We reaffirm our Neutral recommendation for leading medical devices maker C.R. Bard (BCR). Earnings for first-quarter fiscal 2011 beat the Zacks Consensus Estimate by a nickel while profit climbed 9% year over year on the back of healthy contributions from the company’s core vascular business.
The Vascular segment had yet another strong quarter with revenues having grown at a double-digit clip, buoyed by healthy sales from both domestic and international operations, aided by strong contributions from the SenoRx acquisition.
C.R. Bard specializes in medical, surgical, diagnostic and patient care devices. The company’s well-diversified end-markets and vast product portfolio (used in life-saving less invasive surgical procedures) insulate it from fluctuations in any single therapeutic category. C.R. Bard’s resourcefullness and focused innovation are its major competitive advantages.
C.R. Bard has a reasonably strong pipeline with several new product launches (including hernia repair products, ablation system for atrial fibrillation and PICC/ports line extensions) expected to support growth moving forward. The acquisition of medical devices maker SenoRx Inc. has expanded the company’s product portfolio beyond its existing product range meant for ultrasound imaging.
We expect new product flow and an expanded sales force to drive organic revenues growth and help C.R. Bard to meet its sales objective. Moreover, incremental R&D investment should boost pipeline and give way to product innovation/differentiation. The company is also making prudent use of cash in the form of acquisitions and share repurchases.
However, we remain on the sidelines considering heightened competition (especially in soft tissue repair), pricing pressure and an aggressive acquisition strategy, which has inherent integration risk.
C.R. Bard faces a mix of competitors ranging from large manufacturers with multiple business lines like Boston Scientific (BSX) and Johnson & Johnson (JNJ) to smaller manufacturers that offer a limited selection of products like Angiodynamics (ANGO).
Moreover, the pricing environment has been soft for most of the devices offered by the company. Also, higher R&D spending may be a drag on earnings moving forward.
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