An analyst at Leerink-Swann investment bank is bullish on the hip and knee markets, writing that they’re in a “stable-to-improving mode” despite pricing pressures and a sluggish European economy.
In an email to investors, Leerink analyst Rick Wise said second-quarter earnings results at Warsaw, Ind.-based orthopedic device maker Biomet Inc. could be a harbinger for a steadily improving orthopedics market.
For the three months ended Nov. 30, 2009, Biomet said it narrowed its losses to $7.2 million, compared to $39.7 for the same period last year. However, it was the firm’s double digit increase of 11 percent in knee reconstructions and a 7 percent year-over-year increase in hip reconstructions that made Wise take notice.
The analyst cited the increase in procedures as boding well for big orthopedic players like Stryker Corp. (NYSE:SYK) and Zimmer Inc. (NYSE:ZMH).
“Procedure volumes are clearly improving,” Wise wrote. “Management’s conference call comments suggest a more positive 2010 reconstruction market outlook.”
Biomet also reported a 7 percent uptick in its spine business, according to a prepared release.
Smith & Nephew gets downgraded
In other orthopedics news, a Piper Jaffrey analyst downgraded U.K.-based orthopedics giant Smith and Nephew plc (NYSE: SNN) from overweight to neutral.
But the downgrade was based on the growth potential of other investments, rather than a negative outlook at tSNN, which houses its endoscopy division in Andover, Mass.
“We are lowering our rating to Neutral for SNN, as we see greater upside to other names in our universe,” the analyst wrote. “Although we continue to see upside from current levels as evidenced by our $57 12-month price target, we believe upside beyond the $57 level would require substantial multiple expansion. As such, we are stepping to the sidelines for now, in favor of other ideas in our space with more upside potential.”
The analyst added that among other factors a “significant and unexpected rebound in Endoscopy, Trauma or Advanced Wound Management” could result in a ratings upgrade.
During Smith & Nephew’s last quarterly earnings report, sales for the company’s Andover, Mass.-based endoscopy business ticked up 1 percent to $195 million, paced by strong sales for its repair segment but offset by weak capital equipment sales.
Overall, the British orthopedics giant posted sales of $915 million during the three months ended Sept. 26, down 1.6 percent compared with $930 million during the same period last year.