Galileo: "The Lead Dog"

04/08/2005 12:00 am EST


Michael Ozanian

Senior Editor, Forbes Earnings Quality Report

"It requires extremely special circumstances before I could recommend a stock selling for 34 times earnings," says Michael Ozanian, editor of the Forbes Earnings Quality Report. "But Immucor is precisely the type of special situation that warrants paying a premium."

"Remember the old saw, ‘The lead dog on the sledding team has the best view, while the view for all the other dogs is not so pleasant?’ Well Immucor (BLUD NASDAQ) is the lead dog in the fast-growing and highly competitive immuno-hematology business. Not only does the company have the best products and a big market share lead on its competitors, but its cash flow and balance sheet are very impressive.

"It is easy to understand why shares of have more than tripled during the past year. With more than 5,500 customers worldwide, the company is the leading provider of automated instruments and reagents for blood typing and screening (immuno-hematology) to US clinical laboratories, hospitals and blood banks—one of the hottest growth areas of the health care industry. The company’s sales have doubled the past three years, to $123 million. Since 2002 the company’s net margin has averaged 12%, ranking BLUD among the elite in its industry in terms of profitability.

"BLUD’s products perform tests to detect and identify certain properties of the cell and serum components of the human blood prior to blood transfusions. Its instruments include Galileo, a high-volume microplate processor that was approved for marketing in the US by the FDA last April. The attractions of the Galileo machine include multitasking capabilities (the ability to access samples and reagents without interruption), faster throughput (two pipe-fittting arms that act independently and simultaneously) and easier interface (such as digital images of results). Analysts estimate that Galileo will be generating $335 million, or 39% of total sales, by 2006.

"Despite the stock's high multiple, when it is valued within the context of the company’s growth prospects, it is reasonably priced. For the year ending May 2005, the company is expected to earn 53 cents a share, 96% more than the previous year. During the next five years Wall Street is projecting average annual earnings growth of 23%. During the past 12 months, the company has thrown off $21 million in free cash flow, which gives the company plenty of money to plow back into new product development and marketing so that it can keep growing and stay at the head of the pack. BLUD has also used its excess cash to buy back more than 3.5 million shares since 1998.  Our target over the next 12 months is $40 per share."

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