Conmed Downgraded - Analyst Blog

We recently downgraded Conmed Corporation (CNMD) to ‘Underperform’ with a target price of $18 based on a P/E of roughly 14.9x our fiscal 2010 EPS estimate of $1.21. We downgraded the stock based on our lower revenue and earnings per share outlook.

The orthopedic industry is highly susceptible to economic turbulence and Conmed is not an exception. Furthermore, the tremendous competitive pressure and the advent of group purchasing organizations (GPOs) force us to lower both our revenue and earnings per share estimates for fiscal 2010 and 2011.

GPOs act as agents, negotiating on vendor contracts for their members. The current economic climate has bolstered the bargaining power of GPOs thereby, putting pressure on the company’s top line.

However, Conmed reported total revenues of $176.4 million in the first quarter of fiscal 2010, an increase of 7.5% year over year. Excluding a favorable foreign currency translation, net sales increased 2.7% year over year.

Arthroscopy sales increased 13.0% year over year to $72.2 million. Powered Surgical Instruments sales increased 6.7% year over year to $35.0 million. Electrosurgery sales increased 3.1% year over year to $23.1 million.

Single-use and reposable revenues increased 8.9% year over year to $138.3 million. Capital equipment sales increased 2.7% year over year to $38.1 million.

Earnings per share in the first quarter were 28 cents, compared to the Zacks Consensus Estimate of 26 cents and the year-ago earnings of 19 cents.

Conmed is a major medical products manufacturer specializing in surgical instruments and devices. Its main competitors include Stryker Corporation(SYK) and Smith & Nephew (SNN).