After another quarter at Integra LifeSciences
Reported revenue was up 18%, and adjusted operating income climbed 25%, but it's never quite that simple with Integra. The first number was boosted by acquisitions, while the latter excludes some costs related to closing facilities. If you add those back, operating income growth was closer to 9%.
Continuing a recent trend, growth was strongest in the implant business, where revenue jumped 43% in the quarter. Several product groups performed well here, including nerve repair, dermal repair, and Newdeal foot/ankle products. That helped counteract less impressive growth in instruments, monitoring, and private-label products.
The private-label division could be shaping up in the not-so-distant future. Medtronic
After listening to management, I wouldn't expect any big changes in operating philosophy. Integra expects acquisitions to play a major role in the continued broadening of its product and technology platform. (A case in point: Integra's recently closed deal to purchase Radionics from Tyco
With that in mind, risks from debt, dilution, and acquisition integration will remain. Of course, let's not forget that Integra has built a pretty good business here. What's more, one of my historical complaints about this company -- low returns on equity and invested capital -- seems to be evaporating somewhat. My rough calculations suggest a double-digit ROIC for this concluded fiscal year.
I'm cautious on Integra's valuation; I don't think it's overpriced, but I also don't consider it a bargain. If you believe the analysts' assertions that Integra can boost cash flow by more than 20% for the next five years (the estimates actually concern EPS, but please, permit me a little license here), the stock may have some room to grow. Bear in mind that cash flow models don't always give their due to small-growth stocks. By the price-to-sales metric (oft-used for medical device companies), the stock isn't really that expensive at all.
For more Foolish thoughts on med-tech:
- See Integra's latest quarter by the numbers.
- ResMed Might Need Oxygen
- Will Syneron Defy History?
- Integra Needs to Grow From Within
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).