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Topic: Growth Stocks

Invacare Corp. $31 – New York symbol IVC

INVACARE CORP. $31 (New York symbol IVC; WSSF Rating: Average) makes wheelchairs and other medical mobility aids. It sells its products through over 25,000 home health care and medical equipment distributors in the United States, Australia, Canada, Europe and New Zealand.

The company also sells to government health agencies, including the Medicare and Medicaid programs. However, government cutbacks have hurt Invacare’s sales in the past two years, particularly for more expensive items such as power wheelchairs and oxygen equipment. Rising steel, energy and other costs have also squeezed its profit margins. Consequently, Invacare is taking steps to cut its costs, including shifting about half of its manufacturing operations to Asia over the next three to five years.

This plan will cost Invacare $42 million (pre-tax). But it will ultimately cut the company’s annual pre-tax costs by $30 million. Making more of its products in Asia will also make it easier for Invacare to expand its market share in that region.

Invacare earned $0.32 a share (total $10.5 million) before restructuring charges in the fourth quarter of 2005, down 49.2% from $0.63 a share ($20.4 million) a year earlier.

Revenue in the quarter fell 6.6%, to $367.3 million from $393.2 million, mainly due to problems with a new computerized inventory system.

Invacare estimates that delays in shipping orders cut its fourth quarter sales by $30 million. But the new system is now working as intended, and should help Invacare reach its cost savings targets.

In 2005, Invacare spent 1.5% of its sales of $47.14 a share on research. This year’s research spending should run around the same level. Although that hurts its profits, this spending gave Invacare 37 new products in 2005, including a portable oxygen system that is cheaper to service than regular size tanks.

Uncertainty over Medicare funding has hurt Invacare’s stock in the past year. It now trades at 15.1 times the $2.05 a share it should earn in 2006. That’s cheap in light of Invacare’s strong market position, as well as the growing need for its products. The $0.05 dividend yields 0.2%.

Invacare is a buy.

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