Syneron Medical Ltd (ELOS)

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Syneron beats the odds
CIBC chose Syneron Medical as one of nine recommended small companies. The Israeli company has succeeded well in the highly competitive cosmetics field.
Shlomo Greenberg

In 1975, CIBC began a tradition of locating companies that were worthwhile investments. 1,098 companies have been included in this group since then, and 601 of them have risen, while 445 have fallen. The group for 2005 included 52 companies, five of which were Israeli. In addition to all the economic criteria that CIBC checked for every company, CIBC chooses its investment portfolio according to pre-selected categories. Like the S&P 500 index, 68% of these portfolio companies are in the large company category, while 32% are small and medium-sized. Small companies are defined as those with a market cap below $1.5 billion, a group that includes Israeli companies M-Systems Flash Disk Pioneers (Nasdaq: FLSH), with a $1.1 billion market cap, and Syneron Medical Ltd. (Nasdaq: ELOS), with a $900 million market cap. These two “small” Israeli shares are among the nine “small companies” in CIBC’s portfolio.
Israeli companies Comverse Technology (Nasdaq: CMVT), with a $5.1 billion market cap, and Amdocs (NYSE: DOX), with a $5.2 billion market cap, are among the sixteen portfolio companies classed as medium-sized. Only one Israeli company, Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), is among the 27 large companies in the portfolio, which includes giants like General Electric (NYSE: GE), Wal-Mart Stores (NYSE: WMT), and Johnson and Johnson (NYSE: JNJ).

CIBC analysts explain the logic behind each one of the companies chosen for their focus group. Take Syneron Medical, for example, whose share was at $37 when the group was chosen. The share has since fallen slightly to $36, but that makes no difference; the recommended portfolio is for eighteen months ahead.

What makes Syneron Medical so interesting? After all, the share was one of the best investments over the past year, maybe even a leader. The price is not cheap, and competition in the company’s sector looks very extremely intense. It’s therefore important to understand what led CIBC to add this share to its portfolio and recommend buying it now.

To begin with, Syneron Medical’s products generate a quick return on investment, which is vitally important for doctors and clinics making decisions about investments in cosmetics. CIBC’s experts emphasize the company’s advantage in competition. Not only does Syneron have no fear of its competition, but the company also has a promising pipeline of products being developed, which will enable it to maintain control in its niche. The main risk in Syneron Medical cited by CIBC is what is referred to as the “Israeli risk”. Syneron Medical’s capabilities led CIBC to give a target price of $52 for the share, 44% higher than its current market price.

I get the impression that what impressed CIBC’s analyst is the capability demonstrated by Syneron Medical since its founding, and, course, the ability of its management. What the analyst is really telling us is that here is a company that has made a new start, against all the odds, and made a great success out of it. What Syneron Medical chairman Dr. Shimon Eckhouse has done shows outstanding ability on his part and that of his team. Those who know Main Street, especially competitive industries like cosmetics, know how hard it is to get a new company into a fiercely competitive field, especially when the entrepreneurs know that their competitors will do everything to prevent them from succeeding. If Syneron has succeeded so much in spite of that, it means that the company has products, pricing ability, and, most importantly, excellent management.

Published by Globes [online] - www.globes.co.il - on September 27, 2005

http://www.globes.co.il/serveEN/globes/nodeView.asp?fid=1052

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