We are upgrading SurModics Inc. (SRDX) to Outperform from Neutral following its strong showing in the second quarter of fiscal 2011. Adjusted earnings in the quarter came in at $0.08 per share, well ahead of break-even earnings suggested by the Zacks Consensus Estimate.
Following the strong showing, the company raised its revenues and earnings projections for fiscal 2011. We have also raised our earnings estimates for fiscal 2011 and fiscal 2012. Our fiscal 2011 earnings estimates are within the company's projected range.
The efforts made by the company to revive itself after delivering below-par results in the past few quarters encourage us. Over the last five years, SurModics shares have traded in a range of 14.3x to 65.8x. Our target price of $18.00 is based on 43.9x our fiscal 2012 EPS estimate of $0.41.
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