We are upgrading SurModics Inc. (SRDX) to Outperform from Neutral following its strong showing in the second quarter of fiscal 2011. Our target price on the stock is $18.00.
The company delivered strong results in the second quarter of fiscal 2011 outshining the Zacks Consensus Estimate on both revenues and earnings fronts. Adjusted earnings in the quarter came in at $0.08 per share, well ahead of break-even earnings suggested by the Zacks Consensus Estimate. Adjusted revenues came in at $17.4 million, beating the Zacks Consensus Estimate by $2.4 million.
The impressive showing prompted the company to raise the revenues and earnings guidance for fiscal 2011. SurModics expects to end fiscal 2011 with revenues in the range of $63 million-$68 million, as against the previously forecasted range of $55 million-$63 million. Adjusted earnings per share for fiscal 2011 are projected in the range of $0.13-$0.26. The company was earlier guiding towards a range of a loss of $0.15 to earnings of $0.05.
We too have also raised our earnings estimates for fiscal 2011 and fiscal 2012. We have increased our fiscal 2011 earnings estimate by $0.14 per share to $0.16. This is within the guidance range provided by the company. We have also upped our fiscal 2012 estimates to $0.41 from $0.20. We believe that if the company continues to deliver strong results in the coming quarters then the increased projection will be achieved easily.
Moreover, the efforts made by SurModics to emerge from its below-par performance over the past few quarters also encourage us. We are pleased by its move to explore options regarding the Pharma unit, including its potential sale, as the move will enable it to focus on its core business and enhance shareholder value.
The company has also brought about a change at its helm to revive itself with Gary R. Maharaj taking over as the President and CEO. Maharaj, a former President and CEO of Arizant Inc., which was sold to 3M Co. (MMM) in October 2010, is also a member of the board of directors at SurModics. In another encouraging move, SurModics, headquartered in Eden Prairie, Minnesota, revamped its board of directors.
We note that late last year, SurModics trimmed its work-force by 13% and made certain changes to its organizational structure to streamline operations and increase efficiencies.
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