MR Montage Resources Corporation

We downgrade our recommendation on Mindray Medical International Limited (MR) to Neutral. Its third-quarter 2012 adjusted (excluding one-time expenses other than stock-based compensation expense) earnings per share of 39 cents missed the Zacks Consensus Estimate of 41 cents.

Revenues were up sharply 17.7% year over year to $257.1 million, in the third quarter, missing the Zacks Consensus Estimate of $268 million. During the reported quarter, Mindray recorded ex-China sales of $139.4 million, up 11.6% year over year. Revenues in China increased 25.9% year over year to $117.7 million in the reported quarter. The company performed well in emerging markets.

Mindray is a bellwether in the Chinese MedTech industry with a solid international presence. A key distinction with domestic competitors is that the majority of Mindray’s products have CE Mark and/or Food and Drug Administration (“FDA”) clearance.

Mindray maintains a decent product pipeline. New products contribute in a major way to Mindray’s revenues. The company typically introduces a dozen or so fresh products each year.

The company has entered the premium segment globally, where its competitive advantage is still unclear. Also, on the negative side, health care reform in China and the U.S. may reduce demand for Mindray’s products. Competition is fierce and leads to price erosion over time.

Mindray’s competitors, in different niche segments, include GE Healthcare, a part of General Electric (GE), Philips (PHG) and Siemens (SI). We are currently Neutral on the stock. The stock currently retains a Zacks #4 Rank, which translates into a short-term “Sell” rating.

 
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