We reiterate our Neutral recommendation on international orthopedic devices company Wright Medical (WMGI). Its second-quarter fiscal 2011 adjusted earnings per share 2011 (excluding one-time items other than stock-based compensation expense) of 19 cents beat the Zacks Consensus Estimate by a couple of cents.
Net income climbed roughly 27% year over year in the quarter to $6.1 million (or 16 cents a share). Profit included the after-tax impact of roughly $2.4 million in expenditure related to the company’s deferred prosecution agreement (“DPA”) with the United States Attorney's Office for the District of New Jersey (“USAO”).
The USAO had accused Wright Medical, in a May 2011 letter, of breaching material provisions of the DPA. The company is working closely with federal agencies for a resolution, but has not assured a consensual settlement, and the timing and terms for the same.
Revenues rose 4% year over year to $132.5 million, a shade higher than the Zacks Consensus Estimate. Growth across knee and extremity franchises was partly masked by weakness in the hip business. The company backed its sales and earnings guidance for fiscal 2011.
Wright Medical is a global orthopedic devices company specializing in the development and marketing of reconstructive joint devices and bio-orthopedic materials. It is a leader in the U.S. and German markets for foot and ankle surgical products. The company retains its strength in the niche extremities segment.
We feel future revenue growth will be supported by new product (including internally developed and those from acquisitions) launches. During the second quarter, Wright Medical announced the commercial launch of new products for the foot and ankle market including Fusionflex demineralised moldable scaffold and the INBONE II total ankle replacement system.
Moreover, new deals in extremities, Wright Medical’s fastest growing segment, are expected to bolster growth in this business. Within extremities, foot and ankle products are expected to be a major growth driver.
However, our views are moderated by lingering compliance issues and intense competition from larger orthopedic players. Wright Medical competes with much larger players such as Zimmer Holdings (ZMH), Stryker (SYK), Johnson & Johnson’s (JNJ) De Puy and Smith & Nephew (SNN). Moreover, the company remains exposed to pricing/procedure volume headwinds.
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
SMITH & NEPHEW (SNN): Free Stock Analysis Report
STRYKER CORP (SYK): Free Stock Analysis Report
WRIGHT MEDICAL (WMGI): Free Stock Analysis Report
ZIMMER HOLDINGS (ZMH): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment