CryoLife Inc: Zacks’ Bull of the Day Play

Making strategic moves can make or break a company, and when you mix selling off a segment with the acquisition of another company, many things can go wrong.  But when it is done correctly, it can boost revenues, and position a company for future growth opportunities.  This is exactly what has happened to CryoLife Inc. (CRYSnapshot Report) the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) is the leader in the development and commercialization of implantable living human tissues for use in cardiovascular, vascular, and orthopaedic surgeries throughout the United States and Canada. The company’s BioGlue surgical adhesive, the company marked in the European Union for use in vascular and pulmonary sealing and repair, is distributed throughout Europe. The company also manufactures CryoLife- O’Brien and CryoLife-Ross stentless porcine heart valves which are distributed within the European Community.

In their most recent earnings report, the company saw quarterly and annual gains for both earnings and revenues.  One the quarterly side, revenues rose +7% to $39.8 million (a quarterly record for the company), product revenues improved +10%, tissue processing revenues rose +3%, and net income was up a staggering +44.4%.   The improvements in product revenues was due to overall increases in revenues for their CardioGenesis cardiac laser therapy, PhotoFix, and ProCol products.  The tissue processing revenues were driven by an increase in average service fees. On the annual side, overall revenues improved +1.0%, product revenues were up 1.0%, and tissue processing revenues remained flat for the year.

Also, during the quarter, the company acquired On-X Life Technologies Holdings, a privately held mechanical heart valve company.  The acquisition gives CryoLife access to the $220 million mechanical heart and valve market, and improves their cross-selling ability.  The On-X acauisition will be complementary to CryoLife’s existing tissue valve business.

Commenting on the year as a whole, J. Patrick Mackin, Chairman, President, and CEO stated, “2015 was a year of significant progress for CryoLife, with positive momentum on key strategic initiatives throughout the year.  As a result, we achieved record quarterly revenues of $39.8 million in the fourth quarter, with gross margin of 67 percent, a significant year-over-year and sequential improvement.  As we look to 2016, we added to our growth and margin expansion potential with the recent acquisition of On-X, which expands our market opportunity with a differentiated mechanical heart valve technology and more than doubles our U.S. cardiac surgery sales force.  We also strengthened our focus on cardiac surgery through the sale of the HeRO product line.  Overall, we are optimistic that our internal and business development initiatives have positioned the Company to deliver an enhanced growth trajectory and profitability.”

As you can see from the graph below, CRY has been trading in line with the S&P 500 for quite some time, but has broken ahead of the index for over the past month.

Increasing estimates

Over the past 60 days, estimates for Q1 16, Q2 16, FY 16 and FY 17 have all seen upgrades; Q1 16 rose from $0.02 to $0.04, Q2 16 also doubled from $0.03 to $0.06, FY 16 improved from $0.22 to $0.30, and FY 17 rose from $0.31 to $0.36.

Bottom line

In Q4 2015 the company posted record quarterly revenues of $145.9 million, and has entered into the $220 million medical heart valve market with the recent acquisition of On-X.  This acquisition has caused management to give revenue guidance for 2016 in a range of $178-$180 million (the company posted 2015 revenues of $145.9 million) with mid-single digit growth in product revenues, and tissue processing revenues.  Most importantly, management expects to see gross margins at approximately 63%.Note: Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.

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