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On Nov 25, we reiterated our Neutral recommendation on CONMED Corporation (CNMD - Analyst Report) following its dismal third-quarter 2013 results. Although the company is facing severe headwinds due to a soft capital spending environment in the global market, new products are expected to salvage the company’s dwindling top-line growth in the longer term.

Why the Retention?

CONMED reported third-quarter 2013 adjusted earnings per share of 40 cents, which missed the Zacks Consensus Estimate by a penny and were lower than the year-ago earnings of 43 cents by 7%. Soft revenues coupled with the impact of the medical device excise tax dampened bottom-line growth.

Revenues in the quarter decreased 1.4% to $179.3 million, missing the Zacks Consensus Estimate of $187 million. The downfall resulted from weaker sales of capital equipment (down 11.9% year over year), specifically in the surgical visualization and powered instrument businesses.

Management reduced its outlook for the rest of the year in anticipation of a difficult capital spending environment in the U.S. as well as in other nations. However, based on solid sales of single-use surgical devices in the first nine months of 2013, CONMED is confident that surgical procedures will continue to improve globally.

Revenue guidance has been lowered to the range of $754–$759 million for full-year 2013 from the earlier guided range of $770–$775 million. Moreover, the forecast for 2013 adjusted earnings per share has been reduced to $1.75–$1.80 from the prior guidance of $1.80–$1.85.

Following the release of the quarterly results, the Zacks Consensus Estimates for 2013 and 2014 declined 2.7% and 6.8% to $1.77 and $1.91 per share, respectively.

However, new pipeline product launches in early 2014 should boost sales in the near future. The Altrus product is being considered as the main growth driver for the company. Further, ongoing consolidation and restructuring activities will result in savings. Moreover, we note that the company is also leveraging investor return through share repurchase and dividend hikes.

Other Stocks to Consider

Investors interested in the medical/dental supply industry may consider stocks like Align Technology (ALGN - Analyst Report), McKesson Corporation (MCK - Analyst Report), and Merit Medical Systems, Inc. (MMSI - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).
 

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