Shares of SurModics Inc. (SRDX) have been on an upswing since reporting a solid fiscal third quarter in early August, and recently hit its 52-week high of $22.11 on October 3. With a year-to-date return of more than 49%, a strong financial position and improving fundamentals, this Zacks #2 Rank (Buy) provider of drug delivery and surface modification technology looks like a good momentum pick.
Solid 3Q and Upbeat Guidance
On August 1, SurModics reported fiscal third-quarter adjusted earnings per share of 17 cents, beating the Zacks Consensus Estimate by nearly 31% and the year-ago earnings by more than 40%. Adjusted revenues jumped 17.5% year over year to $13.7 million, surpassing the Zacks Consensus Estimate of $12 million.
Revenues on a reported basis (including special items) were up 7.4% to approximately $14 million, due to increased sales from vitro diagnostics and hydrophilic coatings.
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Encouraged by the strong performance, SurModics raised its forecast for fiscal 2012 to between 56 cents and 59 cents per share on revenues of $51 million to $52 million. The previous guidance had earnings between 45 cents and 53 cents on revenues of $47 million – $51 million.
Earnings Momentum on the Rise
Over the last 90 days, the Zacks Consensus Estimate for fiscal 2012 jumped 17.6% to 60 cents, representing year-over-year improvement of 88.3%. For fiscal 2013, the Zacks Consensus Estimate has increased 28.6% to 81 cents over the same time period, implying year-over-year growth of 33.6%.
Mixed Valuation
On a price-to-book (P/B) basis, shares are trading at 2.55x, compared with the peer group average of 1.98x. Also, the company has a price-to-sales (P/S) ratio of 5.76, a 182.4% premium to the peer group average of 2.04.
However, on a forward P/E basis, shares trade at approximately 27.0x, a discount to the peer group average of 33.20x. Also, the company has a trailing 12-month return on equity (ROE) of 5.8%, which is above its peer group average of 5.4%. This implies that the company reinvests its earnings more efficiently than its peers.
A Look at the Chart
SurModics took a number of steps to increase efficiencies, including trimming its work-force and appointing a new CEO. Moreover, the company’s move to sell its Pharmaceutical unit to focus on its core business is a prudent move.
The chart below shows that the stock has been consistently trading above both the 200-day and 50-day moving averages since early August 2012. Volume is fairly strong, averaging roughly 130K daily. The stock delivered a year to date return of 49.7%, outperforming the S&P 500’s return of 13.6%.
SurModics, formerly known Bio-Metric Systems, Inc, was founded in 1979 and is headquartered in Eden Prairie, Minnesota. The company, a provider of surface modification and drug delivery technologies to the healthcare industry, has a market cap of $313.36 million. Until fiscal 2011, SurModics operated through three business units: Medical Devices, Pharmaceuticals and In Vitro Diagnostics. However, in November 2011, SurModics sold the assets of the Pharmaceuticals division to Germany’s Evonik Industries AG. Since the first quarter of fiscal 2012, SurModics reports through two divisions – Medical Devices and In Vitro Diagnostics.
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