I often tease Fool buddy Seth Jayson that, while I may be heading toward a bypass someday, his devotion to exercise will probably earn him a ceramic hip or knee. Multiply that story by millions of people over the next decade or so, and you can see why I like health care stocks. In the orthopedics sector, Biomet (NASDAQ:BMET) has built its business by rebuilding the human body, particularly the knees and hips.
For the company's fourth fiscal quarter, results were basically okay. Sales rose 11% on a constant currency basis, while adjusted operating income grew 8% and adjusted net income rose 10%. As a reminder, Biomet presents these "adjusted" numbers to factor out the impact of various acquisition-related costs. On a plain old GAAP-reported basis, operating income climbed 33% and net income climbed 29%.
Sales in reconstruction grew 13% (again, on a constant currency basis), with knee sales growing 18%. While knee and hip sales growth fell compared to the third quarter, it wasn't a big drop. Competition in the knee market is intense, but the slower growth may partly stem from more difficult comparisons with year-ago numbers.
Nevertheless, given that Biomet reports off-cycle to the other orthopedic companies, interested investors should pay attention to the likes of Zimmer (NYSE:ZMH), Stryker (NYSE:SYK), Johnson & Johnson (NYSE:JNJ), and Smith & Nephew (NYSE:SNN) to gauge relative market share trends across the board.
Though the reconstruction division performed decently, management seemed somewhat disappointed with the fixation and spinal businesses. Fixation revenue was down 5%, and growth in the spinal business slowed to 26%. Though I wouldn't expect the fixation business to be a major growth driver again anytime soon, Biomet's spinal business still has real promise.
I realize that discussions of aging Baby Boomers get overdone after a while, but their underlying thesis remains valid. Aging Boomers have greater expectations for a comfortable and mobile lifestyle than prior generations did. For all of the improvements in pharmaceuticals, nobody has yet developed a pill that can replace the need for an artificial hip or knee.
Biomet shares haven't had a great year so far, hovering close to their 52-week low. While concerns about competition, price pressure, and a government investigation are all legitimate, so are the stock's growth prospects. Trading below its peers, Biomet may be an interesting option for investors who want to add health care to their portfolio.
More orthopedic Foolishness:
- Growth Is Knee-High
- The DOJ Goes Fishing for Orthopedics
- Can Biomet Elbow the Competition?
- Kyphon Developing a Backbone
Fool contributor Stephen Simpson owns shares of Johnson & Johnson. The Fool has a disclosure policy.
