CONMED: Putting the competition under the knife
An aging population and increased spending on medical care has meant big money for CONMED Corporation (Nasdaq:CNMD).
The Utica, N.Y.-based medical device maker has been around since 1973 when it was known as Consolidated Medical Equipment. Its first product was a disposable ECG monitoring electrode. The company went public in 1987 and in 1989 it acquired Aspen Labs from Bristol-Myers Squibb (NYSE:BMY) to bolster a growing electrosurgery line of products. Today CONMED stands at a market cap of $920 million and derives approximately 60% of its revenue from powered surgical instruments and devices used in the orthopedic surgery market.
The company’s arthroscopy segment, which accounts for nearly 40% of the firm’s revenue, manufactures arthroscopes, tissue repair sets and video imaging systems used in surgery. CONMED’s powered surgical instruments business makes powered saws, drills and related disposable accessories that are used in various surgical procedures. Each of CONMED’s business segments have shown the ability to adapt to changing trends and a push toward disposable instruments. Approximately 75% of the company’s revenue comes from the sale of single-use products.
The company is fresh off of a record quarter. Last month, it reported second-quarter results that included a 34% surge in EPS on a 13.9% rise in sales versus the year-ago quarter. The company benefited from strong growth in its arthroscopy and electrosurgery product lines, which grew 18% and 16.7%, respectively, on a year-over-year basis. CONMED was also able to improve its gross margin percentage and expand sales internationally. This performance has helped propel the company’s stock price. Year to date, shares of CONMED are up 38.47%.
The rise in price of this stock has been a pleasant surprise to one analyst. Back in April, when the company announced its first-quarter results, Mark Mullikin, a senior research analyst for Piper Jaffray (NYSE:PJC), set a price target of $27 for shares of CONMED. “Gross margin of 51.8% was 150 basis points higher than our estimate,” he wrote in a research report. “Favorable foreign exchange tailwinds, along with a mix shift to new, higher margin products, should help maintain this elevated level as we progress through 2008.”
On Thursday, CONMED closed at a price of $32, just below its 52-week high of $32.69.
Looking ahead, two of the biggest challenges for CONMED will be its level of debt and an ultra-competitive market place. At the end of 2007, the company had $220 million of debt outstanding. This figure represented 30% of CONMED’s total capitalization. And in terms of competition, it’s arthroscopy and powered surgical instruments segments will continue to face markets saturated with established heavyweights such as Johnson & Johnson (NYSE:JNJ), Medtronic (NYSE:MDT), Smith & Nephew (NYSE:SNN) and Stryker (NYSE:SYK).
These are not obstacles that cannot be overcome. CONMED has consistently demonstrated an ability to grow over the course of the past 35 years. The trend will continue. Earlier this month, the company received pre-market approval from the FDA for a suture anchor that can be used in hip surgeries. This product is yet another example of the company’s ability to innovate — an ability that will drive growth at CONMED for many quarters to come.
About the Author
Billy Fisher is a certified public accountant and and freelance investment writer whose work has appeared in Investor's Business Daily and The Motley Fool.
Read More
(click a star)
Enter comment: