Baylis was founded by Gloria Baylis (a registered nurse) in Montreal in 1986. In addition, to pain management products, the company also makes high-tech medical devices for cardiology and radiology.

The acquisition is believed to improve the competitive position of the company’s Health Care segment in the $2 billion global market for minimally invasive chronic spinal pain management. 

However, the financial terms of the transaction were not disclosed. Since 2001, Kimberly Clark's Health Care division has been the exclusive distributor of Baylis Medical's pain management products in the U.S.

Management stated that the Baylis pain management business acquisition is consistent with the company’s global business strategy to invest in the higher-growth, higher-margin medical device market. This transaction will enable Kimberly-Clark to accelerate its growth in the pain management business around the world while strengthening its commitment to patients suffering from chronic spinal pain.

Kimberly-Clark is known as the maker of Huggies diapers and Kleenex tissues. Its Health Care segment (5% of revenues) manufactures and markets disposable health care products, such as surgical gowns, drapes, infection control products, sterilization wrap, face masks, exam gloves, respiratory items and other disposable medical products.

Earnings per share were 98 cents compared to analysts' estimates of 96 cents.

Revenue grew 6% to $491.3 million compared to the second quarter of 2008. Foreign currency translation negatively effected revenue by 4% in the quarter.

The company saw strength in the Worldwide V.A.C Therapy segment as revenue rose 3% to $349.4 million year over year.

Regenerative Medicine, or LifeCell, which accounts for 15% of total revenue, climbed 22% to $71.1 million on a pro forma basis. The company completed its acquisition of LifeCell in May 2008.

Sales of Strattice, its porcine-based regenerative tissue matrix which launched in Mar 2008, generated 31% of the total LifeCell sales in the quarter, up from 10% of the total in the year ago period.

Reaffirmed 2009 Guidance

The company reaffirmed prior 2009 earnings per share guidance in the range of $3.95 to $4.10.

Covering analysts responded by raising full-year consensus estimates by 15 cents to $3.97 per share to be in line with the company's forecast.

Third-quarter estimates fell, however, to 88 cents from $1.02 per share. in the last week even though 4 out of 8 covering analysts raised and 2 lowered during that period.

Value Fundamentals

Kinetic Concepts, which manufactures health care products for advanced wound care, negative pressure wound therapy and therapeutic support systems, was a Zacks #1 Rank (strong buy) stock when I last reviewed it on Jul 1. It is now a Zacks #2 Rank (buy) stock.

It is still cheap, trading at just 7.4x forward earnings.

Read the Jul 1 analysis.

Update to Previous Value Zacks Rank Buy Stocks

Goldman Sachs Group Inc. (GS), the global financial services firm, recently reported a much better than expected second quarter that surprised by 40.06%. While everyone is talking about the blow-out quarter, not many people realize that Goldman Sachs is a value stock and trades at just 10x forward earnings. Read the full article.

Tyco International Ltd. (TYC), the global manufacturer of various industrial products, has surprised on estimates the last four quarters by an average of 26.56%. It is expected to report third quarter results next week. Read the full article.

Mirant Corporation (MIR), the electricity provider, has surprised on estimates 3 out of the last 4 quarters by an average of 9.87%. The stock is cheap. MIR trades at just 5.4x forward earnings. Read the full article.

Western Digital Corporation (WDC), the hard drive manufacturer, is set to report fourth-quarter 2009 earnings next week. The company has surprised 6 consecutive quarters. Even though the stock has more than doubled since its March lows, it still isn't expensive. WDC trades at 13.9x forward earnings. Read the full article.

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Company Description

Kinetic Concepts manufactures health care products in the areas of advanced wound care, negative pressure wound therapy (NPWT) and Therapeutic Support Systems.

The company has three business segments: Advanced Wound Care which includes the Vacuum Assisted Closure system; Regenerative Medicine which includes tissue-based products for use in reconstructive, orthopedic and urogynecologic surgical procedures; and Therapeutic Support Systems which includes specialty hospital beds and mattress replacement systems.

On June 29, Kinetic announced it would acquire the patents and intellectual property of Hill-Rom's Negative Pressure Wound Therapy. It included both U.S. and foreign patents. Terms of the deal were not disclosed.

Revenue Rose 12% in the First Quarter

On Apr 21, Kinetic Concepts reported first quarter results that missed on analysts' estimates by a penny. However, revenue was up 12% to $470.1 million from the year ago period. Adjusted earnings per share were 82 cents compared to 94 cents in the first quarter of 2008. Analysts expected 83 cents.

The tough economic conditions, especially weak global demand, impacted first quarter results.

"Despite this challenge, we were encouraged as demand for our innovative and high-value therapies in the areas of Wound Healing and Regenerative Medicine was solid and we increased gross margins through improved productivity and product mix," said Catherine Burzik, President and Chief Executive Officer of KCI.

2009 Guidance

The company provided guidance of adjusted earnings per share for 2009 of $3.95 to $4.10.

Earnings Estimates Rise

Analysts have scrambled to keep up with the company's guidance range for the year. Full-year estimates jumped 11.23% in the last 30 days to $3.86 from $3.47 per share.

Second-quarter estimates also climbed by 9 cents to 95 cents during the same period with 2 out of 4 covering analysts raising.

Value Fundamentals

Kinetic Concepts is a Zacks #1 Rank (strong buy) stock. It is cheap, trading at only 7.26x forward earnings. Its price-to-book is 2.09. The company has a stellar 1-year return on equity of 31.78%.

Zacks Investment Research

The organizational changes will require charges of $140 million to $150 million (or between $0.24 and $0.26 per share), mostly in the second quarter of 2009 (about $0.19 per share). Management expects to achieve $0.10 per share in savings during the second half of 2009.

The reduction of the workforce will not only further streamline the company, but also accelerate the implementation of the company's other cost reduction programs, namely the FORCE (Focused on Reducing Costs Everywhere) program and the Strategic Cost Reduction Plan, which target savings from sourcing and supply chain activities.

The workforce reductions will primarily affect salaried and non-production jobs. Management does not plan to close any manufacturing plants as part of the workforce reduction.

The effects of the reduction in the workforce were not included in management's previous earnings guidance, which was issued concurrent with the last earnings release. The guidance was a range of $4.00 to $4.20 per diluted share. In addition, management believed that earnings per share in the first half of the year were likely to be down versus 2008 with positive year-over-year quarterly comparisons in the second half of the year. Management will update earnings guidance on Jul 23 when second-quarter earnings are announced.

Dallas-based Kimberly-Clark sells paper-based consumer and medical products in more than 150 countries and holds the No. 1 or No. 2 position in terms of market share in more than 80 countries. The company operates through 4 business segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care.

The Personal Care segment produces diapers (Huggies, Pull-Ups, and GoodNites), swim pants (Little Swimmers), and adult/feminine hygiene products (Kotex, Lightdays, Poise, and Depend) and accounted for 43% of total revenues in 2008.

The Consumer Tissue segment, which accounted for 35% of revenues, manufactures facial and bathroom tissues (Kleenex, Cottonelle, and Scott), paper towels, napkins, wet wipes, and other products.

Accounting for 16% of revenues, the K-C Professional & Other segment manufactures and markets facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products for the away-from-home marketplace under the brand names of Kleenex, Scott, WypAll, Kimtech, KleenGuard and Kimcare.

The Health Care segment (5% of revenues) manufactures and markets disposable health care products, such as surgical gowns, drapes, infection control products, sterilization wrap, face masks, exam gloves, respiratory items and other disposable medical products.

Shares are down nearly 11% today.

The health care products and services company aims to spin off its CareFusion segment early in its 2010 fiscal year.

For the fiscal year ending Jun 30, Cardinal Health projects earnings, eliminating the division, between $2.20 and $2.25.

Analysts are expecting earnings per share of $3.51 for the current fiscal year. That's down from $3.55 2 months ago.

The company also announced that it would raise its quarterly dividend to 17.5 cents, an increase of 25% from 14 cents.

This Zacks #4 Rank ("Sell") company is moving on heavy volume of 11 million shares, versus the daily average of 1.5 million.