When human-tissue repair products manufacturer LifeCell
What analysts say:
- Buy, sell, or waffle? Six analysts cover LifeCell. They have a predominantly bullish outlook, with four saying buy and two saying hold.
- Revenues. Those rosy expectations are based on their estimate that revenues will jump more than 36% for the quarter, to $37.4 million.
- Earnings. Similarly, earnings are expected to grow 45%, to $0.16 per share.
What management says:
Considering the bullish sentiments of the analyst community, you'd be surprised to learn that following last quarter's earnings report, management had to revise its guidance downward to account for lower expectations for both revenues and earnings. While the growth rates are still pretty darn good when looked at in a vacuum, what we see is that they're beginning to slow down, and that has caused some investor angst.
Year-over-year Revenue Growth (%)
|
2006 |
2005 |
2004 |
|
|---|---|---|---|
|
Q1 |
54.3 |
44.2 |
53.3 |
|
Q2 |
59.0 |
50.3 |
55.7 |
|
Q3 |
44.1 |
57.1 |
48.6 |
|
Q4 |
37.0e |
63.5 |
50.5 |
Revenue growth is close to falling off almost 50% year-over-year, and that's a red flag for me. Another warning sign for me is that management is very generous with the stock options it doles out. It will be taking a charge for stock-based compensation equal to nearly 25% of estimated earnings, or $0.19 per share this quarter.
What management does:
Margins have generally held up well despite the decline in revenue growth rates, but the improvements in operating margins have come because of lower costs associated with selling and marketing. This could be why the growth rates are slowing. Independent agents and distributors represented only 16% of revenues last quarter compared to the 19% they had represented the year before.
|
Margin % |
09/05 |
12/05 |
03/06 |
06/06 |
09/06 |
|---|---|---|---|---|---|
|
Gross |
70.7 |
70.5 |
71.0 |
71.2 |
71.2 |
|
Operating |
18.6 |
20.7 |
23.4 |
25.3 |
28.1 |
|
Net |
14.8 |
12.8 |
13.3 |
13.1 |
14.0 |
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:
With a price-to-earnings ratio of 46 on trailing earnings and 32 on forward estimates, reduced guidance, slowing growth rates, and exceptionally high stock-option expenses, LifeCell appears to this Fool to be a pricey, risky venture. The patented technology the company offers makes for a potential winner, but LifeCell had a product recall in 2005 that was no fault of its own, and it is involved in several lawsuits as a result. While the possibility of that occurring again may be remote, it is a risk that must be considered when a stock sports such lofty valuations.
Competitors:
-
Regeneration Technologies
(NASDAQ:RTIX) -
Integra LifeSciences
(NASDAQ:IART) -
Mentor Corp
(NYSE:MNT) -
Johnson & Johnson
(NYSE:JNJ)
Related Foolishness:
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LifeCell is a four-star company at Motley Fool CAPS, the Fool's new stock-rating service. Join today to see why investors think this company might be ready to graft to your portfolio. It's free!
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. Johnson & Johnson is an Income Investor recommendation. Integra LifeSciences is a Stock Advisor selection. The Motley Fool has a disclosure policy.
