PebbledsPicks (90.82)

October 2009: CryoLife Inc. (CRY)

October 23, 2009 – Comments (1) | RELATED TICKERS: CRY

CryoLife, Inc., through its subsidiaries, engages in the processing and distribution of implantable living human tissues for use in cardiac and vascular surgeries, as well as the development and commercialization of medical devices in the United States, Canada, and internationally. It primarily provides CryoValve SG pulmonary human heart valve. The company also offers Hemostase, a microporous polysaccharide hemostatic agent. In addition, CryoLife develops BioGlue surgical adhesive. Further, it distributes CardioWrap, a resorbable protective plastic sheet used to replace the pericardium in cardiac reconstruction. CryoLife distributes its products through field service representatives, cardiac specialists, direct field representatives, and independent distributors. The company was founded in 1984 and is based in Kennesaw, Georgia.

Comments: CRY is way outside my circle of competence, and thus I would probably not buy this one in real life.  However, in screening for new stocks for PebbledsPicks I like what I see in CRY, which appears to be a solid long-term grower in a niche biomedical space.  CRY has a spotless balance sheet with tons of cash on hand.  They are profitable.  Margins are huge.  Executive compensation looks reasonable.  Founder Steven Anderson is 70 and appears to own about 4%-5% of the company, which makes me think about TMF stillwater's "venerable owner" strategy and a possible catalyst of selling the business, though this level of ownership is not that high.  In the last five years CRY has grown revenues an average of 14% a year.  Analysts estimate CRY will earn $0.52 a share in 2011.  So at today's price you're buying a company growing earnings at an estimated 20%-25% at about 18x 2010  earnings and 14x 2011 earnings.  If CRY can grow earnings on this trajectory for the next couple of quarters my guess is the market will re-evaluate CRY's long-term growth potential and could easily apply a 30x multiple (or higher) on 2011 earnings, which would bring the stock up to about $15, which it has seen before. At any rate, technically it appears $5 has serious support on the downside.  If the stock gets up to $10 or $11 in the next 12 months I will likely sell it from PebbledPicks.