We reiterate our Neutral rating on Symmetry Medical (SMA), an instrument supplier to orthopedic devices makers. Earnings for the fourth-quarter fiscal 2010 trailed the Zacks Consensus Estimate by a couple of cents while profit skyrocketed seven-fold year over year riding on a solid double-digit growth in revenues.
Revenues cruised roughly 26% year over year in the quarter, meeting the Zacks Consensus Estimate. Growth was boosted by higher demand across the Indiana-based company’s orthopedic implants and medical devices franchises. Surgical instruments and orthopedic implants businesses grew 32% and 6%, respectively.
Healthy revenue growth coupled with improved manufacturing efficiency supported margin expansion in the quarter. Symmetry’s 2011 guidance were mostly in line with the Zacks Consensus Estimates. The company expects sales to grow in-line to modestly faster than the orthopedic market on the back of market share gains and increased business diversification.
Symmetry is the largest OEM provider of orthopedic implants and instruments to orthopedic devices manufacturers. The company has created a distinct competitive niche in the orthopedic devices market with its “Total Solutions Approach”, providing a substantial growth opportunity.
Most of Symmetry’s customers are expanding outsourcing, realizing the benefits of a “One-stop shop” solution that allows them to focus their efforts on marketing and R&D.
Symmetry Medical has adopted a three-pronged strategy to tackle the economic challenges by preserving cash, developing an extensive supply chain and focusing on bottom line improvement. Moreover, the company has diversified its offerings into areas outside of orthopedics, such as dental, osteobiologic and endoscopy.
However, Symmetry Medical still faces price and procedure volume headwinds in the orthopedic space. Also, the company’s high spending may continue to be a drag on its bottom line. Moreover, it depends heavily on acquisitions, which may be difficult to fund considering the soft economic backdrop.
Nevertheless, Symmetry Medical is poised to benefit from higher demand for its solutions moving forward as its major customers, including Johnson & Johnson’s (JNJ) DePuy, Stryker (SYK) and Zimmer Holdings (ZMH), ramp up their spending on orthopedic instruments and accelerates product launches. Our recommendation is backed by a short-term Zacks #3 Rank (Hold).
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