Hi Alan
As far as competing with Johnson & Johnson and other big companies, I was told that they have been targeting many of the poorer countries in the world where cost is the most important factor in choosing products. Apparently Lukens has the lower cost products. Also Ethicon, ( which I believe is a subsidiary of J&J ), and Geck & Davis were the only 2 producers of synthetic absorbable sutures. Because of a lack of competition, the price for these sutures is very high. Lukens is now the 3rd company that can produce it and there by compete. If you reread their press release dated 2/18/97 that announced their FDA approval, the CEO stated that " the market has been crying for alternative sources of this type of suture, we expect demand for the product to be very strong. " What he meant was the 2 companies had a virtual monopoly on that type of suture and now Lukens can enter the market with a lower cost product. I was also told that Lukens has a 1 to 2 year head start on any other company planning to produce this type of suture. As to why their products are lower in cost, I know that their sutures are assembled in Mexico with much cheaper labor. You asked if they can be competitive with the big companies, Lukens has been experiencing consistent revenue growth in the 60% range and earnings in the 100% range, so I would have to say that their strategy appears to be working. Today's announcement about the Aortic Punch wasn't a huge deal but it does reconfirm that they are doing exactly what they said they were going to do and that is to keep adding new quality products to their expanding distribution channels.
As to the warrants you are exactly right that they will dilute earnings as they are exercised. Lukens is expanding at a fast pace. The only way to finance that is to offer more stock or borrow money. They have done some of both. You can't have high growth for free and I feel that the growth will more than make up for the dilution, after all, their earnings have been growing at a triple digit rate. Lukens has great management and I already bet my money that their growth strategy is the right one. If they continue on this pace the stock price should be in the $13.00 range by the end of the year and that will still be very undervalued compared to their industry.
For those of you who think LUKN is a great stock I know of one that I believe is even better. It is Lifeway Foods LWAY. I have posted the latest information about it at the forum called Lifeway Kefir in the Specialty Retail subject, I hope you all read it.
Thanks,
Mark |
