This medical device company beat analysts’ EPS estimates by $0.18 last quarter.
Integer Holdings Corporation (ITGR)
From Argus Weekly Staff Report
We are reiterating our BUY rating on Integer Holdings Corporation (ITGR), a medical device outsource manufacturer, and raising our target price to $90 from $78. Based on management’s guidance of 3%-5% higher revenue and 19%-30% higher earnings, we project continued strong stock performance in 2018. We look for the Cardio & Vascular unit to report solid results as orders from existing customers continue to accelerate. Following a disappointing 2017, we expect a recovery in the Cardiac & Neuromodulation division.
In an effort to focus on its core businesses, Integer Holdings has divested the Advanced Surgical & Orthopedic unit for $600 million in cash. Following the divestiture, Integer reduced its debt and expects to report higher margins and earn higher returns on invested capital. We also like that Integer’s customers are typically large, multi-national original equipment manufacturers and their subsidiaries.
Longer term, management is investing in product lines with the most rapid growth and highest margins, while reducing its cost structure.
Following the divestiture of Integer’s AS&O product line, management lowered its revenue expectations while increasing its guidance for the bottom line. It now expects 2018 GAAP sales to grow 3%-5% to $1.170-$1.195 billon. Adjusted EBITDA is projected to grow 9%-13%, to $255-$265 million.
On the bottom line, management raised its adjusted earnings estimate by $0.15 to $3.35-$3.65 per share, a 19% -30% increase from 2017. The higher adjusted EPS estimate reflects a lower full-year interest expense, which it expects will exceed the lost profits from the AS&O divestment.
Based on the company’s divestment of its AS&O product line and the resultant low interest expense projection, we are raising our 2018 adjusted earnings estimate to $3.58 from $3.45 per share. For 2019, we are also raising our earnings estimate to $3.95 from $3.90 per share. Our long-term growth forecast is 12%.
ITGR is trading at 22.5-times our 2018 EPS estimate, near the peak of its five-year range of 7.0-22.8. However, we believe that the shares merit a higher multiple based on the company’s prospects for strong growth and its efforts in reducing its leverage. Our $90 price target implies a multiple of 25.0-times our 2018 EPS forecast, above the company’s five-year range but still below the average of 37.6-times for peers that include BSX, ABMD, and MDT.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, September 14, 2018