On Nov 27, we retained Symmetry Medical, Inc. (SMA) at Neutral, following its mixed third-quarter 2013 results. Although the company is facing several headwinds in the near-term, the company has considerable long-term growth opportunities.
Why the Retention?
On Oct 31, SMA posted third-quarter adjusted earnings of 7 cents, beating the Zacks Consensus Estimate by 3 cents. However, earnings were significantly lower than the year-ago adjusted earnings of 16 cents per share. The decline resulted from soft revenues as well as various internal issues.
Revenues declined 3% year over year to $98.0 million, falling short of the Zacks Consensus Estimate of $101 million. Weak sales in both the Original Equipment Manufacturer (:OEM) Solutions and the Symmetry Surgical businesses led to the downfall.
The company’s earnings have failed to beat the Zacks Consensus Estimates in 2 out of the last 4 quarters with an average negative surprise of 10.16%. Following the earnings release, the Zacks Consensus Estimate for 2013 increased 8% to 27 cents per share but the same for 2014 inched down 1.9% to 53 cents.
We believe that long-term prospects of Symmetry are still intact. New products, harmonized sales force and eventual accretion from acquired businesses should bolster the company’s growth going forward.
However, multiple internal as well as external issues led to a sudden sequential drop in revenues from the core OEM business. Moreover, the high-margin Surgical business continues to face headwinds from integration of the Codman business. All these factors along with tempered gross margin have led management to significantly lower its outlook for 2013.
Other Stocks to Consider
Investors interested in the medical products industry may consider stocks like NuVasive, Inc. (NUVA), Hill-Rom Holdings, Inc. (HRC) and Boston Scientific Corporation (BSX). While NUVA and HRC carries a Zacks Rank #1 (Strong Buy), BSX carries a Zacks Rank #2 (Buy).