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Reaffirming Mindray at Neutral

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We remain Neutral on Mindray Medical International . Its fourth-quarter 2011 earnings per share just missed the Zacks Consensus Estimate.

Mindray is a bellwether for the Chinese medical devices industry. The company has a large domestic sales infrastructure, which gives it better access to medium-sized county hospitals. In China, it beats other multinationals on price and defeats local players, who have cheaper products, on brand recognition.

In western markets, the company targets mid-market, price-sensitive customers. A key distinction with domestic competitors is that the majority of Mindray’s products have CE Mark and/or FDA clearance. 

Mindray has a solid product pipeline. The company introduces about 10 new products each year. In fiscal 2011, it launched as many as 13 new products. New products contribute in a major way to the company’s revenues. The client base of the company is widely dispersed on a net revenues basis and is marked by low client concentration.

The medical device industry is characterized by quick product development, rapid technological advances, intense competition and a strong emphasis on proprietary products. The company has entered the premium segment globally where its competitive advantage is still evolving. Healthcare reform, in both China and the U.S., may reduce demand for Mindray’s products. Competition is fierce and leads to price erosion over time. 

Mindray’s competitors, in different niche segments, include General Electric (GE - Free Report) , Philips (PHG - Free Report) and Siemens , among a host of other players. Our recommendation is supported by a short-term Zacks #3 Rank (Hold).

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