Kinetic Concepts
While slowdowns in capital spending at hospitals wreaked havoc on other medical-device makers such as Intuitive Surgical
Revenue was up 14% in the fourth quarter, which wasn't as good as the overall 17% yearly growth, but the quarter also had a 4% headwind from the stronger dollar pushing down foreign sales. Excluding the addition of LifeCell, which it acquired in the middle of last year, organic revenue growth was down just 2%. It's sad when a 2% decline is something to cheer about, but that's what this economy has come to.
More importantly, it looks like Kinetic Concepts should be able to grow right through the recession. Management is looking for revenue growth of 7% to 9%, which would allow adjusted earnings to grow 4% to 8%. Most of that growth is expected to come from its negative pressure wound therapy products. LifeCell will also contribute with its new tissue reconstruction product, Strattice, recently hitting the market in Europe.
While the company might have overpaid for LifeCell -- imagine what the price might have been if Kinetic Concepts had waited six months -- the cash-generating machine seems to be dealing with the added debt. The company paid off $71 million of its long-term debt this quarter and paid off another $79 million since it closed the quarter. Getting out of debt is going to be the road to prosperity for Kinetic Concepts. The $27 million per quarter of interest payments are currently putting a drag on the bottom line, and the faster it can get the $1.7 billon paid off, the better.
At last night's close, Kinetic Concepts was trading at just 5.4 times expected adjusted earnings for next year. Even if you add back in the amortized costs for acquiring LifeCell, it's trading at 6.2 times forward earnings. If Kinetic Concepts can hit its goals and plow through the recession, it won't be that cheap for very long.
More Foolishness to get you through the bad times:
- A recession-resistant mutual fund.
- Is the tech industry the recession's next victim?
- A recession is an awfully good time to invest. Seriously!