On Jul 9, we retained Symmetry Medical (SMA) at Neutral, following its first-quarter results. Although both revenues and earnings missed estimates, the company has considerable long-term growth opportunities.
Why the Retention?
Symmetry posted a disappointing first-quarter 2013 with adjusted earnings of 4 cents a share, which missed the Zacks Consensus Estimate of 15 cents by a large margin of 73.3%. It was also lower than the year-ago adjusted EPS by 42.8%.
Revenues dropped 2% year over year to $98.9 million in the first quarter, on account of a double-digit decline in Symmetry Surgical sales, offset by decent gains in the Original Equipment Manufacturer (“OEM”) Solutions business. Revenues were lower than the Zacks Consensus Estimate of $106 million.
The company’s earnings have failed to beat the Zacks Consensus Estimates in 3 out of the last 4 quarters with an average negative surprise of 21.95%. Following the earnings release, the Zacks Consensus Estimate for 2013 plunged 49.3% to 37 cents per share and declined 7.2% to 90 cents per share for 2014.
Warsaw, IN-based Symmetry’s core OEM business is gradually showing signs of stability on the back of new products, which is encouraging.
However, Symmetry Surgical is facing sales disruptions associated with the integration of Codman surgical instruments business. This disappointing performance prompted management to lower its fiscal outlook. Symmetry needs to resolve its integration issues to avoid wastage of resources. However, we believe that long-term prospects of this business are still intact.
Moreover, uncertainty related to growth in global orthopedic procedures as well as a tight capital spending environment is affecting the business. The company’s high level of indebtedness along with currency fluctuations remain areas of concern.
Other Stocks to Consider
Medical products companies such as Resmed (RMD), Hanger (HGR) and Edwards Lifesciences (EW) warrant a look. While Resmed carries a Zacks Rank #1 (Strong Buy), the other 2 stocks carry a Zacks Rank #2 (Buy).
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