Medical Devices: Most Growth Already Priced In

Recently, we checked in with Zacks senior medical devices and supplies industry analyst Tom Park to see some current updates on companies within his coverage. He was good enough to take time out of his busy schedule to meet with us.

Have you issued any reports discussing quarterly earnings recently?

I recently published a report on I-Flow (IFLO), which manufactures and sells a line of compact, portable infusion pumps, catheters, and pain kits that administer medication directly to the wound site. The company reported Q1 EPS that beat our estimate by $0.01 on revenue that was below our forecast.

What was the forward guidance from the company?

Management expects the company to turn profitable in 2008 on roughly 20% growth in total revenue with growth from the newly formed Acute Care business of 25% and reduced Regional Anesthesia growth of 20% due to the broader slowdown in surgical procedure volumes.

The acquisition of AcryMed gives the company another significant growth opportunity that exists in general surgical site care management. The company’s products are used both in hospitals and alternate-site settings. IFlow also offers a line of disposable infusion pumps used to administer local anesthetic, antibiotics, nutritional supplements, and other medications.

Have any companies in your coverage posted a notable positive surprise as of late?

Hologic (HOLX), a leading developer, manufacturer, and supplier of diagnostic and medical imaging systems primarily dedicated to serving the healthcare needs of women, reported Q2 EPS that beat our estimate on revenue that significantly exceeded our forecast. However, management lowered its FY08 revenue guidance but reiterated its FY08 EPS guidance.

HOLX completed the acquisition of Cytyc in October 2007. The acquisition is expected to drive revenue and earnings growth significantly higher over the near term and allow the company to continue to grow revenue 20% and EPS 20%+ over the long-term.

The company focuses its resources on developing systems and subsystems offering superior image quality and diagnostic accuracy, which has resulted in capturing significant market share and customer loyalty, despite the presence of large competitors. The company’s core women’s healthcare business units include mammography/breast care, osteoporosis assessment, and other.

What other newsworthy items can you relay for us today?

TriZetto (TZIX) announced in April that it agreed to be acquired and taken private by funds advised by Apax Partners. Our target price is equal to the cash offer price of $22.00 per share. The company offers proprietary enterprise administration software, enterprise cost and quality of care software, specialized component software, outsourced business services, and consulting services to payers such as health plans and benefits administrators.

Tom Park is a senior analyst covering the medical devices and supplies industry for Zacks Equity Research.