<CMED CC Notes part 2, copied from The Fool>
Subject: Saltman's CC Notes, Part 2 Date: 8/25/99 2:14 PM
Author: SValdes49 Number: of 514
Ken Turbovich, Bigelow & Co.: FY99 bookings, 68m. Nice growth here (No one asked about current backlog. This has always been healthy for CMED and I would like to know the numbers). Will CMED pay dividends? No, very interested in strategic acquisitions. Want to integrate manufacturing in one place. Now, split is 45% manufacturing and 55% R&D. Next 10K will include some segment reporting and more breakdown than you have gotten in the past. Employee count, up to 550 ballpark from 400. Up 33%, Creos will add 25 to this. Will the operating leverage continue to be maintained-ie, the top line is growing but SGA seem to be under control. CMED says will stay at same % of sales as we grow, and maybe even decrease some. How about requests for proposals coming to CMED? Mgmt. says hard to answer. Says a company will not naturally grow 30 to 35% without the company actively working on it and we are working on it.
Dick Jimstadmiller, RJ Steiker. What is status of Freshaire project? Have you given up? No, still working to get FDA approval. Had to get UL approval, and now done. Thinks that is last thing FDA required. Should happen shortly. Vencor still on hard times, will not be a buyer. CMED went ahead at end of 3rd qtr and wrote off all Freshaire expenses due to uncertainty, Vencor problems, etc. Ready to sell and market if get FDA approval. Getting harder to sell somewhat due to nursing home reimbursement guidelines being tightened, but CMED thinks can sell it. Zero downside risk here, sorry for delay, and we are pushing it as best we can (not too bad news since already written off, I agree only upside for Freshaire, or no $ at worst. Since no analysts currently figure Freshaire revenue in projections, should not hurt too much and may help).
Craig Layton: 2 or 3 significant new BioMed Y2k contracts in last couple of months. About 11% of devices are noncompliant and 3% seriously noncompliant. Backlog is fairly significant for next 6 mos.
Conclusion-going well and looking forward to the year ahead.
(So, why is this stock down 3 to 4$ and why did Advest downgrade? Hard to tell. I have not read Advest downgrade and do not know all the steps in the Advest scale of ratings. I do know I was more convinced when I was recommending CMED to people at 11 than I am recommending it at 22. I felt clearly undervalued at 11, and now maybe closer to true value until we get an acquisition and watch future growth rates. I certainly did not hear anything in the call or see anything in the numbers to cause a dramatic drop in price. The company has $1.79 cash per share, and if you back that out of today's market price of 18 «, we get a PE of 26.52. PE is 29.36 if you do not back out cash on hand. Either way, if CMED grows at 40% in the future, still seems like a good investment at these levels. Margins are increasing, debt remains at zero, cash is growing, the prior problems with receivables being too old has been resolved, new big contract with Hitachi, CMED does business with GE and Genprobe, the new Creos technology sounds interesting and certainly is in CMED's area of business. Also, if you watch IBD monthly future on buys of top rated mutual funds, you have seen CMED's name pop up on the list. I like it when a mutual fund buys a stock at 18 that I started buying 2 years ago at $6. They certainly think there is upside here. Negatives are acquisitions have taken longer than mgmt. previously indicated, and the larger CMED gets I think we will see more slowing in growth rates. Harder to go from 68m in revenue to 100m, than from 30m to where they are today. Also, PEG ratio is no longer a Foolish .50, but is more in .75 range depending on whose figures you use. Just my thoughts, I intend to remain long for now because I think a year from now we will be up from where we are today. GLTA)
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