Exactech Shines with Q3 Results
By Chandler Lutz
November 2, 2007
Since our first recommendation of Exactach (Exac), in September the company’s share price has stayed rather stagnant. This all changed when the implant device manufacturer announced third quarter results.
The company increased revenue by 23 percent and net income by 35 percent in the third quarter compared to the same period last year. Overall, the company recorded earnings per share (EPS) of 21 cents compared to the 17-18 cents that analysts were expecting. Management attributed their strong success to expansion across all product lines. The company, which has operations in knee, hip and shoulder replacements as well as biologics, experienced strong revenue growth in all categories. This was led by 115 percent revenue growth in the shoulder segment.
The results are best summed up by Chairman, CEO and Co-Founder Bill Petty, “These are strong results, particularly for a third quarter, which is normally our slowest quarter of the year. Our sales teams are showing excellent success with almost our entire product line. Fundamental strength in both domestic and international hip and knee sales were key drivers, and we are certainly encouraged with the results from our other key operating segments: biologics and shoulder.”
To cuts costs and ensure product quality, Exactech has increasingly manufactured more and more products in house. This led gross margins to increase to 66.5 percent for the third quarter compared to 65 percent a year ago.
Based on these results Exactech’s share price jumped substantially and, therefore increasing the company’s valuation. Exactech’s p/e is now at 28.51 up from 24 in late September and early October. Also, the price/sales ratio has increased from 1.59 to 1.97. Despite the ascension of these metrics, they are still below the industry averages which may indicate that Exactech is still undervalued.
If investors are going to look to Exactech as a place to add new money the company needs to continue these stellar results and even surpass them. In this regard, Exactech gives investors a lot to look forward to. The company has its revolutionary reverse shoulder replacement system comes on the market during the fourth of 2007. To add to that, Exac’s Rotating Bearing Knee system is in clinical trials with the FDA and has been a hit internationally. The 200 million dollar firm has a stellar pipeline which it believes to be undervalued by the market. If Exactech can deliver in a similar fashion in the future as it has done in the past shareholders will be rewarded handsomely.
Exactech’s overall progress is very satisfying, but investors need to watch the firm closely moving forward due to the competition from much larger competitors like Johnson & Johnson and Stryker.
Chandler Lutz owns shares in Exactech, but no other companies mentioned.