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Orthopedic and Dental Industry News Complete Archive »

Who is listening to those earnings calls? BY EDITOR, APRIL 14, 2003

Earnings season starts this week with the Tuesday, April 15th release of DePuy/Acromed's first quarter results (as buried in JNJ's release) and continues until mid-May when Sofamor Danek's numbers for the April quarter (Medtronic, Sofamor Danek's parent, is on an April fiscal year) are released. In the intervening six weeks 19 public orthopedic companies will throw their numbers out to the street and await its collective judgment. What if... no one was out there to listen?

As a result of Wall Street's economic depression, an increasing number of public orthopedic companies are finding that there are fewer listeners this year on the other end of their conference calls.

Who and how many analysts are covering orthopedic companies today? We checked the numbers and by our count, the number of sell-side analysts covering orthopedic firms is down 9% from a year ago, 29 firms versus 32 a year ago.

Furthermore, the number of orthopedic companies covered by Wall Street's diminishing number of sell-side analysts is also down. Fully 37% of all public orthopedic companies now have one or fewer analysts covering them - we think this qualifies them for "orphan" status. From last year to this, of the nineteen companies in the HealthpointCapital orthopedic public company data base, only eight have increased  analyst coverage. They are;

  • Stryker - $13 billion market cap
  • Zimmer - $9 billion market cap
  • Biomet - $8 billion market cap
  • Smith & Nephew - $6 billion market cap
  • Wright Medical - $540 million market cap
  • Kyphon - $300 million market cap
  • Arthrocare - $270 million market cap
  • Orthologic - $100 million market cap

The average market cap of the companies with increased analyst coverage is $4.7 billion. The average market cap of the companies who've lost analyst coverage is $133 million.

The total number of Wall Street firms providing orthopedic company coverage is down 9%. Six of the 19, or 31%, of the orthopedic companies in the HealthpointCapital index have fewer analysts covering them this year than last year.

Clearly, analyst coverage is migrating to higher market cap and, presumably, better trading stocks.

We think this is a result of a tougher environment for sell-side brokerage firms. An article in this morning's New York Times pegs the employment decline on Wall Street at 18%. Fewer analysts covering fewer, but larger companies. Which might be a recipe for financial solvency, but is it a viable strategy for superior investor returns?

We think this trend will lead to a homogenization of the coverage of orthopedic companies and the industry. It is interesting to note that two of the best performing orthopedic stocks in 2002 - Exactech and Centerpulse - combined had only four analysts (out of 32 available) covering them. And the analyst with the best earnings forecast record for the most widely covered orthopedic stock (Stryker) is from LJR Great Lakes Review. So much for brand name Wall Street analysis.

So, as this quarter's earnings season kicks into high gear, we expect to hear fewer analysts on the conference calls. Although, on the positive side, for the rest of us maybe, just maybe, there'll be enough extra time for "one more question". One can only hope.

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