Good Medicine

Top 10 US Companies To Own In Right Now

The medical device market keeps expanding, as new technologies are constantly introduced and the need for health care by the U.S. population keeps growing. One of the most dynamic companies in this sector is Medical Action Industries Inc. (NASDAQ: MDCI).

Medical Action is a manufacturer and distributor of disposable medical devices, and a leader in many of the markets where it competes. Its products are marketed primarily to acute care facilities in domestic and certain international markets. The company has recently expanded its target market to include physician, dental and veterinary offices, out-patient surgery centers, long-term care facilities and laboratories.

Medical Action’s products are marketed nationally by its direct sales personnel and extensive network of health care distributors. The firm has preferred vendor agreements with several national and regional distributors, as well as sole and multi-source agreements with group purchasing organizations.

Concerns about contamination, infection, or imperfection in medical supplies have never been higher. Medical Action has earned a solid reputation for producing reliable, well-crafted medical tools.

The company has moved to a dominant position in the operating room supplies market in just a few years. Among the company's products are sutures, laparotomy sponges, operating room basins and various sterility monitoring products. It also offers clinical care market products, which include custom procedure trays and minor procedure kits. Medical Action has a strong record of developing new products and getting them approved by the Food and Drug Administration in a timely manner.

As the population ages and more Americans are covered by Medicare, while younger Americans have more access under! the Affordable Care Act, the earnings potential of well-managed health care providers and the companies that supply them with tools will only grow.

The company's first-quarter earnings report was strong. Net sales for the three months ended March 31, 2014 were $72 million, which represents an increase of $3 million or 4.5 percent from net sales for the comparable prior year period. Gross profit of $14 million, for a profit margin of 20 percent, represented a significant improvement over the gross profit of $13 million reported in the comparable prior year period.

The improvement is largely attributable to focused efforts on organic revenue growth, improved pricing discipline, and expense management. Paul Meringolo, the firm's Chief Executive Officer, said, “Fiscal 2014 was an eventful year. We produced market share gains in many of our key product categories and our management teams have made significant improvements with respect to profitability and operating results. Also, our recent divestiture of the Patient Care business unit has significantly improved our balance sheet and will facilitate our pursuit of synergistic business opportunities. I am looking forward to continuing to build stockholder value through the optimization of our remaining business units and by providing quality products and innovative solutions to enhance the patient experience.”

Earnings per share, however, were negatively affected by legal fees associated with the reorganization of Medical Action to focus on its core competence.

The most important of these transactions was the sale of the company's Medegen Medical Products, LLC subsidiary and certain other assets of its Patient Care business unit to Medira Inc., an affiliate of Inteplast Group, Ltd., for approximately $79 million.

“The completion of this transaction has significantly strengthened our balance sheet and will facilitate our pursuit of synergistic business opportunities," Meringolo said. "! We look f! orward to continuing to build stockholder value through the optimization of our remaining business units and by providing quality products and innovative solutions to enhance the patient experience.”

The good first quarter numbers weren't just a fluke, either. Net sales for fiscal 2014 were $288 million, which represents an increase of 1.1 percent over fiscal 2013. The reported gross profit margin of 19 percent was up from 16 percent the year before. 

The stock price can be volatile, though. Within the last six months it has risen as high as 9 and fallen as far as 6.5. It is now trading at around 7.5 with a price-earnings ratio of 29. The turbulence can be attributed to market analysts' concerns about the company's reorganization plans. Those plans have largely been vindicated, however, and the company seems poised for another upswing.