CONMED Corporation (CNMD)

[investora2z]

The stock has appreciated by around 30% from the lows made in July last year. Over the longer term, the performance has not been as smooth as many of its peers, but it has not been bad either. It has appreciated significantly from March 2009 when it was below $12. The fundamentals have improved over time, but the growth in revenues has not been very robust. The net income has improved substantially since 2009, barring 2011 when it took a major impairment related to the patient care business. In the last quarter, the revenues had declined by 5%, but the net income had increased by ~5%. Growth in revenues can be bolstered by introducing new products and enhancing existing products. Innovation is the key to success in the sector, with CONMED's competitors like Covidien (COV), Boston Scientific (BSX) etc. being known for innovation. Even smaller medical device companies like PLC Systems (PLCSF) are building strong patent portfolios around their proprietary technologies. PLC Systems has received several patents for its device / system RenalGuard recently. In addition, CONMED also needs to expand into new geographies to increase sales. Currently, US & Canada contribute around 60% of the revenues, and there is lot of scope for expansion in the other countries, especially the Asia Pacific rim / emerging markets. Further, cost rationalization is required to improve the net margins. The debt is also relatively high at around $225 million. The valuations are reasonable with a forward P/E of 15 (ttm P/E of ~22). The PEG is also reasonable at 1.31 indicating expectations of reasonable growth in the future. The recently announced dividend translates into a yield of 1.8% at current market price. If the pace of growth can be increased and the margins improved, the stock can continue to grow at a decent rate over time.