itself. If Wright Medical can successfully meld the two businesses, deliver on the multi-hundred million dollar promise of Augment, and drive greater leverage in manufacturing, sales, and distribution, a fair value above $40 is possible. If management stumbles, or if the extremities market slows, the market will not be forgiving.

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With The Tornier Deal On Track, Wright Medical Will Be Busy

Seeking Alpha: Did Wright Medical Make The Right Move?

Four months ago, I fretted that Stryker's (NYSE:SYK) acquisition of SBi reduced the pool of eligible buyers to acquire Wright Medical Group (NASDAQ:WMGI) and/or Tornier (NASDAQ:TRNX). A lot of bullishness on these companies was based on their attractiveness as M&A targets for larger ortho companies, but the two companies have instead decided to come together to create a leading enterprise in the fast-growing extremities segment.

I have mixed feelings on this move as a Wright Medical Group shareholder. Wright Medical's somewhat disappointing third quarter sales result suggests that there's still more self-improvement to be done and Tornier has been working through sales restructuring efforts of its own. That said, Wright Medical CEO Bob Palmisano is a proven leader in the med-tech space and the prospects of a company with leading technology in both upper and lower extremities is appealing, not to mention the fact that the impending approval of Augment brings hundreds of millions of potential revenue into play.

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Did Wright Medical Make The Right Move?

Seeking Alpha: Wright Medical, Wrong Market

This isn't a particularly healthy environment for smaller med-techs, and Wright Medical Group (NASDAQ:WMGI) is paying the price for that sector weakness. There wasn't anything particularly wrong with Wright Medical's second quarter report, and the company continues to perform exceptionally well in the fast-growing extremities market, but there was nothing new to push analysts or investors to a more positive outlook. With market share growth potential in lower extremities, an upcoming FDA decision on Augment, and the balance sheet flexibility to do deals, there are still good reasons to hold Wright Medical, but the discount to fair value doesn't scream "must buy" right now.

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Wright Medical, Wrong Market

Seeking Alpha: Wright Medical And Tornier See A Desirable Partner Choose Another

It may be a little extreme to diagnose the med-tech market with buyout fever, but it's definitely a frequent talking point - particularly in the case of orthopedic extremity companies Wright Medical Group (WMGI) and Tornier (TRNX). While it may be wise advise not to own stocks just for their takeout potential, the reality is that there is a widespread expectation that major orthopedics players will look to these companies as a way of adding some extra growth (extremities markets are growing at double-digits, and likely to continue to do so for several years) and rounding out their product offerings.

A funny thing happened on the way to buyout bliss, though. Stryker (SYK), a particularly acquisitive company in the med-tech space and an ortho player with a glaring lack of extremity exposure, went and bought somebody else - announcing on Monday that it had reached an agreement to acquire privately-held Small Bone Innovations (or SBi). Stryker's move doesn't end the party for Wright Medical or Tornier, but it does cut the list of potential buyers.

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Wright Medical And Tornier See A Desirable Partner Choose Another

Seeking Alpha: A Step In The Right Direction For Tornier

I've never been particularly fond of orthopedic extremity specialist Tornier (TRNX), but even I wouldn't have expected the wild ride these shares have been on over the past year. Management's decision to shift its sales/distribution strategy has introduced a lot of noise into quarterly earnings and I believe the shares have also gotten caught up in the sell-off in riskier healthcare names. Tornier's business is still pretty messy, but the company has a very good shoulder franchise and extremities could be the next area of consolidation in the device space.

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A Step In The Right Direction For Tornier

Seeking Alpha: Wright Medical Continuing To Gain Share In A Growth Market

While Wright Medical (WMGI) has gotten caught up in the same sell-off that has hit many other small-cap, med-tech stocks, the underlying performance of the business continues to improve. Wright Medical is outgrowing the lower extremities market, and still has balance sheet flexibility to add products or distribution in areas like extremity devices/tools and biologics. Even with the decline in the share price, this is not a cheap name, but it does offer above-average scarcity value in an increasingly acquisitive med-tech market.

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Wright Medical Continuing To Gain Share In A Growth Market

Seeking Alpha: Wright Medical Has The Right Stuff, But Isn't Cheap

Extremities remain a popular growth market within orthopedics and med-tech, and that has kept Wright Medical Group (WMGI) a pretty popular stock. With mostly solid fourth quarter results and guidance, and growing expectations for more M&A in the space, I don't think Wall Street is in a hurry to jump off this name just yet. The valuation doesn't really look a huge bargain, though, so investors buying into Wright Medical should realize that any interruptions in growth could bring swift and severe punishment for the market.

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Wright Medical Has The Right Stuff, But Isn't Cheap

Seeking Alpha: Amidst A Mess, Wright Medical's Extremity Business Is Strong

Orthopedic extremities specialist Wright Medical Group (WMGI) is going through one of those stretches where everything looks like a mess. The company is still navigating through the Augment FDA rejection, while also selling its major joint reconstruction business and trying to improve the sales and efficiency of the extremities operation.

For all of the noise, though, this is a company with growing share in a fast-growing niche of the orthopedics market and one with ongoing improvements in profitability as well. These shares may not pop out immediately as being particularly undervalued, but between the growth, profit improvement, and M&A possibilities, I continue to believe that Wright Medical shares can head higher from here.

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Amidst A Mess, Wright Medical's Extremity Business Is Strong

Seeking Alpha: FDA Kicks Wright Medical In The Groin - What Now?

There are days when the news that comes out of the stock market makes you want to rip the router out of the wall and just forget about stocks for a couple of days. Thursday, August 8th was one of those days as the FDA delivered a sharp kick to the collective groins of Wright Medical (WMGI) shareholders with a nearly impossible-to-justify rejection of the company's application for the Augment orthobiologic product.

If there was any good news, and that's a big "if", it was that most analysts were not fully incorporating Augment into their numbers for Wright Medical. Consequently, the rejection is not devastating from a numbers perspective. Moreover, it's still at least theoretically possible that the company can find a way to get this product on the market eventually, where it could still be a multi-hundred million dollar product. For now, though, investors would do well to think about Augment on par with getting included in the will of a wealthy uncle you didn't even know you had - the FDA has made it clear that that Augment will reach the U.S. market more or less over its dead body.

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FDA Kicks Wright Medical In The Groin - What Now?