SurModics Upped to Outperform

We recently upgraded SurModics Inc. (SRDX - Analyst Report) to Outperform from Neutral following its impressive showing in the fourth quarter of fiscal 2011 (ended September 30, 2011).

Adjusted earnings in the final quarter of fiscal 2011 came in at $0.06 per share, as opposed to the year-ago loss of $0.05. The impressive performance in the fourth quarter of fiscal 2011 was primarily attributable to higher revenues. Adjusted revenues climbed 10.3% year over year to $17.1 million. (Read our full coverage of the earnings report at: SurModics Beats Estimates).

Moreover, we are pleased with SurModics’ agreement to sell its Pharmaceuticals unit which, apart from strengthening its balance sheet, will allow it to focus on its core businesses. In early November 2011, Surmodics announced that it has entered into a definitive agreement to sell the assets of the Pharmaceuticals division to Germany’s Evonik Industries AG for $30 million cash. The deal is expected to be completed by the end of this month. The company’s shares reacted favorably to the news.

We note that SurModics has taken a number of steps following its disappointing showing in fiscal 2010. In August 2011, with a view to optimizing its resources and maximizing long-term growth potential, SurModics announced that it will its trim work-force by 9%. SurModics trimmed its work-force by 13% and made certain changes to its organizational structure in October 2010 too.

Moreover, following the disappointing performance in fiscal 2010, SurModics revamped its board of directors and also brought about a change at its helm, with the appointment of a new CEO, Gary R. Maharaj. The move is paying dividends as can be seen from the improved performance delivered by SurModics in fiscal 2011. We note that Maharaj is the former President and CEO of Arizant Inc., which was sold to 3M Co. (MMM - Analyst Report) in October 2010.

We believe that the stock will continue to perform well in the coming quarters and see the current share price as an attractive entry point for long-term investors.

Read the full analyst report on SRDX

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