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Rising earnings estimates on the back of solid third quarter results, including a 4% earnings surprise, helped Teleflex Incorporated (TFX - Snapshot Report) attain a Zacks #1 Rank (Strong Buy) on November 3. Moreover, this medical devices company has delivered positive earnings surprises in four of the last five quarters with an average beat of 6.74%.
With a decent year-to-date return of 17.9%, an updated outlook for 2012 and a history of beating quarterly earnings estimates, this stock offers an attractive investment opportunity.
The Rank Drivers
Several factors such as strong third quarter, raised guidance, portfolio expansion, acquisitions synergistic to product line and strategic initiatives to streamline its operations – are the primary rank drivers for the stock.
On October 31, Teleflex reported adjusted earnings per share of $1.04. It easily beat the corresponding Zacks Consensus Estimate of $1.00 per share. The company witnessed 6.2% year-over-year sales growth (at constant exchange rate) to gross revenues of $368.1 million in the quarter. However, revenues narrowly missed the Zacks Consensus Estimate of $371 million.
Based on the strong results for the most recent quarter, Teleflex updated its guidance for 2012. The company now expects constant currency sales growth in the range of 6% to 7% compared with the earlier range of 4% to 6%. The company envisages adjusted earnings per share in the band of $4.35 and $4.40 compared with the prior guidance of $4.25 and $4.45. This implies year-over-year earnings growth of 14%-15%.
Teleflex continues to expand its product portfolio via innovation and acquisitions. It has closed four acquisitions year-to-date to enhance its Critical Care, Cardiac Care and Surgical Care segments. The twin acquisitions of Willemstad, Netherlands-based LMA International N.V. and LMA’s laryngeal mask supraglottic airway business from Intavent Direct Limited provide the company with an extensive anesthesia and airway management portfolio.
In an effort to enhance its portfolio, Teleflex has launched many offerings in the recent past. Earlier this month, the U.S. Food and Drug Administration (FDA) granted 510(k) clearance to its line of Weck reusable obturators which complement the Weck Vista line of bladeless laparoscopic access ports. The company recently unveiled its complete Weck Access line. Teleflex also launched its Arrow FlexBlock continuous peripheral nerve block catheter to annex its market-dominating line of Arrow StimuCath continuous peripheral nerve block catheters.
The recent divestiture of its OEM Orthopedic division will allow Teleflex to leap on the growth trajectory. The divestment is further expected to aid the company’s strategy of new product introduction, and investment in innovative technologies.
Estimates Inch Up
Teleflex’s solid performance in the third quarter and the raised 2012 guidance encouraged 8 upward estimate revisions in 30 days. With this, the Zacks Consensus Estimate for 2012 improved 0.7% to $4.39 per share. The current estimate implies year-over-year growth of 11.74%.
For 2013, 7 out of 8 estimates were revised higher over the same time frame, raising the Zacks Consensus Estimate by 3.8% to $4.86 per share, implying year-over-year growth of 10.62%.
Valuation of Teleflex looks reasonable compared to its peers by most metrics. Based on 2012 earnings estimates, the company is trading at a price-to-earnings (P/E) ratio of 15.6x, a nominal discount of 9.1% to the peer group average of 17.02x. Moreover, the price-to-book ratio of 1.6x is at a substantial discount of 163.1% to the peer group average of 4.21x.
The trailing 12-month return-on-equity (ROE) ratio of the company stood at 9.8% compared with 16.5% of the peer group average.
About the Company
Based in Limerick, Pennsylvania, Teleflex is a provider of specialized medical devices used in surgical and critical care settings. Over the last few years, the company has divested its holdings in cargo containers and cargo systems (part of the erstwhile aerospace division of the company) besides selling off its marine operations. The company now sells its medical devices in over 130 nations. It has a market cap of about $2.7 billion.
The market Teleflex serves is highly competitive with the presence of well-capitalized peers like Covidien (COV - Analyst Report), C.R. Bard (BCR - Analyst Report) and CareFusion (CFN - Analyst Report).