Exactech (EXAC): Good to the Bones

An estimated one million knee replacement procedures are performed worldwide each year. To help meet this demand, Exactech continues to develop next-generation knee systems that respond to the needs of the hospital and surgical community. In 2011, Exactech introduced its Logic knee system, which has received strong acceptance from its surgeon customers. Knee implant products provided a third of the company’s revenue so far this year.
The Equinoxe® shoulder implant system is Exactech’s fastest-growing product line, and it now generates 30% of the company’s revenue.
Hip products, which account for 17% of company revenues, use materials such as ceramic bearing surfaces and enhanced polyethylene for improved wear performance.
Exactech’s biologic and spine products together represent 10% of revenue.
In the most recent quarter, overall company revenues rose 6%, and earnings per share rose 11%. Despite slow growth in the knee business, Exactech’s shoulder revenues rose 17%.

Though the stock carries an above-average risk level and does not pay a dividend, we think it is an excellent value. Our one-year target price for the stock is $27.30, which is almost 20% above its recent price.

Sustainability Profile
Exactech is a very small company and, as such, does not have a formal sustainability policy.
The Exactech philosophy is described as an upside-down triangle with the Leadership Team at the bottom, supporting the other teams. There is no reserved parking or executive wing at Exactech corporate headquarters.
In a recent internal survey, employees stated that they felt valued by their leaders and would encourage their friends and family to work there. More than 90 percent of employees said they are proud to work for Exactech. This high job satisfaction has produced a low annual turnover rate.

Revenues: $240 million
Earnings Per Share (EPS):
2014 est. $1.21
2015 est. $1.36
Projected 3-5 Year Annual Earnings Growth:  8%
Dividend Yield:  0%
52-week Low — High: $18.34 — $26.52
Risk:  Above-average
Website:  www.exac.com