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Bard to Shed Weak EP Biz

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In an effort to streamline its business, medical device major, CR Bard has agreed to divest certain assets of its Electrophysiology (EP) division to Boston Scientific (BSX - Free Report) for $275 million. Management believes that the divestment will help the company to focus on other high-growth businesses, which in turn should boost its top line.

The EP division under the core Vascular business offers medical equipment, catheters and accessories used in cardiac EP surgeries. The Encompass is considered to be the main growth driver for this franchise. However, despite tailwinds in the end markets, the company was unable to boost sales of this division. Net sales of EP products declined 6% on a reported basis to $111 million in 2012. Moreover, sales declined 1% in the first quarter of 2013.

Financial Impact

The deal is expected to conclude in 2013. CR Bard anticipates the divestiture to dilute 2013 adjusted earnings per share (EPS) by about 5 cents. This represents a decline of roughly 4% in the company’s earlier predicted adjusted EPS of $1.35–$1.39 for 2013 at the mid-point. However, the divestment is not expected to impact 2014 results.

Despite the dilutive impact of the deal, share prices of CR Bard increased 0.12% on Friday, Jun 28 to close at $108.68, reflecting positive investor reaction. This encourages us to believe that the stock price will move higher in the near term.

Our Take

CR Bard’s well-diversified end-markets and a vast product portfolio insulate it from fluctuations in any single therapeutic category. We are of the opinion that the divestment of the underperforming EP division complements CR Bard’s long-term strategy to focus on its business in lucrative markets that will deliver higher returns. The capital from the divested business will help the company to invest in areas with increasing opportunities.

However, the company has lately been struggling to maintain its top-line growth, especially in the U.S. Although we see no near-term catalysts, we believe that the recent acquisitions and initiatives to expand in emerging markets augur well for the company.

CR Bard carries a Zacks Rank #3 (Hold). However, other medical stocks, which look attractive at the moment are Luxottica Group SpA and STAAR Surgical (STAA - Free Report) . Both the stocks carry a Zacks Rank #1 (Strong Buy).

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