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Leading manufacturer of medical device solutions and surgical instruments, Symmetry Medical, Inc. (SMA - Analyst Report) recently announced the sale of its U.K. based subsidiary – Clamonta Ltd. The unit was divested to The HLD Corporation Ltd. for approximately $1.3 million (or £0.8 million). Since the announcement of the deal, shares of SMA climbed nearly 10.0% to close at $8.82 yesterday.

Clamonta Ltd. services the Aerospace machining industry. The strategic decision to divest the subsidiary was in sync with SMA’s plans to focus on its core markets and reduce its manufacturing footprint. Post the divestiture, SMA plans to continue serving its Aerospace customers through its Lansing, MI and Sheffield, U.K. facilities.

Unforeseen operational issues at Clamonta Ltd. throughout 2013 impacted the overall profitability of SMA. In 2013, the subsidiary generated revenues of $11.4 million while in the first quarter of 2014, it recorded revenues of $4.4 million. However, Clamonta Ltd. reported a net loss in both the above mentioned periods.

Updated 2014 Outlook

Following the divestiture, all historical financials of SMA will feature under discontinued operations. Accordingly, the company has lowered its revenue guidance to reflect the termination of Clamonta Ltd. which was projected to generate approximately $15 million in 2014 revenues.

For 2014, SMA expects revenues in the band of $393–$403 million as compared to the prior range of $408–$418 million. The present Zacks Consensus Estimate of $405 million lies above the guided range.

SMA anticipates the divestiture to negatively impact 2014 earnings by approximately 16 cents. However, on the brighter side, adjusted earnings per share will likely include a favorable impact to the tune of 2 cents as Clamonta Ltd. was projected to have a negative impact on earnings in full-year 2014.

Adjusted earnings per share, including stock-based compensation, are projected between 44 and 50 cents compared to the earlier range of 42–48 cents. The current Zacks Consensus Estimate of 50 cents per share coincides with the upper end of the updated guidance.

SMA is also assuming a 3 to 4% procedural growth rate in its key orthopedic market as well as a 2 to 3% market growth in its worldwide direct to hospital market.

Zacks Rank

Currently, SMA retains a Zacks Rank #4 (Sell). Some better-ranked stocks in the medical products industry include Cardica Inc. (CRDC - Snapshot Report), Eagle Pharmaceuticals Inc. (EGRX - Snapshot Report) and Mead Johnson Nutrition Company (MJN - Snapshot Report). All these stocks retain a Zack Rank #2 (Buy).

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