Analyst praises ConMed decision to start paying a dividend

UTICA — ConMed Corporation’s news that it will begin paying a quarterly dividend to shareholders made at least one analyst happy.

ConMed (NASDAQ: CNMD) announced Feb. 29 that it would begin paying dividends, starting with an initial dividend of 15 cents per share, payable on April 5 to shareholders of record as of March 15. The company said it expected to pay an estimated 60 cents per share total this year and will continue to pay future cash dividends on a quarterly basis. Company officials did not respond to media inquiries about the new dividend policy.

Robert Goldman, senior vice president and a medical devices and supplies analyst at C.L. King & Associates in New York City, says the dividend news is positive for several reasons.

“It does suggest that the board of ConMed is confident the company has good cash flow,” he says. Obviously, a company doesn’t want to start paying dividends only to have to rescind them a year or two later due to cash-flow problems, he notes.

Goldman also likes the dividend news because it means he’s less likely to hear another bit of news from the company. “It lessens the likelihood that ConMed will make acquisitions,” he says.

ConMed’s last acquisition was in September 2004, when it acquired endoscopic products manufacturer C.R. Bard, Inc. and started its endoscopic technologies division. That division, Goldman notes, has lost money most years since the acquisition, and that hurt the company’s earnings per share.

“In my judgment … all acquisitions are bad for the stock unless proven otherwise,” Goldman says. That’s usually because companies tend to overpay for acquisitions, he says. ConMed purchased Bard for $80 million, using $30 million of its cash on hand and borrowing the rest under its revolving credit facility.

Acquisitions are one option companies have when they have good cash flow, Goldman says. Other options include buying back shares of the company stock, reinvesting in the company through efforts such as capital projects, or giving back to shareholders in the form of dividends.

With his dislike of acquisitions, Goldman says his next choice is to see the company reinvest the money back into the company. In recent years, ConMed has made some capital investments including building a new 208,000-square-foot manufacturing facility in Chihuahua, Mexico in 2009.

Realistically, there are only so many ways a company can reinvest funds, Goldman says, and not every company can take on projects at a pace that keeps up with cash flow.

That’s why ConMed’s decision to start paying dividends is a sound one at this time, he says. He also likes that ConMed set its dividend yield at 2 percent. “Within the medical-device industry, it’s pretty good,” he says of the yield. In fact, it’s at the higher end of the yield curve, he says, which is another indicator that the company is confident in its cash flow since companies traditionally try to grow their dividend every year. “That’s a sign that you’re growing as a company,” he says of a rising dividend.

The only criticism Goldman has of ConMed’s current financial performance is its lack of spending on research and development (R&D). ConMed spent $7.1 million on R&D in 2011, when it generated sales of $185.6 million. That’s down from $8.1 million in R&D spending on sales of $184.1 million the year before. Goldman feels the company’s spending is too low in relation to sales and that ConMed risks falling behind in the race to get new products to market.

In February, ConMed officials discussed a number of new products that became available in late 2011 that it contends will help bolster sales in 2012. Those products include its Altrus thermal tissue-fusion system, now cleared for sale in Canada, and its new Hall Lithium Power Battery System of rechargeable lithium ion battery packs for ConMed Linvatec’s PowerPro Max and MPower battery-operated surgical instruments. Between new products and a new partnership with Musculoskeletal Transplant Foundation (MTF) tissue bank, the company expects to see a mix of about 3 to 4 percent organic growth and 4.5 to 5 percent growth from the partnership with MTF.

ConMed President and CEO Joseph Corasanti recently forecast that ConMed will generate full-year sales of $780 million to $790 million in 2012, with earnings per share of $1.75 to $1.88. For the first quarter, he estimated sales of $190 million to $195 million, with per-share earnings ranging from 42 cents to 47 cents. 

Headquartered in Utica, ConMed (www.conmed.com) manufactures surgical devices and equipment for minimally invasive procedures and patient monitoring. The company employs about 3,400 people worldwide.