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On Nov 28, we retained Greatbatch, Inc. (GB - Analyst Report) at Outperform, following its strong third-quarter 2013 results. Both top as well as bottom line beat the Zacks Consensus Estimate. Moreover, the long-term prospects of this company appear to be bright on the back of new products and strategic initiatives to drive growth and profitability.

Why Outperform?

On Oct 24, Greatbatch’s third-quarter 2013 adjusted earnings per share of 57 cents comfortably beat the Zacks Consensus Estimate of 54 cents. Earnings also exceeded the year-ago adjusted earnings by an impressive margin of 24%, driven by solid organic revenue growth, improved gross margins and lower medical device spending, along with benefits from effective tax rate.

Revenues grew 4% year over year to $167.7 million in the third quarter, marginally surpassing the Zacks Consensus Estimate of $167 million. On a constant currency organic basis, revenues increased 5% in the quarter.

The company delivered positive earnings surprises in the last 4 quarters with an average beat of 7.64%. Following the earnings release, the Zacks Consensus Estimate for 2013 and 2014 increased 1.0% and 0.5% to $2.11 and $2.25, respectively. GB has a Zacks Rank #2 (Buy).

GB is gaining significantly from its strategic realignment initiative to achieve 5% organic growth and transform into a producer of complete medical devices for Original Equipment Manufacturer (OEM) customers from being a supplier of batteries, capacitors, and components used in implantable medical devices (IMDs). We believe that the realignment plan will help management to emphasize on core business investment, as well as develop innovative products by combining the resources of the integrated unit.

Solid growth in the CRM/Neuro along with recovery in the organic orthopedic business should boost revenues going forward. Moreover, partnerships with large OEM companies along with new products and marketing efforts should ensure long-term growth for Greatbatch. Its top customers include leading players such as Medtronic (MDT - Analyst Report), Johnson & Johnson (JNJ - Analyst Report) and St. Jude Medical (STJ - Analyst Report).

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