DJ Orthopedics by Kopin Tan
Summary: DJ Orthopedics (DJO) makes orthopedic products like knee braces and neoprene sleeves, profiting from professional athletes and aging baby boomers alike. A second consecutive earnings miss knocked DJO from November's $45 to $31. But shares recently traded at over $41 as hedge funds like Millbrook Capital Management stocked up on the dip. With 60% gross margins and a perennial market in fatter, older Americans, DJO seems to have missed earnings on a harder-than-anticipated synthesis of recently acquired AirCast. A bone-growth company acquired in 2004 also had birthing pains, but today accounts for 16% of annual revenues. With a 25% U.S. market share and overseas revenues practically doubling each year, bulls expect earnings of $2/share in 2008, from $1.24 in 2007 and $0.54 in 2006. Strong cash flow should help cut debt and raise EPS. DJO's 20.7 P/E ratio is low compared to 23.7 for peers, leaving room for growth. Barron's Bottom Line: Bulls see a $60 stock by 2008-9.
Related Links: DJ Orthopedics: Get Stronger With This Baby Boomer Stock • Jim Cramer's Mad Money In-Depth Stock Picks, Nov. 17 • U.S. Surgeon General On Obesity in the U.S. • Orthopedics Statistics and Demographics
DJO 1-yr. chart: