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AUTO & TRUCK INDUSTRY .............. 101Daimler AG ....................................... 102Federal Signal Corp. ........................ 103Ford Motor ........................................ 104General Motors ................................. 105Honda Motor Co., Ltd. (ADR) .......... 106Navistar International Corp. ........... 107Nissan Motor Co., Ltd. (ADR) ......... 108Oshkosh Corp. ................................. 109PACCAR, Inc. ..................................... 110Tata Motors Ltd. ................................ 111Toyota Motor Corp. (ADR) ................ 112Wabash National Corp. ..................... 113
★ OSI Systems Inc. .............................. 137Orbotech Ltd. .................................... 138PerkinElmer, Inc. ............................. 139Rofin-Sinar Technologies, Inc. ......... 140Thermo Fisher Scientific Inc. .......... 141Tollgrade Communications .............. 142Varian, Inc. ....................................... 143Veeco Instruments, Inc .................... 144Waters Corp. ..................................... 145
★ Woodward Governor Company ........ 146Zygo Corp. ......................................... 147
ELECTRIC UTILITY (EAST)INDUSTRY ............................................. 148
Allegheny Energy Corp. ................... 149★ CH Energy Group ............................. 150
Central Vermont Public Service ...... 151★ Consolidated Edison ......................... 152
Constellation Energy Group, Inc. .... 153Dominion Resources, Inc. ................ 154Duke Energy Corp. ........................... 155
MEDICAL SUPPLIESINDUSTRY ............................................. 169
★ Abaxis, Inc. ....................................... 170Advanced Medical Optics, Inc. ........ 171Affymetrix, Inc. ................................. 172Alcon Inc. .......................................... 173Align Technology, Inc. ...................... 174
★ Amer. Medical Systems Hldgs, Inc. . 175★★ AmerisourceBergen Corp ................. 176
★ AngioDynamics, Inc. ........................ 177★★ Bard (C.R.), Inc. ................................ 178★★ Baxter International, Inc. ................ 179
Beckman Coulter, Inc. ...................... 180★★ Becton, Dickinson & Co ................... 181
★ Bio-Rad Labs, ‘A’ ............................... 182Boston Scientific ............................... 183Cardinal Health, Inc. ....................... 184Cepheid ............................................. 185Charles River Laboratories Int’l ..... 186CONMED Corp. ................................ 187Cooper Companies, Inc. (The) .......... 188Covidien Ltd. .................................... 189CryoLife, Inc. .................................... 190Cutera Inc. ........................................ 191
★★ Cyberonics, Inc. ................................ 192★ Dentsply International .................... 193
★★ Edwards Lifesciences Corp. ............. 194ev3 Inc. .............................................. 195
★ Genomic Health ................................ 196★★ Haemonetics Corp. ........................... 197
Hill-Rom Holdings, Inc. ................... 198Hologic, Inc. ...................................... 199IDEXX Labs ...................................... 200
★ Illumina, Inc. .................................... 201★ Immucor Inc. ..................................... 202★ Integra Lifesciences Holdings Corp. 203
Intuitive Surgical Inc. ...................... 204★ Invacare ............................................ 205
Inverness Medical Innovations, Inc. 206★★ Johnson & Johnson .......................... 207
Kinetic Concepts Inc. ....................... 208LCA-Vision Inc. ................................ 209
★ Life Technologies Corp. .................... 210Masimo Corp. ..................................... 211
★ Medtronic, Inc. .................................. 214★★ Meridian Bioscience, Inc. ................. 215
Natus Medical Inc. ........................... 216★ NuVasive, Inc. ................................... 217
Omnicell Inc. ..................................... 218Osteotech, Inc. .................................. 219
★ Owens & Minor, Inc. ........................ 220Palomar Medical Technologies Inc. . 221Patterson Companies ....................... 222
★★ ResMed, Inc. ..................................... 223★ St. Jude Medical ............................... 224★ Schein (Henry), Inc. ......................... 225
★★★★★★★★★★ Rank 1 (Highest) for Timeliness.★★★★★ Rank 2 (Above Average).
In three parts: Part 1 is the Summary & Index. Part 2 is Selection & Opinion. This is Part 3, Ratings & Reports. Volume LXIV, No. 27
Published weekly by VALUE LINE PUBLISHING, INC. 220 East 42nd Street, New York, NY 10017-5891
ESPECIALLY NOTEWORTHY:
ISSUE 1Pages 100-242
File in the binder in order ofissue number, removing
previous issue bearingthe same number.
February 27, 2009www.valueline.com
★★ Thoratec Corp. .................................. 229★ Varian Medical Systems, Inc. .......... 230★ Volcano Corp. .................................... 231
West Pharmaceutical Services ........ 232★ Wright Medical Group ...................... 233
Zimmer Holdings, Inc. ..................... 234ZOLL Medical Corp. ......................... 235
SUPPLEMENTARY REPORTS .......... 242
This week, we welcome three new com-panies to the Medical Supplies Indus-try in our Investment Survey: NatusMedical Inc., Masimo Corp., andVolcano Corp., on pages 216, 211, and231, respectively.
Timely Wright Medical shares (page233) stand out as a solid investment,given that the company’s orthopedicproducts are in growing demand froma baby-boom generation that insists onprolonging its active lifestyle.
Top-ranked C.R. Bard stock (page 178)is an attractive option during this pe-riod of economic misery, thanks to itsnon-cyclical nature and strong earn-ings potential.
Stryker Corp. shares are an appeal-ing choice for both the near term andlong haul, partly due to strong financeswhich position Stryker well when con-summating acquisitions at deeply dis-counted prices. See our report on page228.
Becton Dickinson stock (page 181)exhibits potent long-term rebound po-tential in comparison with its histori-cal averages. This is an opportunitythat shouldn’t be passed up given theequity’s excellent credentials (top-ranked for both Safety and Timeliness).
Tollgrade shares may be of interest tothe venturesome, given the likely pros-pect of a higher bid by an avid suitor.See our take on its future on page 142.
deflator will advance about 2.0% per year on the average. The corporateincome tax rate will be around 35%. Long-term interest rates on high-grade corporate bonds are projected to be about 6.3% in the years 2012-2014. We expect the Federal Reserve to pursue neutral-to-fairly accom-modative policies except in years in which the economy is overheating.Based on these assumptions, the Gross Domestic Product will average$16,728 billion in the years 2012-2014, a level that is about 17% abovethe estimated 2008 total of $14,281 billion.
Things may turn out differently. But in the absence of knowledge of thefuture, we use the above assumptions, which appear to be most plau-sible. Thus we are able to apply a common economic environment to allstocks for the purpose of measuring relative growth potential.
Value Line’s estimates of sales and earnings growth for individual com-panies are derived by correlating sales, earnings, and dividends to ap-propriate components or subcomponents of the Gross Domestic Product,presented below. A more detailed forecast appears periodically in Selec-tion & Opinion.
HYPOTHESIZED ECONOMICENVIRONMENT 3 TO 5 YEARS HENCE
The hypothesized 2012-2014 economic environment into which earningsare forecast is as follows: Unemployment will average 6.5% of the na-tional labor force. There will be no major war in progress at that time.Industrial production will be expanding about 4.0% per year. Inflationwill continue to be modest. Prices as measured by the broad-based GDP
Arnold Bernhard, Founder (1901-1987) Jean Bernhard Buttner, Chairman & CEO
Samuel Eisenstadt, Research Chairman Reuben Gregg Brewer, Research Director Harvey S. Katz, Managing Editor
February 27, 2009 ECONOMIC SERIES 100
Information Technology:Shawn Cohen, Chief Information Officer
Computer Services:Hassan Davis, Director, Applications & Develop.Donna Webb, Production Control ManagerAyako Tokunaga, Senior Programmer/AnalystJames Hammargren, Senior Programmer/AnalystTerry Yu, Senior Software Development/SupportLarry David, Supervisor, Computer OperationsGeorge Moy, Dir., Internet Infrastructure/NtwrksShannon Egerton, Tech SupportDesmond Eng, Tech SupportBill Mandra, Software Development Manager
Data Administration:Mila Grayevsky, Senior Database AnalystCurtis R. Clarke, Manager, Equity Data Div.Edith Barnor, Database AnalystDana Jones, Database AnalystPatrick G. O’Connor, Supervisor, Quality Ctrl.Frantz Goodridge, Research AssistantClive Russell, Research Assistant
Production:LeShane W. Lilly, Production ManagerMichael Manchess, Production CoordinatorWarren Tabachnick, Production Editor
Theresa Brophy, Assoc. Research DirectorCharles Clark, Assoc. Research DirectorRobert Mitkowski, Jr., Assoc. Research DirectorGeorge A. Niemond, Assoc. Research Director
Morton L. Siegel, Assoc. Research DirectorJeremy J. Butler, Asst. Research DirectorMario Ferro, Asst. Research DirectorAlan G. House, Asst. Research Director
David M. Reimer, Asst. Research Director
Harold Levine, Director, Statistical Services
Senior IndustryAnalysts:David R. CohenPaul E. DebbasWilliam G. FergusonIan GendlerRobert M. GreeneFrederick L. Harris, IIIJustin HellmanKenneth A. NugentGeorge I. H. RhoSigourney B. RomaineRandy ShrikishunCraig SiroisWarren Thorpe
Senior Analysts: Erik A. AntonsonJ. Susan FerraraJerome H. KaplanTom NikicJason A. SmithNils C. Van Liew
Analyst-Specialists: Damon ChurchwellAndre J. CostanzaIason DalavagasErik M. ManningDouglas G. MaurerLester RatcliffAdam RosnerSimon R. Shoucair
Analysts:Sharif AbdouKevin DowningBryan J. FongRichard GallagherJerry W. Gray Jr.William KuoNira MaharajMichael F. NapoliJoel SchwedOrly SeidmanDominic B. Silva
Matthew E. SpencerGarrett SussmanMary Beth Wiedenkeller
Junior Analysts:John D. BurkeMichael RattyMichael J. SheaMichael G. SwietnickiChristopher T. Wells
THESE ARE THE NATIONAL INCOME SERIES TO WHICH VALUE LINE SALES, EARNINGS, AND DIVIDEND ESTIMATES ARE CORRELATED
(A) Fiscal years end March 31st of the follow-ing year.(B) Diluted earnings. Next earnings report dueearly May.
(C) In millions.
BUSINESS: Abaxis, Inc. develops, manufacturers, and marketsportable blood analysis systems for use in veterinary or humanpatient-care settings to provide clinicians with blood constituentmeasurements. The company markets its primary product, a bloodanalysis system, for veterinary use under the VetScan name and inthe human medical market under the Piccolo name. The veterinary
market accounts for roughly 70% of total sales. About 85% of salesare domestic. Has 265 employees. Off. & dir. own 6.6% of commonstock; Next Century Growth Investors, 8.1%; Brown Capital Mgmt.,7.4% (9/08 Proxy). Chairman, CEO & President: Clinton H. Sever-son. Incorporated: CA. Address: 3240 Whipple Road, Union City,CA 94587. Telephone: (510) 675-6500. Internet: www.abaxis.com.
Abaxis is facing a difficult market en-vironment. The portable blood analysissystems maker came up a bit short of ex-pectations in the third quarter (fiscal yearends March 31st) reporting an uninspiringshare-earnings advance of a penny overthe prior year. Although medical marketsales improved 19%, overall top-linegrowth was muted as demand forveterinary products fell due to the morediscretionary nature of this business. Wesuspect that the veterinary franchise willremain under pressure until there is evi-dence of an economic turnaround.The benefits of product introductionsshould help ease the pain a bit,though. Abaxis recently rolled out theVetScan VSpro Coagulation Analyzer andthe VetScan Canine Heartworm Rapidtest. We are especially intrigued by thelatter, which is likely to be the first in aseries of rapid, lateral-flow tests. Theheartworm market is estimated to bevalued at more than $70 million per year.Meanwhile, the company continues to gaintraction with its medical segment with theFDA, waiving CLIA status for two addi-tional point-of-care test panels. We think
the deeper portfolio will help offset some ofthe macroeconomic concerns and enableAbaxis to post 10%-15% share-net growthin the fourth quarter and a 25%-30%bottom-line advance in fiscal 2009.Wall Street seems to agree. In a rela-tively down market, Abaxis shares haveincreased over 20% in value since our No-vember report and are now favorablyranked for Timeliness. The stock does notstand out for 3- to 5-year appreciationpotential, however, as the run-up has dis-counted a noticeable portion of the share-price gains we envision out to 2012-2014.The company possesses the means toimprove its growth prospects, how-ever. Abaxis is debt-free, has a healthycash reserve, and generates good cashflow. We believe that management wouldbe wise to use the acquisition market toexpand its medical business, as this opera-tion offers far greater growth potentialthan the veterinary segment, but accountsfor only one-quarter of total sales. Thatsaid, long-term investors may want to waituntil plans are put in place before commit-ting funds.Andre J. Costanza February 27, 2009
LEGENDS22.0 x ″Cash Flow″ p sh. . . . Relative Price Strength
(A) Diluted EPS. Excludes nonrecurring gain/(losses): ’04, ($2.03); ’06, $1.06; ’07, ($2.26).Next earnings report due early May. Quarterlyfigures may not add due to changes in share
count.(B) Includes intangibles. In ’07: $1.938 billionor $31.97 a share.(C) In millions.
BUSINESS: Advanced Medical Optics, Inc. provides a full range ofadvanced refractive technologies and support to help deliver op-timal vision and lifestyle experiences. It operates three businesssegments; the cataract/implant line, the laser vision correction busi-ness, and the contact lens care component. With products availablein more than 60 countries, it serves eye surgeons, optometrists, op-
ticians, ophthalmologists, and retailers, as well as clinics and am-bulatory surgical centers worldwide. Has roughly 4,100 employees.Officers & Directors own 19.2% of common stock; ValueAct CapitalMgmt., 14.5% (5/08). Chairman, CEO, & President: James V.Mazzo. Address: 1700 E. St. Andrew Place, Santa Ana, CA 92705.Telephone: (714) 247-8200. Internet: http://www.amo-inc.com.
It looks as though Advanced MedicalOptics may be nearing its final daysin our Survey. The eye care solutions pro-vider, agreed to be bought by medicaldevice maker Abbott Laboratories in Janu-ary for roughly $2.8 billion, including theassumption of more than $1.5 billion indebt. Specifically, EYE shareholders areslated to receive $22 in cash for each com-mon share owned. The deal looks to bemoving along smoothly, recently clearingU.S. antitrust regulations, but is stillawaiting European and shareholder ap-proval. If all goes well, we expect the dealto close by the end of the first quarter.The price tag appears to be attractive.The purchase price represents a 149% pre-mium over EYE’s closing price the day be-fore the deal was announced.Things are not as clear-cut as theymay initially seem, however. EYE stockhad been beaten up in the months leadingup to the announcement, as the economicmalaise raised concerns about futuredemand for corrective eye surgeries. Thatsaid, the current bid represents a 12% dis-count to the stock’s 52-week high price, atarget we envision the issue surpassing by
2012-2014, absent the takeover. Indeed,the pipeline recently got news that theFDA recently approved Advanced’s TecnisMultifocal Intraocular implantable lens.Those who had bought the stock a fewyears back may question the sale.Still, most will probably want to signoff on the agreement that is currentlyon the table. EYE stock has been ex-tremely volatile, making the recovery weare projecting dubious. Not only are theprospects of the corrective surgery busi-ness in question, but it is important tokeep the earlier mishap with the compa-ny’s solution line in mind. It is likely to bea long road back for this business, placingan even more vital need on the correctivesurgery franchise. We believe that mostwill want to lock in the gain, removing anyuncertainty that the stock brings with it.The issue is ranked 4 (Below Average) forSafety and has a low Price Stability score.Andre J. Costanza February 27, 2009
CASH POSITION 5-Year Av’g 9/30/08Current Assets to Current Liabilities: 194% 116%
Cash & Equiv’s to Current Liabilities: 21% 14%
Working Capital to Sales: 23% 25%
LEGENDS7.0 x ″Cash Flow″ p sh. . . . Relative Price Strength
CAPITAL STRUCTURE as of 9/30/08Total Debt $436.3 mill. Due in 5 Yrs NilLT Debt $436.3 mill. LT Interest $12.0 mill.Incl. $120 mill. of 3⁄4% 2033 notes, convertible at aprice of $31.01 a share, and $316.3 million of31⁄2% 2038 notes, conv. at $30.12.
(41% of Cap’l)Leases, Uncapitalized: Annual rentals $10.7 mill.No Defined Pension PlanPfd Stock None
Common Stock 70,202,630 shs.as of 10/31/08MARKET CAP: $225 million (Small Cap)CURRENT POSITION 2006 2007 9/30/08
BUSINESS: Affymetrix Inc. is a leading genomics company thatmanufactures tools that enable the large-scale analysis of the hu-man genome. The company’s GeneChip technology is intended tosimplify, accelerate, and reduce the cost of analyzing geneticvariability (both sequence and expression) and lead to new op-portunities in disease mgmt. Products are used by pharm. and bio-
tech. companies, as well as academic research centers and clinicalreference labs. ’07 R&D; $72.7 mill. Has 1,140 employees. Off./dir.own 2.5% of com; FMR Corp., 14.6%; T. Rowe Price, 10.4%;PrimeCap Mgmt., 8.2% (4/08 Proxy). Chairman & CEO: Stephen P.Fodor, Ph.D. Pres.: Kevin M. King. Inc.: Del. Addr.: 3380 CentralExpressway, Santa Clara, CA 95051. Tel.: 408-731-5000.
The recently concluded year wasclearly a very difficult one for Af-fymetrix, as reflected by the untimelystock’s price chart above. Market-sharelosses hurt revenues, and this problemwas exacerbated by a progressively deeperretrenchment by pharma and academicend users. In all, year-over-year top-linecomparisons deteriorated dramatically in2008’s second half, tumbling 20.8% and27.0% in the third and fourth quarters,respectively; the decline was a relativelymodest 1.3% in the initial six months. Notsurprisingly, the operating margin alsocollapsed, dragging the per-share loss forthe full year to $0.47, well below the $0.34earned in the previous year. That said, wewould note that the company reported afull-year loss of $4.49 a share, which in-cludes substantial one-time charges forgoodwill impairment and restructuring.The genomics concern’s bottom linewill probably stay in negative terri-tory this year. The business trends evi-dent in 2008 were clearly not encouraging,and neither is the prevailing economic en-vironment. Affymetrix needs quarterlyrevenues of at least $80 million and gross
margins that exceed 60% to merely breakeven. We don’t expect either threshold tobe achieved in 2009, until possibly the lastquarter. Indeed, management’s revenueguidance for the March quarter is only$72–$75 million; it declined to provideguidance for the full year, which we thinkis prudent, considering the extraordinarilylow visibility across the board. We areleaving our estimate for the year at a lossof $0.30 per share.A reasonably healthy balance sheetsuggests that the company has stay-ing power . . . Affymetrix paid down debtby $120 million in 2008. It also executedthree small acquisitions, which provide theopportunity to both generate sales syner-gies and penetrate new markets. Still,cash totaled almost $400 million at theend of the year. This should give manage-ment the time to improve its product offer-ings; it recently launched the GeneTitanSystem, an integrated platform that auto-mates customer workflow from targetpreparation to array processing to results.. . . and AFFX stock offers patient in-vestors wide price recovery potential.George Rho February 27, 2009
LEGENDS18.0 x ″Cash Flow″ p sh. . . . Relative Price Strength
Alcon, Inc. was founded in 1945 and wasoriginally incorporated in Switzerland in1971 as Societe Fromagere Nestle. Thecompany officially changed its name to Al-con, Inc. in 2001. On March 20, 2002, thecompany completed its initial public offeringby issuing 69,750,000 shares of commonstock at $33.00 per share. The deal was un-derwritten by Credit Suisse First Boston andMerrill Lynch.CAPITAL STRUCTURE as of 12/31/08Total Debt $1120.1 mill.Due in 5 Yrs $1120.1 mill.
LT Debt $60.6 mill. LT Interest $3.5 mill.(2% of Cap’l)
(A) Diluted earnings per share. Excludes netnonrecurring gains/(losses): ’03, 2¢; ’04, 18¢;’05, (67¢); ’06, 2¢; ’07, (14¢); ’08, 79¢.Quarterly Sales and EPS may not sum due to
rounding. Next earnings report due lateApril.(B) Dividends historically paid in May.(C) Includes intangibles. In 2007: $715.6 mil-lion, $2.40 per share.
(D) In millions.
BUSINESS: Alcon Inc. is a global medical specialty company thatdevelops, manufactures, and markets pharmaceuticals, surgicalequipment and devices, and consumer eye care products to treatdiseases and disorders of the eye. The company sells products inover 180 countries. Has two primary business segments: AlconU.S. (48% of 2007 sales) and Alcon International (52%). Has three
products segments: pharmaceutical (41% of 2007 sales), surgical(45%), and consumer eye (14%). As of 12/31/07, company hadabout 14,500 empls. Nestle owns 52.2% of common stock; Novartisowns 24.8% (as of 7/3/08). Chairman, CEO, Pres.: Cary Rayment.Inc.: Switzerland. Addr.: Bosch 69, P.O. Box 62, Hunenberg, Swit-zerland. Tel. 800-400-8599. Internet: www.alconlabs.com.
Alcon finished 2008 on a relativelysolid note. Despite the difficult environ-ment, the company posted 2% sales growthin the final quarter, or 7% excluding cur-rency effects. Share net improved 8% to$1.41, partially benefiting from a lowerquarterly tax rate. The top- and bottom-line performances were above our pre-viously reduced expectations, anddemonstrate some resiliency from ACL’sdiverse product lines. The recent trendcontinued to play out, with strong interna-tional performance and weak U.S. results.However, currency effects led to a large re-duction to reported international resultsfor the quarter. International sales im-proved 1% which, excluding the impact ofcurrency was a strong 10.4% gain. Yeteven the impressive underlying interna-tional performance was a moderation fromrecent growth rates, as the global reces-sion has begun to have a larger impact onoverseas results. Meanwhile, U.S. salesadvanced 2.8% in the recent period,despite a 1% decline at the weak pharma-ceutical segment.Management has lowered its top- andbottom-line guidance for 2009. It now
expects sales growth (excluding currencyand acquisitions) to be in the mid-singledigits, and share net to fall between $6.05and $6.25. The projection assumes weakerperformance in the first half of the year,followed by a rebound in the final twoquarters. However, the assumption of im-proved second half performance may besomewhat optimistic. Therefore, we’re tak-ing a slightly more conservative position inour outlook for 2009.We anticipate additional moderationfrom international results, though itremains to be seen where perform-ance will bottom out. Aside fromanticipated currency impact, we believethat recent international growth levels arenot sustainable in the current environ-ment. Notwithstanding strong demand forACL’s eye care products in internationalmarkets, the deteriorating economic envi-ronment should further challenge results.These shares offer attractive long-term potential. ACL has a dominantglobal position in numerous eye care seg-ments, and earnings growth should pickup over the pull to 2012-2014.Joel Schwed February 27, 2009
Align Technology first received FDAclearance to market the Invisalign System in1998. In July of 1999, the company beganselling its System commercially. Align Tech-nology went public in 2001, when it issued10 million shares at $13 each. DeutscheBank Alex. Brown served as lead un-derwriter.
CAPITAL STRUCTURE as of 12/31/08
Total Debt None
Leases, Uncapitalized: Annual rentals $3.3 mill.
No Defined Benefit Pension Plan
Pfd Stock None
Common Stock 67,040,827 shs.as of 10/31/08
MARKET CAP: $575 million (Small Cap)CURRENT POSITION 2006 2007 12/31/08
(A) Diluted earnings. Next earnings report dueearly April.
(B) In millions. (C) 2000 data is pro forma.
BUSINESS: Align Technology, Inc., engages in the design, manu-facture, and marketing of Invisalign. Invisalign, has two primarycomponents, ClinCheck and Aligners. ClinCheck is an Internet-based application that enables orthodontists to simulate treatment.Aligners are thin, invisible, and removable dental appliances thatare used to straighten teeth. Has 1,253 employees. Officers and
directors own 6.7% of common stock; Gordon Gund, 10.9%; Kornit-zer Capital Management, 6.3%; OrbiMed Advisors, 6.0; HealthCorManagement, 5.8%; FMR, 5.6% (4/08 proxy). Chairman: C.Raymond Larkin, Jr. Pres. and CEO: Thomas M. Prescott. In-corporated: Del. Address: 881 Martin Ave., Santa Clara, CA 95050.Tel.: 408-470-1000. Internet: www.aligntech.com.
Align Technology is facing an in-creasingly difficult environment.Despite better-than-anticipated earningsin the recent fourth quarter, overall per-formance continues to deteriorate.Domestic sales and new case starts bothdeclined 2% as compared to the prior year.Although international segments liftedoverall results, there continues to be amoderation in international growth. Andwe anticipate a further slowdown in suchgrowth, as the global recession deepens.Despite anticipated cost savings fromrestructuring initiatives, we’velowered our 2009 earnings outlook toslightly above breakeven. We had origi-nally looked for a 6%-7% sales decline in2009, yet expected cost reduction to offsetthe top-line decline. However, manage-ment has made it clear that it intends toinvest more in certain areas to drive long-term growth. The additional expendituresshould negate the cost savings, and fur-ther exacerbate the additional loss of reve-nue. All told, we look for a 11% decline inrevenue, and share net of $0.03.The company is focused on increasingawareness of its relatively new In-
visalign Teen line, and expandingoverseas. Invisalign Teen has gotten offto a solid start, but faces challenges ingaining traction in this difficult consumeratmosphere. There is some natural resis-tance on the part of dentists to take on thenew product line in this environment.ALGN is trying to directly engage teensthrough various media channels to in-crease product awareness. Management iswilling to sacrifice near-term profitabilityto invest in this high-potential market.It remains to be seen how much of achallenge a prolonged slide in con-sumer spending will present. Whilethere are numerous benefits to the compa-ny’s products, they are expensive, and rep-resent an incremental discretionary ex-penditure for consumers. We are anticipat-ing a sharp drop in revenue in 2009, butour expectation may prove optimistic.These neutrally ranked shares shouldremain under pressure in the yearahead. However, ALGN has a tremendousmarket opportunity with no visible compe-titive threat, and offers about average ap-preciation potential out to 2012-2014.Joel Schwed February 27, 2009
American Medical Systems Holdings, Inc.was incorporated in Delaware in 1972. It be-gan trading on the NASDAQ market August15, 2000. 6,250,000 shares were offered at$5.50 by lead underwriter US Bancorp PiperJaffray. A secondary offering followed inJune 2001 with 7,000,000 shares priced at$8.20 again with US Bancorp Piper Jaffrayas lead underwriters.
CAPITAL STRUCTURE as of 9/27/08Total Debt $591.6 mill. Due in 5 Yrs. $217.8 mill.LT Debt $591.6 mill.Includes $373.8 mill. 3.25% sub notes (’36) cv. into51.5318 shs. at $19.406.
(61% of Cap’l)Leases, Uncapitalized Annual rentals $2.6 mill.Pension Obligation $3.2 million
Preferred Stock None
Common Stock 73,290,774 sharesas of 11/3/08MARKET CAP: $775 million (Small Cap)CURRENT POSITION 2006 2007 9/27/08
(A) Diluted earnings. Next earnings report duelate April.(B) In millions.(C) Incl. intangibles. At 1/3/09: $799.7 million,
$10.88/share.
BUSINESS: American Medical Systems Holdings, Inc. providesmedical solutions to physicians treating men’s and women’s pelvichealth conditions. It manufactures and markets surgical products tourologists, gynecologists, and urogynecologists for erectile restora-tion, benign prostatic hyperplasia, male urethral stricture, urinaryand fecal incontinence, and pelvic organ prolapse. 2007 foreign
sales, 28%. 2007 depr. rate: 29.1%. Has 1239 employees. Of-ficer/directors own 5.8% of stock; Neuberger Berman, 14.3%,Franklin Resources, Inc., 10.4%, FMR LLC, 9.6%. (4/08 Proxy)President & Chief Executive Officer: Anthony Bihl III. Inc.: Dela-ware. Address: 10700 Bren Road West, Minnetonka, MN 55343.Tel.: (952) 930-6000. Internet: www.americanmedicalsystems.com.
American Medical Systems finished2008 with a soft landing. Share earn-ings performance in the December interimwas one third weaker than our estimate of$0.30 likely owing to the recession. Pelvichealth procedures while not altogetherelective, are somewhat deferrable, and anincrease in postponements has been noted.Further, capital spending by hospitals andhealth care professionals has been clipped,with economic concerns at the forefront ofmany budgetary decisions. We look for astagnant top-line in 2009 and have paredour bottom line by $0.15 to just a $0.07improvement over the 2008 tally.A healthy pipeline ought to enhanceits long-term performance. The com-pany has launched several new productssince the last half of 2008 that are garner-ing interest, such as Spectra, a penileprosthesis and Elevate, a treatment forvaginal prolapse. In addition to these rol-louts, product line extensions are in theworks as well, such as additional applica-tions of its Laser Therapy. Not all projectshave gone smoothly. AMMD stopped devel-opment efforts on Ovion, its permanentcontraception project. The company has
maintained its 10% budget for R & D,similar to previous years, despite a blearyeconomic picture.Extension of its geographic footprintprovides strong growth potential. For-eign sales now encompass 30% of total rev-enues and the company is gearing to ex-pand that share with a push into new loca-tions. Product acceptance, usage, andgrowth rates are increasing faster abroadthan in the more mature domestic market.Its GreenLight Therapy has been ap-proved for distribution in Brazil andChina, both densely populated. Thoughthe global economy has sputtered as well,the diversification ought to provide a buff-er to weakness in AMMD’s home market.Short-term investors may want toconsider this stock. AMMD shares haveslipped a notch in Timeliness to (2), butare still a good choice in the coming year.We foresee a longer recovery due to slowertop- and bottom-line growth given therecession. This curtails our 3- to 5-yearoutlook. Consequently, these shares nowoffer below average price performance to2012-2014.Mary Beth Wiedenkeller February 27, 2009
LEGENDS18.0 x ″Cash Flow″ p sh. . . . Relative Price Strength
Aegon, a life insurance and financial services company,has reported a fourth-quarter loss of 1.2 billion euro (orabout $1.13 a share), versus our $0.23 profit forecast andthe $0.45 earned a year earlier. The shortfall was prima-rily a result of difficult market conditions, which in-creased impairments and led the company to transfermore funds into its capital reserves. Aegon offered noearnings guidance for 2009. Likewise, our estimates arecurrently under review. These shares are ranked tounderperform the broader market in the coming six to12 months.
W.T.
AUTOLIV, INC. (ALV; 18.46)Latest Report page 781 12-26-08
Autoliv, a global manufacturer of automotive safetysystems, has suspended its dividend as a means of cashpreservation, given the current turmoil in the auto in-dustry. The company had previously cut its dividend inhalf, but felt the need for additional cash-enhancingmeasures. Management has also suspended share repur-
chases and secured $250 million in new financing. Thisissue is a Below-Average (Timeliness: 4) selection for rela-tive year-ahead price performance.
BJ’s Restaurants, an operator of casual dining restau-rants, has reported stronger-than-anticipated fourth-quarter results. With the exclusion of nonrecurring items,the company earned $0.13 a share. While this representsa modest decline from the year-earlier tally, it should benoted that the operating environment deteriorated sig-nificantly in 2008. A slight decline in comparable saleswas mitigated by several recently implemented initia-tives, including introductions of new products and ser-vices. In light of the dour economic outlook for the yearahead, management intends to implement additionalstrategies similar in nature. BJ’s did not provide 2009earnings guidance, but mentioned that the current yearwould be a difficult one. Nevertheless, we are maintain-ing our $0.50 estimate, for now. This stock is neutrallyranked for Timeliness.
D.S.
February 27, 2009 S U P P L E M E N TA RY R E P O RT S 237
CBS CORP. ‘B’ (CBS; 5.25)Latest Report page 2321 2-13-09
CBS Corp., the owner and operator of television net-works, radio stations and outdoor advertising displays,has slashed its quarterly dividend payout from $0.27 ashare to $0.05. Management cited a desire to maintainfinancial flexibility, amidst an economic recession andcredit market turmoil, as the reason for the reduction.More specifically, the company has sizable debt obliga-tions beginning in 2010 and may elect to repurchase stockin the coming quarters. Meantime, it reported Decem-ber-quarter share net of $0.31 adjusted for nonrecurringitems, a penny above our forecast but $0.23 lower yearover year. We continue to look for earnings of $1.05 ashare in 2009. Because of the dividend cut, however, wehave lowered the company’s Financial Strength a coupleof notches, to B. This issue is ranked to lag the broadermarket averages in the year ahead.
D.C.
CHESAPEAKE ENERGY (CHK; 17.12)Latest Report page 429 12-12-08
Chesapeake Energy has reported lower-than-expectedfourth-quarter earnings. Share net declined 22% com-
pared to last year’s period and 14% on a quarter-to-quar-ter basis. Even so, the annual tally advanced roughly11% in 2008. This gain was largely the result of increasesin average daily production for both natural gas and oilof roughly 4.4% and 4.1%, respectively, which contrib-uted to solid results during the first half of 2008. How-ever, the severe decline in natural gas and oil pricesweighed heavily on results in the latter part of the year.Average realized natural gas and oil prices declined 12.1%and 24.5%, respectively. Considering the weaker-than-expected fourth-quarter results, the global economicdownturn, the ongoing credit crunch, and continuing fi-nancial market turmoil, we have trimmed our 2009 bot-tom-line estimate by 17%, to $3.00 a share. And, atpresent, these shares offer minimal investment appeal.CHK’s Timeliness rank has dropped one notch, to 4 (Be-low Average), and the stock provides below-average ap-preciation potential for the pull to 2012-2014.
40% from the year-before figure and lower than our $0.65estimate, which had been cut deeply in November.
The Agricultural segment increased its profits a bit,although currency translation reduced the gain. (In fact,the company expects a negative currency translationimpact on corporate earnings of about 6% for the fiscalyear ending October 31st.) However, the Commercial &Consumer and Construction & Forestry units faced toughtimes, as sales declined 25% and 28%, respectively. Thecombined operating profits for these two segmentsdropped from $125 million last year to a loss of $41 mil-lion in the January quarter. Finally, the important creditoperations’ profits fell 60%, reflecting narrower financ-ing spreads, lower commissions from crop insurance, andan increase in bad debts.
We have reduced our share-earnings estimate for fis-cal 2009 to $3.50, and we continue to have concerns aboutdemand in the farm sector, which has held up so far, eventhough prices for agricultural products have been quiteweak for months. The Timeliness rank on these shareshas fallen one notch, to 4 (Below Average).
M.L.S.
DOW CHEMICAL (DOW; 8.62)Latest Report page 1237 1-16-09
Latest Supplementary Report page 2429 2-13-09Dow Chemical, a manufacturer of basic chemicals and
plastics, has dramatically reduced its quarterly dividendfrom $0.42 a share to $0.15 beginning with the Aprilpayout. The company cited uncertainty in the creditmarkets, significantly lower demand for chemical prod-ucts, and weakness in the global economy as reasonsfor the reduction. As a result, we have lowered thestock’s Safety rank one notch, to 3 (Average), and thecompany’s Financial Strength rating two levels, to B+.This issue is ranked to underperform the broader mar-ket in the year ahead.
M.F.N.
WESTLAKE CHEMICAL (WLK; 13.70)Latest Report page 489 12-12-08
Chemical manufacturer Westlake Chemical has posteddisappointing fourth-quarter and full-year results. Thecompany recorded per-share losses of $1.68 and $0.45for the December period and full-year 2008, respectively.The difficult macroeconomic backdrop and sharp down-
February 27, 2009 S U P P L E M E N TA RY R E P O RT S 239
turn in demand for its products will probably hinderWLK’s near-term progress. Still, we believe that the com-pany will return to the black in 2009 and earn $1.00 ashare. These shares are ranked to perform in line withthe year-ahead market.
Wyndham Worldwide, one of the world’s largest hos-pitality companies, has posted relatively flat fourth-quar-ter results on a non-GAAP basis. However, the adjustedshare net of $0.47 excludes a sizable one-time, non-cashcharge of $1.4 billion, or $7.75 a share, for the impair-ment of goodwill associated with the reduction of its va-cation ownership business. Also excluded were expensesfrom restructuring activities ($0.25 a share), currencytranslation losses from its operations in Venezuela($0.14), and a nonrecurring gain from legacy adjustments($0.04). Looking ahead, the company expects adjustedshare net of $0.35-$0.40 in the first quarter, which isabove our estimate of $0.25. Although we have raisedour first-quarter share-net expectation by a dime to
match the lower tier of Wyndham’s guidance, we are leav-ing our full-year estimate of $1.75 unchanged. This stockis ranked 4 (Below Average) for Timeliness.
Ameren, a utility holding company, has cut its quar-terly dividend by 39%, to $0.385 a share. Even thoughthe company would have earned the dividend in 2009(assuming it attained its share-earnings target of $2.68-$3.08), the payout ratio would have remained uncom-fortably high, as it has been in recent years. The issuefell sharply upon the announcement and now has a yieldthat is fractionally above the utility average. We havecut our 2009 share-earnings estimate from $3.20 to $2.75.We advise income-oriented investors to wait for the dustto settle before making new commitments here, eventhough it appears as if this equity offers some dividendgrowth potential off of the reduced disbursement. Thisstock is ranked 3 (Average) for Timeliness.
P.E.D.
February 27, 2009 S U P P L E M E N TA RY R E P O RT S 240
Whole Foods, an upscale, health food grocer, has posteda smaller-than-expected profit decline in the first quar-ter (ended January 18th). Share net fell 28% year overyear, to $0.20, on roughly flat sales of $2.47 billion. Our$0.17 estimate implied a 39% falloff from last year’s $0.28tally. Having said that, we’re leaving our full-year fiscal2009 share-net estimate unchanged, at $0.75, for now.Our assessment represents a 9% year-over-year decline.What’s more, it is nearly 50% below fiscal 2006’s $1.41high water mark. Whole Foods is struggling these days,as budget-constrained shoppers trade down to deep-dis-count food retailers like Wal-Mart. A recent preferredstock offering, meanwhile, has eased liquidity concerns,but is also diluting earnings. The Timeliness rank on thisstock has climbed one notch, to 3 (Average).
N.V.L.*Price as of 2:00 P.M. EST on 2-19-09
February 27, 2009 S U P P L E M E N TA RY R E P O RT S 241
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Blyth Inc. 1 for 4 † Feb. 2 931First Horizon Nat’l 2.67% Mar. 11 615
Shares of priceline.com, an online travel company,rallied following its fourth-quarter results. The companyreported share earnings of $1.29, exceeding both ourexpectation of $1.05 and the $0.96 it earned in the year-earlier period. Management has provided bottom-lineguidance of $0.85 to $0.95 for the first quarter of 2009,in line with our current forecast. Overall, we project sharenet of $6.25 this year. This issue remains well-rankedfor Timeliness.