Is There Anything Left at MDS?

While MDS impressed investors by selling its medical instruments division for a better-than-expected $650-million (U.S.), the company is now dogged by questions of what’s next.

MDS, (MDZ), an underperformer in recent years, said Wednesday that it plans to focus on medical isotopes and is still trying to find a buyer for its pharmaceutical services unit. TD Securities analyst Lennox Gibbs said in a report Thursday:

The downside to yesterday’s announcement is that MDS is now left with what we consider to be mediocre or at-risk assets.

The pharmaceutical services business that MDS plans to sell is worth $100-million to $125-million, Mr. Gibbs estimates, or $1 a share. The isotopes business – Nordion – can’t get the raw materials it needs from government-owned reactors that will likely be shut down until early in 2010. Mr. Gibbs pegs the value of Nordion at $350-million, tops, which translates to $3 a share.

“We think it will be difficult for the new MDS to capture the attention of strategic or financial investors,” said Mr. Gibbs, who has a $5.50 (U.S.) target price on the stock, which closed Thursday at $7.51 on the New York Stock Exchange.

Comments

[MikeMo:]

Hi- I'm currently doing some analysis of MDS for a B-School finance class, and am interested in where you're coming up with $100-125M price for the MDS Pharma business? Are you using some sort of revenue or profitability multiple to value Pharma Services businesses? Seems hard for me to believe that this segment, with $582M in revenues (is valued so low)...

Thanks in advance for any insight.

Regards,
Mike

Oct 07 12:36 AM