Wells Fargo Initiates Coverage on American Medical Systems Holdings (AMMD) with an Outperform

November 24, 2009 4:42 PM EST

Wells Fargo initiates coverage on American Medical Systems Holdings (Nasdaq: AMMD) with an Outperform rating. Valuation range of $21-23

Wells analyst says, "Product flow and stability in the BPH Therapy business should increase cash flow, in our view, to be used to pay down debt. Our GAAP-adjusted EPS estimates of $0.93 for 2009 and $1.03 for 2010 are based on our belief that the company can generate 11% EPS growth on 6% constant currency [cc] revenue growth as procedures rebound in 2010E. This is in line with small-cap medical supply and GARP peers, to which they trade at a discount (17x 2010E EPS for AMMD, versus 18x and 23x for peers', respectively)...With less than a 1% return on cash positions and a 42% debt-to-equity ratio, interest expense presents an interesting source of P&L leverage for AMMD, in our view. We have factored in use of $128 million in debt repayments in 2009E and $97 million in 2010E, leading to the extinguishment of the term loan in Q2 2011E. This adds approximately $0.06 of EPS to our 2010 estimates (up 6% yr/yr)...We believe that AMMD shares are an attractive investment due to management's concerted focus on product cadence, BPH Therapy profitability, balance sheet deleveraging, and an attractive valuation."

To see all the upgrades/downgrades on shares of AMMD, visit our Analyst Ratings page.

American Medical Systems Holdings, Inc. provides medical solutions to physicians treating men's and women's pelvic health conditions worldwide.

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