STOCK WATCH


C.R. Bard: On the Mend

This medical devices company has new products coming out later this year that should boost its earnings, and one analyst is expecting a healthy future.



C.R. Bard makes products you hope you never have to use. The Murray Hill, N.J.-based company focuses on medical devices that help people with urological problems, hernias, cancer and those undergoing major surgery. Lately, Wall Street has given Bard a grim prognosis because of slow revenue growth and falling profit margins.

Citigroup analyst Matthew Dodds sees signs of life in Bard. He has issued a hopeful second opinion based on his expectation that two Bard hernia products that go on sale later this year will generate strong results. The market for these devices is more than $150 million a year, Dodds says, and Bard's market share today is minimal. Dodds predicts that the hernia products will lift Bard's earnings in the second half of 2006 and fuel strong gains next year. Analysts, on average, estimate that Bard's earnings will grow 13% in 2007, to $3.75 per share, according to Thomson First Call, while Dodds forecasts a 21% boost, to $4.18 per share.

The new products should enable Bard (symbol BCR) to maintain double-digit sales and mid-teens earnings growth through 2009, Dodds says. Meanwhile, his check-up finds the rest of Bard's business to be healthy. "While no new products from vascular, oncology or urology will have as much home-run opportunity" as the hernia devices, he says, "there will be plenty of room for singles and doubles."

Bard's free cash flow should also improve, says Dodds. Since 2003, the company has been making lots of capital expenditures, mainly for a new factory in Puerto Rico. Once the plant is completed later this year, free cash flow should improve by $30 million to $40 million annually, Dodds says. This means more money to buy back shares, acquire businesses or pay out higher dividends.

Dodds raised his target price by $5, to $80. The stock, recently $66, trades at 20 times the average of analysts' 2006 earnings estimates of $3.28 per share. It is 11% off its all-time time of $73, set last May.

--Thomas M. Anderson




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