Medical Action Industries: Supplying The Details

Medical Action Industries: Supplying The Details

Price:$5.46

Forward P/E:14

Earnings Growth:40%

Projected Sales Growth:4%

Market Cap:$100 million

Why It's Featured: Earnings should improve with lower materials costs.
Danger Zones: Margins thin; very small cap; materials costs.

Medical Action Industries Inc. MDCI develops, manufactures, markets, and supplies various disposable medical products primarily in the United States.  Product lines are divided into two markets: Clinical Care and Patient Care.

Clinical Care offers custom procedure trays that include orthopedic, cath lab/radiology, labor and delivery, cardiac, ophthalmology, tissue procurement, neurology, robotic, gynecological, vascular, urology, cosmetic/plastic surgery, anesthesia/pain, bariatric, and general/other trays; minor procedure kits and trays, such as central line dressing, suture removal, laceration, incision and drainage, general purpose instrument, wound dressing change, sharp debridement, venipuncture, ear and ulcer syringes, trach care, and irrigation trays, as well as razor and shave prep kits, piston syringes, and I.V. start kits; and operating room disposables and sterilization products comprising surgical marking pens, needle counters, light shields, convenience kits, surgical headwear and shoe covers, isolation gowns, instrument protection, eye-shields, suture boots, basin separators, reel cutters, patient aids, crutches, walkers, canes, patient slippers, O.R. basins, magnetic drapes, guide wire bowls, bowie dick test packs, vessel loops, anti-fog solutions, heat sealers, and tray liners.

Patient Care provides patient bedside products consisting of wash basins, bedpans, pitchers and carafes, urinals, emesis basins, soap dishes, medicine and denture cups, tumblers, sitz baths, service trays, and perineal bottles; dressings and surgical sponges, which include burn dressings, sponge counting systems, elastic nets, and bandage rolls; containment systems for medical waste, such as waste solidifier and spill cleanup kits, and equipment dust and sterility maintenance covers; and laboratory products comprising petri dishes, containers, collectors, calculi strainers, and vials.

It sells primarily to acute care facilities through a network of direct sales personnel.  The company was founded in 1977 and is headquartered in Brentwood, New York.

This stock traded as high as $25.60 in 2007 (split adjusted for a 3 for 2 split early that year).  But earnings went from 81 cents a share to 31 cents in 2008, and the stock went down with them, as low as $5.40 before it started to rebound.  The bounce took it as high as $17.70 in late 2009, but that was it.  Since then it trended downward, making a fresh low of $4.30 last last year.  Now it seems to be heading higher. 

Earnings per share in 2011 should finish at 25 cents a share, below the 32 cents reported in 2010 (fiscal year ends March 31).  But 2012 is forecast to be 38 cents by 2 analysts.  2013 looks to bring in 45 cents. (For more investment ideas, see: www.theonlineinvestor.com)

Third quarter results were out in early February.  They showed an 8% increase in revenues to $113 million compared to the third period of last year.  80% of the gain was from volume, 20% from price increases.  Profits were constrained by costs in raw materials which were highly volatile most of last year.  While management can control operating expenses, it hasn't been able to raise prices sufficiently and consistently to increase margins.  Third quarter profits were 11 cents a share, equal to the 11 cents made in the third period of the previous year.

Some examples of materials costs: cotton, the main component of operating room towels and laparotomy sponges skyrocketed between 2010 and 2011.  Plastic resin also ran up but not to the extent cotton did.  These two components have squeezed profit margins thin.  But both of these materials are off their highest prices, and if the trend continues, MDCI will improve margins and earnings.  If the company can raise prices, expect even better bottom line performance than analysts currently predict.

- Essential numbers:
- Price to sales ratio: .2
- Price to book: .59
- Operating margin: 2.32%
- Profit margin: .86
- Return on equity: 2.17%
- Return on assets: 2.06%
- Revenues for last 12 months: $434.37 million
- Total cash: $1 million
- Cash per share: 6 cents
- Total debt: $85.28 million
- Debt to equity: 56%
- Current ratio: 1.88
- Book value per share: $9.24
- Beta: 1.81
- 52 week change: - 34.46%
- Shares Outstanding: 16.39 million
- Float: 13.98 million
- Held by insiders: 14.33%
- Held by institutions: 71.50%
- There is no dividend

A few numbers stand out, some good, some bad.  The price to book is very attractive.  The price to sales ratio is also impressive, from a value perspective.  High insider ownership is also a plus.  On the negative: low profit margin, and low return on assets and equity.  Still, the stock has bounced by 20% in the last 90 days.  Most likely investors are beginning to see this as a bargain, especially if they think raw materials costs will continue to decelerate.

- Company Web site: www.medical-action.com

- Ted Allrich
March 1, 2012

Posted In: EarningsLong IdeasShort IdeasMarketsMoversPersonal FinanceTrading IdeasReviewsEarningsmedical equipment
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