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Mentor Upgraded by CIBC Analyst on Expectations for Third-Quarter Sales, Attractive Price

January 10, 2008: 02:43 PM EST

NEW YORK (Associated Press) - Shares of Mentor Corp., which makes cosmetic and reconstructive surgery products, edged higher Thursday after a CIBC analyst upgraded the stock, saying issues continue to plague the company but sales expectations are achievable and the stock's value appears attractive.

In a note to investors, analyst Amit Hazan upgraded Santa Barbara, Calif.-based Mentor to "Sector Outperform" from "Sector Perform."

Sentiment is low for Mentor, which makes saline and silicone gel-filled beast implants, mainly due to the economic environment and competition, Hazan said. When the economy experiences a downturn, people tend to shy away from cosmetic procedures that don't qualify as necessary medical expenses.

However, he thinks these concerns are overblown.

"One of our main concerns in recent months has been a slowing in breast implant procedure growth, and indeed high single digit growth in calendar 1H07 became low single digit growth in 2H07," said Hazan. "But right now, we feel investor focus on the consumer and slowing procedure growth has perhaps gone too far (as evidenced by our survey), and entirely overshadowed other positive developments."

Hazan expects Mentor to meet Wall Street expectations for the fiscal 2008 third quarter ended in December and predicts 2008 guidance will be reaffirmed.

The analyst also said the stock's valuation "is notably more reasonable now than it has been in well over a year." He added that sentiment is likely to improve, and he issued a new 12-month price target for the stock of $48.

Even though Mentor's product pipeline is not "top notch," the company could see approvals before March, said Hazan.

In addition, gross margins could expand, Hazan said, noting that silicone sells for double the price of saline. He said he's also optimistic over prospects for silicone products based on survey results that show increased physician usage and confidence in silicone.

Mentor's stock posted strong gains earlier in the day. In afternoon trading, the stock rose 36 cents to $36.99. The stock has ranged between $34.84 and $38.59 over the past year. TOPTOP