Bear of the Day: Integra LifeSciences (IART)


June 03, 2013 |

I look at a lot of medical and healthcare stocks because as an investor-trader with time frames of one month to one decade, the future of medicine is where some of the biggest opportunities are.

And even though two Zacks industries covering over 250 "biopharma" companies have led the market advance this year, there are definitely some underperformers in these groups as well.

Integra LifeSciences (IART - Free Report) is a $1 billion medical device and implant company that has been a Zacks #4 Rank (Sell) since early January when it was trading above $40.

Then after revealing a series of product recalls in April, the stock fell from $38 to $31. But it made quite a bounce in May even in the face of continued analyst downgrades to its earnings outlook, getting all the way back to $38 to "fill the gap" as chartists like to say.

Recall Setback

Integra makes specialized products for numerous types of surgical procedures, from extremity and spinal reconstruction to major burn treatment and neurosurgeries.

On April 10, the company initiated a voluntary recall of some of its products manufactured during Dec 2010-May 2011 and Nov 2012-Mar 2013 at its Anyasco, Puerto Rico facility.

The recall was announced as the company detected that certain lots of offerings under DuraGen, NeuraWrap, NeuraGen and other families of products had slipped the quality standards due to deviations from an approved production process.

Earnings Not As Bad, But Guidance A Concern

Following the recall, Integra warned that first-quarter revenues would be lower by roughly $8-$11 million compared with prior expectations in the range of $194 million to $197 million. They also guided EPS lower in a range of 30 to 40 cents from the Zacks Consensus of 48 cents.

On May 2, the company reported adjusted EPS of 39 cents, and though this represented a decline of 45% from the year-ago quarter, the hit wasn't as bad as expected with the topline only being impacted by $2.9 million from the recall.

But it was the estimated lost sales in the range of $6 to $7 million due to production issues and shortages that seemed to worry analysts most on the conference call. After the company lowered their outlook for the year, analysts spent the next week taking down estimates as the reverberations of the recall were to be felt into the second half.

And it wasn't just 2013 estimates that were taken down.11.5% since the recall and then another 9.4% since their quarterly report. 2014 full-year estimates have been shaved from EPS of $3.45 to $3.18 in the same time period.

Be Choosy

Investing in medical device and biopharma companies offers high reward and high risk to go along with it. We can't buy them all, after all, and even the most dedicated biopharma investors must focus on specific sub-industries and then concentrate on the best earnings stories.

While Integra has an exciting and diverse portfolio of advanced-technology durable and one-time use products in demand by surgeons and hospitals, we need to see the earnings story get out of intensive care before we can play a recovery in this name.

Kevin Cook is a Senior Stock Strategist at where he runs the Follow The Money (FTM) Portfolio.

Email Print Share Rate Pos Rate Neg