$22.85
$104.77
bear $22.85
base $55.81
bull $104.77
margin of safety $26.00
market price* $46.72
CONMED makes surgical devices used in orthopedic sports medicine and general surgery. About 86% of its roughly $1.37 billion of 2025 sales came from single-use products that are thrown away after each procedure, and much of that is pulled through by equipment already in hospitals: AirSeal insufflation systems with their proprietary access ports, Buffalo Filter smoke evacuation, powered shavers and arthroscopy fluid systems, and the foot-and-ankle implants from the 2022 In2Bones purchase. About 44% of sales are outside the United States. The business grows mainly by adding a mid-sized acquisition every few years, paid for with borrowed money, and then growing the consumables those products sell. Owner earnings. We start from operating cash flow and take out the timing effect of receivables, inventory, payables and accruals, the cost of stock compensation, and the capital spending needed to keep the plants and equipment as they are. We treat CONMED's steady spending on demonstration and loaner equipment for hospitals (about $13-24 million a year, shown as 'other assets') as a running cost and leave it in. On that basis owner earnings were about $1.00 a share in 2016, $2.25 in 2019, $3.56 in 2021, $2.11 in 2022, $3.27 in 2023, $4.98 in 2024 and $3.92 in 2025. Amortization of acquired intangibles (about $57 million a year) is added back, as it is a cost of past purchases rather than of running the business today. We do not assume those purchased product lines last forever: the later years of every case grow slowly or shrink. Because CONMED carries a lot of debt, we value the whole business before its lenders are paid, then subtract the debt. Cash interest of $22-34 million a year is added back for this. Across 2021-2025, the period that includes the Buffalo Filter and In2Bones businesses and the 2022 supply-chain breakdown, this pre-interest cash stream had a median of about $4.34 a share, or roughly $131 million. We use the median of that full window. We do not use the strong 2024 or the weaker 2025 alone. Part of the 2025 dip came from one-time executive transition and manufacturing-consultant costs. What changed this year. CONMED has dropped its gastroenterology products. It ended the Gore VIABIL biliary stent distribution deal on January 1, 2026, and sold the remaining GI assets for $7 million and $14 million in the first half of 2026. That removes some sales and profit, so our starting level for 2026 is about $128 million, a little below the median. In June 2026 the company bought back $645 million of its 2.25% convertible notes due June 2027, paying with a new $450 million secured term loan maturing in 2030 and its revolving credit line. The large 2027 repayment that dominated the risk picture has therefore been mostly refinanced. The interest cost goes up, and that is already reflected because we value the business before interest. The company also stopped its dividend in 2026 and has started buying back shares. Total debt at June 30, 2026 was $834 million, plus $33 million still owed on the Biorez acquisition earn-out, against $37 million of cash. Net debt is about $850 million, or roughly $28 a share on about 30.1 million shares. About $155 million of the convertible notes remain, due June 2027. The company has $650 million of revolver capacity, which should be enough to cover them. Growth check. Owner earnings per share fell about 21% in 2025. Our base case starts 2026 down about 13% from 2025 on the pre-interest measure, which is still a decline but a smaller one than last year's. There are two specific reasons for that. First, the 2025 figure was held down by one-time executive transition and consulting costs disclosed in the 2025 annual report. Second, the six months to June 30, 2026 (reported July 29, 2026), after the GI sales were gone, produced about $65 million of cash before interest once the working-capital build is removed. About $10 million of that was a one-time tariff refund. Without the refund, the half-year runs at roughly $110 million a year, and the second half has usually been the stronger one. That is consistent with, though not above, our starting level, which is why the bear case starts at $120 million. Base case: worth about $2.53 billion as a business, less about $850 million of debt, or about $56 a share. The business earns about $128 million in 2026. It then grows 3% a year, below the 5-6% organic sales growth the company reported in 2025 and the first half of 2026. That growth comes only from existing consumables in procedures already using CONMED equipment, and roughly a third of each year's extra sales is held back for the inventory and receivables it needs. No new acquisitions, no margin improvement and no new products are counted. After year ten, earnings stay flat in dollar terms. That rests on a demonstrated fact: an installed base of AirSeal, smoke evacuation and arthroscopy equipment that has kept selling single-use products for more than a decade. It assumes no further growth. Bear case: worth about $1.54 billion as a business, less about $850 million of debt, or about $23 a share. The 2026 level is about $120 million. Then the company repeats a 2022-type stumble: in 2022 a supply and inventory breakdown cut owner earnings about 40% from the prior year. Here pre-interest cash falls about 30% to $85 million in 2027 and recovers only slowly. Tariffs on goods made in Mexico, which the company says already raise its costs, stay in place. After that, growth is 1% a year, and the business shrinks 2% a year after year ten as purchased product lines age without being replaced. Even at the low point, cash before interest is about twice the interest bill, so the debt can be carried and the remaining convertible notes can be paid from the credit line. Shareholders keep something, but the debt claims more than half of the business's value. Bull case: worth about $4.0 billion as a business, less about $850 million of debt, or about $105 a share. The business earns about $140 million in 2026, close to the 2025 level before the one-time costs, and grows 5% a year in line with recent organic growth. That growth continues at 2% after year ten as hospitals keep buying the single-use products tied to their installed equipment. What could make this wrong. The two weak points are the inventory and working-capital swings, which have twice wiped out most of a year's cash (2020 and 2022), and the debt, which now needs refinancing in 2030 instead of 2027. A second issue is that much past growth was bought rather than earned: In2Bones and Biorez came with earn-outs that cost about $104 million in cash over 2023-2025. A competing insufflation product that displaced AirSeal would hurt more than any single supply problem. The company lists this as a named risk. Margin-of-safety price. We are fairly confident of the earnings level. Cash from the consumables base has stayed in the $120-190 million range before interest in four of the last five years. The exception is 2022, and it shows how badly this company can execute in a bad year. The worst plausible outcome is another supply breakdown during a downturn in surgery volumes. With most of the 2027 notes now refinanced into a loan maturing in 2030 and a mostly undrawn credit line, the business would survive that, but shareholders would absorb most of the damage. Every $100 million of lost business value is worth about $3.30 a share. If the cash level is 15% lower than we think and the business does not grow, the shares are worth in the low $30s. With no dividend, any return in the cases has to come from cash used to repay debt and buy back shares, which is about $3 a share a year at the base level. On the base path, from a price around $26 the value per share should compound toward the mid-$60s within five years as debt falls. That works out to roughly 20% a year. In the bear case, value is still near $26, so the bear case implies a small permanent loss at most. The margin-of-safety price is $26.