Growth Under Pressure at Mentor

Mentor Corporation's (MNT) management continues to expect weakness in procedure volume in the U.S. that is believed to be driven by the slowdown in the economy. Earnings growth is expected to be under pressure in the current fiscal year as a result of the growth in operating expenses. We rate the shares a Hold.

The U.S. launch for the company's dermal filler Puragen Plus is expected shortly after approval, anticipated in the fourth quarter of fiscal 2009. Mentor is also developing PurTox for a cosmetic indication and for the treatment of pain associated with adult-onset spasmodic torticollis/cervical dystonia.

Product approvals and introductions from the investment emphasis in research and development are expected to help drive sales higher in the aesthetic medicine market. However, product launches and the expansion of marketing programs are also expected to drive up selling, gross and administrative expenses.

Mentor's body contouring business has been experiencing some softness in sales growth, due to some variability in capital equipment purchasing patterns and we do not expect the business to regain momentum anytime soon.

At its current price of $30.24 per share, MNT is trading at 21x our current fiscal year EPS estimate and roughly 23x calendar 2008 EPS estimate, which is at discount to the group average multiple of roughly 27x. Risks exist in the timing/degree of market penetration of the silicone implants, increased competition, and negative impact from a weak economy. At roughly 24x our calendar 2008 EPS estimate, our price target moves to $32.

Read the full analyst report on MNT