Teleflex Incorporated (TFX), a global provider of medical devices used in critical care and surgery, recently won a new agreement with HealthTrust, a healthcare group purchasing organization (:GPO). The agreement will cover the company’s line of ligation products including Horizon, Auto Endo and Hem-o-lok offerings under the well-regarded Weck brand.
The HealthTrust agreement has been effective from Dec 1, 2012. The group purchasing agreement will pool buyers for Teleflex by gaining access to HealthTrust’s 1,400 hospital members.
Earlier this month, Teleflex won two new three-year agreements for its portfolio of surgical instruments with GPO Premier. The agreements will be effective from Feb 1, 2013 through Jan 31, 2016.
All these agreements should enhance Teleflex’s supply chain efficiency and help it achieve supply continuum. The agreements can thereby be expected to augment the company’s top-line on the back of volume growth. Further, Teleflex should be able to gain competitive edge over its peers.
The group purchasing agreements are expected to decrease overhead costs for prospective buyers. Moreover, the contagion of economic problems in Europe has increased the importance of GPO. Notably, Teleflex is already facing rebate in output prices in certain European nations due to GPO. The company has been facing increasing input costs over the past few quarters. Despite a probable hike in costs, we believe that Teleflex might not be able to increase the prices of its products under the group purchasing agreements, which might hamper its profitability.
We remain on the sidelines for Teleflex as well as its peers Covidien plc (COV) and C. R. Bard (BCR), each with a Zacks Rank #3 (Hold). However, we look forward to another peer CareFusion Corporation (CFN), which carries a Zacks Rank #2 (Buy).
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