Sunday, June 23, 2013

Why Wright Medical Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Wright Medical Group (NASDAQ: WMGI  ) , an orthopedic medical device manufacturer, surged as much as 10% after announcing the sale of its OrthoRecon business.

So what: Under the terms of the deal, MicroPort will acquire Wright Medical's OrthoRecon for $290 million in cash. The segment consists of various hip and knee replacement devices and generated $269 million in sales for Wright Medical last year. On paper, this should benefit both companies as MicroPort will gain a segment expected to grow in need as baby boomers age. For Wright Medical, it transforms the company by focusing growth on its extremities segment.

Now what: I'm sure investors are happy to see Wright Medical focusing on its higher-growth areas, but I can't help but be in awe at how inexpensively it sold off its orthopedics business. Just 1.1 times last year's total sales seems like a complete bargain for MicroPort based on the double-digit growth rates in hip and knee replacement surgeries that the company's press release alluded to. There's also the concern that we'll see short-term hiccups as Wright transitions OrthoRecon over to MicroPort. Wright's guidance for the extremities side of its business came in at $235 million to $240 million, which is a bit weaker than expected -- although we won't know the full story on guidance until the second-quarter conference call. My suggestion is to keep your distance after today's pop as there are still plenty of growth questions left to be answered.

Craving more input? Start by adding Wright Medical Group to your free and personalized watchlist so you can keep up on the latest news with the company.

Obamacare will undoubtedly have far-reaching effects, especially on medical device makers like Wright Medical. The Motley Fool's new free report, "Everything You Need to Know About Obamacare," lets you know how your health insurance, your taxes, and your portfolio could be affected. Click here to read more. 

No comments:

Post a Comment