Cramer had Kinetic Concepts CEO and President Catherine Burzik on the line today. He’s been bullish on the stock, and rightly so. KCI is up a couple of points, or almost 5%, since the call. But the Street is worried about new competition that could cut into the company’s margins. Burzik seemed to put those fears to rest.
The cause for concern came when Smith & Nephew bought Blue Sky Medical. The possibility that Smith and Nephew could cut prices at the cost of Kinetic Concept's profits sent its shares into a panic. That just shows how little analysts understand the market, Burzik said. Kinetic Concepts is in a $4 billion market that is “significantly underpenetrated,” she said. “There are more than 20 million advanced-wound-care wounds out there that can be treated,” Burzik said. “KCI today, with our V.A.C., treats only about 600,000 of those. So there’s a really large opportunity.”
In a nutshell, there’s plenty of business to go around. Competition from Smith & Nephew shouldn’t matter, Cramer said.
As for the therapeutics surfaces part of Kinetic Concepts, the American obesity epidemic is helping its numbers. Burzik said that 33% of the U.S. population is obese or morbidly obese. “It’s a really critical situation,” Burzik said, “and we see that as a big opportunity for us.” That obesity also gives rise to diabetes, Burzik pointed out, and that can lead to amputations. She says KCI’s V.A.C. technology helps to reduce the probability of these amputations.
Cramer liked the stock before the call, and he’s sticking with it. He thinks it’s a buy, buy, buy!