Kinetic Concepts, Inc. (KCI)

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The Company designs, manufactures, markets and services a range of proprietary products that can improve clinical outcomes and can help reduce the overall cost of patient care.Ã‚Â

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Avatar DemonDoug (99.67) Submitted: 4/24/08 2:12 PM : Start Price: $39.62 KCI Score: -9.63

Here is another company that is a "picks and shovels" type company to the health care industry.

"Kinetic Concepts, Inc., a medical technology company, engages in the design, manufacture, marketing, and service of wound care and therapeutic products in the United States and internationally."

Low p/e, beaten down recently, re-affirmed guidance, growing earnings, international presence is always a great thing in this falling dollar environment. Again fits my criteria of nearer the 52 week low with my value bias to stocks, but make no mistake, this is a growth company that should continue to grow.

Cons to this stock are that their recent acquisition is dilutive and hedge funds are likely to short it hard, so we might find a better buy-in point. The core of the business is very solid however. You might think about making this stock a long trade because it is likely there will be very high volatility.

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Avatar escarzamd (27.46) Submitted: 6/01/08 1:21 PM

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Love your posts DD. New to the game myself.

The problem I have in the longview with this company is CMS will be negotiating prices for this service going forward, and the CEO herself said they couldn't provide the service at the price first offered. I just can't see the growth if the primary payer for services is the US Gov't. The products work well (LifeCell's as well), but there is no real moat around the primary money-maker. Neg pressure wound care is essentially sponges and a vacuum set-up. The graft business is a nice idea, but don't see room for growth there either for the same reasons........CMS.

Good luck with your play........

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Avatar DemonDoug (99.67) Submitted: 6/02/08 6:15 PM

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I have to admit, I'm not up on who the players are in the vacuum wound-care sector are. I can't imagine there are hundreds of companies marketing products like this. Do you work in health care? As far as paying, the CMS always has their budget out for cutting everything, and then the powerful medical establishment gets Congress to enact legislation where CMS ends up paying the same or more for many treatments and providers.

The problem CMS has is that more and more people are getting sicker every year, as the boomers start having failing health. It is likely that KCI and all medical device companies will be having a lot of organic growth due to the sheer volume of patients coming down the line - this is the basis of my thesis of being bullish on healthcare. I'm not saying every company involved in health care is a great investment, but KCI is reasonably priced at a p/e of 12.5, reasonable price to sales and PEG ratio, strong cash position.

My belief is that KCI had been beaten down because the Market does not like the fact that they paid 1.7B for LifeCell... this is somewhat standard for mergers, the company being acquired gets a premium to their stock price, and the company who is buying gets their stock price knocked down. If you believe the LifeCell products will continue to promote growth and synergies with KCI, then I see no reason why this stock can't go to 50 or beyond. There is a good chance KCI will dip below 40 when they report results for this quarter, because the EPS should be down (and very likely negative) with the acquisition. I also wish they paid a dividend, as this sector would tend to be a more stable one with steady growth as opposed to some high-flying explorative issue.

Still, good products, good company, reasonable valuation in a growth industry (despite the CMS stuff), should perform well over the next few years.

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Kinetic Concepts, Inc. (KCI)

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