Medical-products maker Cantel Medical (NYSE:CMN) will report third-quarter 2007 financial results on June 11. Let's see whether we can figure out how Cantel will perform.

What analysts say:

  • Buy, sell, or waffle? Four analysts cover the maker of dialysis and infection-control equipment. Two think it's a buy, and two say hold.
  • Revenues. Revenues, which were affected by the loss of the Olympus America contract last year, are expected to be off nearly 20% at $52.7 million.
  • Earnings. Similarly, profits are expected to fall by as much as 43%, down to $0.16 per share.

What management says:
Cantel Medical has regularly used acquisitions to shore up flagging segments of its business or increase its market share. Yet as smart as the acquisitions have been for the diagnostic-equipment maker, there was a lot of uncertainty whether it would be able to recover from the blow it felt from the loss of Olympus. The 30% of revenues Olympus represented was a big chunk of change.

Obviously, it was bad news in the short term, but it has also allowed the former Motley Fool Hidden Gems recommendation to make acquisitions that expand and strengthen the other parts of its operations. For example, dialysis, which at one time had represented half of the company's revenues, now makes up about a quarter of them as it has bought up companies in water-purification and dental markets. Its recent acquisition of General Electric's (NYSE:GE) water-treatment operations will expand that business by 50% and account for nearly one-third of revenues going forward.

That's smart for Cantel, because competitors and even customers such as Fresenius (NYSE:FMS) and DaVita (NYSE:DVA) have used industry consolidation to challenge it in the dialysis market.

What management does:
As the dialysis business has shrunk, its ability to affect overall operations has lessened as well, although it has increased its profitability to Cantel because of its focus on just the highest-margin products. Water treatment will become a bigger part of the company's operations now, and it will better be able to compete against Millipore (NYSE:MIL) and Pall (NYSE:PLL). In addition to water-purification systems, Cantel will realize a continuing stream of income from consumables such as membranes and filters that have higher margins.

Margin

01/06

04/06

07/06

10/06

01/07

Gross

38.8%

38.4%

36.4%

35.6%

36.2%

Operating

9.2%

9.5%

8.9%

7.7%

7.7%

Net

11.8%

11.1%

12.3%

11.2%

10.2%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The viability of Cantel Medical had been in doubt for a while following the loss of Olympus. Not that the company would fold up and go away, but there were concerns that it would be crippled as an investment. The stock has yet to recover from its highs in the low $20s that it set in 2005 following the contract-loss announcement, though it is well off its lows. With the strengthening that it has done in water purification, investors may once again want to take a look at Cantel as a growth prospect.

Related Foolishness:

Cantel Medical has earned a two-star rating from Motley Fool CAPS, the Fool's new investor-intelligence community. You can add your voice to the stock-rating service by joining today. It's free!

Cantel is a former recommendation of Motley Fool Hidden Gems. Could it make a reappearance? Discuss the possibilities with a 30-day free trial subscription.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.