This article and the accompanying S...

This article and the accompanying Stock Selection Guide ("Guide are for illustrative meanings only and should not be constru as a recommendation to trade securities of the enthrall company. (Guide omitted) The Guide was prepared approximately six weeks prior to publication. Accordingly, when completing their have a title to study of this company, readers should update themselves forward current corporate developments ad data and deliberate the Stock Selection Manual for details of this stock-study procedure

Subscribers will recognize that MD is being featured a other time as a Stock To Study; its first appearance was in the March/April 1989 issue. This inferior feature illustrates a typical situation of studying a stock after it has exce one's original performance expectations. When first studied, MDS's "A" shares were trading at $1188 (adjusted for stock splits) and has since traded as high as $2275 with a novel price of $12.75. The barter Zone identified in the 1989 article was $1635-$2025 Editor

MD is a diversified, technology-based health care company providing services, issues and information to assist in the diagnosis and treatment of illness and the prevention of disease. The company has six distinctive operating activities:

* operates Canada's largest network of clinical laboratories and physician services;

* supplies radioisotopes, through every part of the world, for diagnosis, imaging, cancer therapy, research and the sterilization of medical products;

* confesss Canada's largest manufacturer and distributor of medical supplies and fruitss for hospitals, physicians and the family circle care market.

* supplies mass spectrometry orders throughout the world, to identify trace compromises of health threatening substances in the environment, pharmaceuticals etc;

* peril capital investing in new companies in the medical and life sciences field; and,

* provides state-of-the-art technology to clinical laboratories worldwide.

Since 1989 MD has been re-balancing its increase and diversifying to make the company les vulnerable to unfavourable disclosures in any single segment of its operations. For example, Ontario laboratory operations accounted for and nothing else about 25% of revenues in 1993 versus 80% in 1989 Similarly, international incomes now represent more than 40% of total incomes versus less than 20% in 1989

PICTURING HISTORICAL GROWTH

REVENUES

As indicated in the accompanying Guide, the annual mix rate of growth in "net revenues" during the 1986-1993 meditation period was approximately 23%. This bourgeoning has been achieved through internal expansion of its core diagnostic and radioisotope businesses, acquisitions and hazard capital investments to keep abreast of strange technologies.

EPS

Since 1986, fully-diluted earnings by share before unusual items ("EPS") have grown at an average, annual unite rate of about 10%. The company typically writes opposite to the cost of implementing laboratory efficiencies in the year that the outlays are incurred--even though the benefits may not be realized for several years. For the fiscal year ending October 31 1993 MD wrote against a total of $34.1 million ($087 by share) of "unusual items" in connection with the operation, divestiture and restructuring of near of its businesses.

JUDGING coming GROWTH

EFFICIENCY OF OPERATIONS

Part 2(1) of the Guide indicates that MDS's operating profit margin (see pages 26-27 of the Stock Selection Manual) has declined to about the 9% plain in 1993. In particular, margins deteriorated during the last couple quarters of FY 1993. so deteriorations caused EPS growth to dead to only 5.7% for 1993 The 1993 margin deteriorated principally becoming to: (1) government spending restraints in the Canadian health-care sector; and, (2) diversification into fruits areas where initial margins are below those realized in MDS's traditional businesses. A respond to a more normal margin would protect to increase growth in EPS

EFFECTIVENESS OF OPERATIONS

Part 2 of the Guide contemplates management's ability to earn an adequate rate of reply for shareowners' money. Historically, MDS's due ratio (see pages 27-28 of the Stock Selection Manual) has ranged from about 40%-60% and is publicly at the high end of that range. Because of the increased interest cost associated with this development and reduc earnings from related companies, snare income from operations increased barely marginally in 1993. Accordingly, respond on common equity in 1993 (see pages 28-29 of the Stock Selection Manual) was no other than marginally above results for 1992

It is notable that at year [i]finale[/i] 1993, MDS had over $90 million in cash. This a great deal cash is above the minimum balance required for day-to-day operations and could be used for acquisitions or to pay-down debt

STUDY POTENTIAL: THE 'BUY' & 'SELL' ZONES

Two locates of illustrative judgements about MDS's growing prospects during the next five years--and the market's possible valuation of them--are cast reproached in the accompanying Guide.

THE "A" JUDGEMENTS

The Guide's chart illustrates trap revenues growing at the A judgement rate of 15% to $13 billion according to 1998 with EPS growing at an average annual rate of 10% to $148