Good Execution At Wright Medical, And Risks May Be Fenced In Now

For a company that had a brief run of adverse developments, Wright Medical's (NASDAQ:WMGI) management seems to have responded effectively and quickly. Sales momentum is good, the integration with Tornier is going well, new products can continue to drive above-market growth, and there are strong indications that Augment is a winning product. Management has also moved to raise cash on relatively benign terms and seems to have made progress on settling its legacy metal-on-metal litigation.

With the improvement in the business and the apparent/potential capping of litigation and financing risk, my fair value estimate for the company moves into the mid-$20s. That's not impressive upside I'll admit, but there is still room for Wright Medical to outperform on revenue (particularly with its recently-launched products) and drive better/faster margin leverage. I'd also note that med-tech companies with the growth/margin profile that Wright Medical should have in 2017 and beyond often get 4x to 5x revenue multiples - suggesting potential upside into the high $20s and $30s.

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Good Execution At Wright Medical, And Risks May Be Fenced In Now