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.
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