This Medical Firm Merits Attention

05/10/2019 5:00 am EST


Hilary Kramer

Editor, GameChangers

Merit Medical Systems (MMSI), founded in 1987 by current CEO Fred Lampropoulos, is a leading manufacturer and marketer of proprietary disposable medical devices, notes growth stock expert Hilary Kramer, editor of GameChangers.

It's products are used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care and endoscopy.

From 2016 through 2018, MMSI spent more than $540 million on acquisitions. That total is a significant amount for a company with total assets of $1.6 billion and annual sales of $882.7 million.

The largest of these acquisitions was last year’s $200 million purchase of Cianna Medical, which makes the Savi Scout wire-free breast tumor localization system that produces audible and visual indicators surgeons can use to tag cancerous tissue during lumpectomy and biopsy procedures.

Merit Medical enjoyed a strong 2018, with revenue up 21.2% to $849.4 million, marking the company’s third consecutive year of revenue gains of 20% or more.

 The earnings momentum continued into the first quarter, with revenues up 17% to $238.3 million and organic growth up 10%. EPS increased to $0.37 vs. $0.31 a share, $0.01 better than expectations.

For the full year, the company is forecasting revenues of $1.01 to 1.03 billion, up approximately 20%, and EPS between $1.97 to $2.08 a share, also up roughly 20%.

Despite the good start to 2019, the shares have pulled back from their April high of $63 a share. This is primarily due to the fear that has swept across the health care sector that a single payer health care system may be put in place in the United States following the 2020 elections.

I think the selling is overdone and the shares are now very attractively valued at 27.5x and 23.4x 2019 and 2020 EPS estimates, respectively. While I believe pressure to reduce medical costs is a legitimate risk to health care companies, a single-payer system is not a sure thing for the United States.

In addition, as CEO Fred Lampropoulos pointed out in the first-quarter conference call, 50% of the company’s revenues come from markets outside the United States, many of which have single-payer systems, and the company has done quite well in those markets.

With addressable markets of more than $12 billion, MMSI still has a lot of potential growth. The recent selling offers a good opportunity to buy a strong company at a good price in an increasingly frothy growth market.

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