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On Sep 3, we retained our Neutral recommendation on CR Bard Inc. (BCR - Analyst Report) following its moderate second-quarter results.

Why the Retention?

On Jul 23, CR Bard posted second-quarter 2013 adjusted earnings per share of $1.42, which beat the Zacks Consensus Estimate of $1.38 by 2.90%. Although adjusted earnings declined 12% due to higher investment-related expenses, it exceeded the company’s previously announced guidance of $1.35-$1.39 a share.

Revenues increased 2% (3% at constant exchange rate) on a year-over-year basis to $759.9 million, which surpassed the Zacks Consensus Estimate of $751 million. Sales in the U.S. improved while international revenues were boosted by healthy growth in emerging markets.

CR Bard’s earnings have also managed to beat the Zacks Consensus Estimate in three out of the last four quarters, while meeting the same in one quarter, with an average surprise of 1.77%. However, over the past 30 days, the Zacks Consensus Estimate for 2013 and 2014 has moved down by 0.3% each to $5.97 and $7.63, respectively.

Although delayed, potential benefit from the Gore litigation, along with expansion into emerging markets and aggressive investments in R&D for new-product development, should enable the company to drive growth in the long term. Further, the recent divestment of the EP business and the Medafor acquisition should help the company to streamline its underlying business and access faster growing markets with higher returns.

However, the challenging Med-tech environment may continue to affect BCR’s organic growth going forward. Moreover, government-mandated healthcare reforms in the U.S. have led to a less flexible pricing environment and may pressurize prices across the board.

In addition, the company continues to face procedure volume headwind and competitive pressure in the end markets. Also, product quality-related legal issues which led to a net loss in the second quarter remain an area of concern.

Other Stocks to Consider

BCR has a Zacks Rank #3 (Hold). While we remain on the sidelines regarding CR Bard, other medical stocks that warrant a look include Align Technology (ALGN - Analyst Report), The Cooper Companies (COO - Analyst Report) and McKession (MCK - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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