Mindray Medical International Slips to Buy

Zacks Equity Research

On Mar 5, 2014, Zacks Investment Research downgraded Mindray Medical International Ltd (MR) by a notch to a Zacks Rank #2 (Buy).

Why the Downgrade?

Mindray Medical International Limited (MR), the Chinese medical device maker, reported stronger-than-expected fourth-quarter 2013 results on March 3. However, increasing leverage ratio, decreasing gross and operating margins, as well as a weak domestic market disappointed investors as share price dropped 8.3% since the earnings release.

Mindray’s net revenues grew 16.5% to $368.4 million, surpassing the Zacks Consensus Estimate of $348 million. While international revenues grew 23.8%, revenues from China grew at a slower pace of 8.3% due to delays in purchasing activities.

Mindray expects Western Europe and certain other emerging markets to continue to perform well and contribute to top-line growth in 2014. However, a sluggish market in China remains a matter of concern for the company’s earnings going forward.

As of Dec 31, 2013, Mindray’s long-term debt-to-equity ratio was 0.15 compared with 0.04 as of Dec 31, 2012. The stark increase in this ratio within a year, leading to a 55.0% increase in interest expense year over year, is likely to disappoint investors.

Adjusted gross profit rose 12.6% to $207.8 million but gross margin declined 200 basis points (bps) to 56.4% in the quarter due to increased cost of revenues. Adjusted operating profit went up 14.1% to $72.0 million but operating margin dipped 50 bps to 19.5% due to increased selling, general and administrative expenses and higher research and development expenses.

Subsequently, the company has seen a negative trend in earnings estimate revisions in the past 7 days. For the current quarter, one estimate moved south in the past 7 days, with no upward revision in the same time frame. This trend has caused the consensus estimate to move down by 2 cents to its current level of 38 cents over a week.

Other Stocks to Consider

Other stocks in the medical instruments industry with a favorable Zacks Ranks include Cynosure Inc. (CYNO), Natus Medical Inc. (BABY) and Syneron Med Ltd. (ELOS). All the three stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on MR
Read the Full Research Report on BABY
Read the Full Research Report on ELOS
Read the Full Research Report on CYNO

Zacks Investment Research