Monday, February 1, 2016

30th AIM equity update by Ryan Woo, LeMaitre Vascular (LMAT): Interesting Medical Device Company for 2016!

LeMaitre Vascular, Inc. (LMAT, $14.85): “Compelling Value Proposition is Circulating”

By: Ryan Woo, AIM Student at Marquette University

Image result for LeMaitre Vascular,
 Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

LeMaitre Vascular, Inc. (Nasdaq:LMAT) is a medical device company that specializes in the treatment of peripheral vascular disease through its disposable and implantable products, which include balloon catheters, carotid shunts, biologic patches, radiopaque marking tape and vascular grafts.
• LMAT was added to the Russell 2000 in June 2015, which has allowed the stock to garner greater attention in the past six months.
• The expansion of the sales force into new regions and strong demographic trends should continue to allow LeMaitre to reach its target of 10% sales growth and 20% operating profit growth.
• A debt-free balance sheet gives LMAT flexibility with respect to cash deployment, which can allow the company to continue its acquisition activity, buyback shares, and/or raise its dividend.
• Although the stock has tumbled since reaching an all-time high of $18.44 at the end of last year due to a broad market sell-off, there is still a large runway for growth, and it is conceivable that shares can rise back to the all-time high.

Key points: LeMaitre Vascular Inc. remains 'in-play'. On June 26, 2015, LMAT was added to the Russell 2000, which has led to the increased volume over the past six months. This should prove beneficial to LMAT stock as it allows institutional investors to add the company to their portfolios. In addition, passive investors and indexes have to have greater exposure to the stock.

Since the company was added to AIM Micro-Cap portfolio in late October, LMAT has taken part in four healthcare conferences hosted by respected equity research firms like Canaccord Genuity, Stifel, Brean Capital, and Three Part Advisors in the middle of November. In addition, LMAT held an investor day in early December, which emphasized its three part strategy: the focus on the vascular surgeon, the target of niche markets, and the growth of the company through sales force expansion, research and development introductions, and acquisitions.

In addition to company-specific initiatives, LMAT also has the benefit of working with a population that caters toward the growth of its devices. Peripheral vascular disease is most common amongst those over the age of 65. According to company data, the percentage of the US population over 65 years old is expected to be 336 million in 2020, but this is expected to grow to 392 million by 2040, a CAGR of 7.7% which LMAT should be able to outperform as it gains market share in its niche markets and expands its global reach.

What has the stock done lately?
LMAT has been caught in the recent market sell-off due to oil and China concerns. As a result, the shares are down 14% YTD. The share price is still at the high end of its 52 week high-low range of $18.44-7.36. The company is set to report earnings either late this month or early February, which is the next catalyst for the stock.

Past Year Performance: LMAT has increased 92.61% in value over the past year, but the stock is nonetheless on the bargain table: LMAT's market valuation implies a ~20% discount to its previous high in December 2015. Share buybacks and an accretive acquisition could push the shares even higher.

Source: FactSet

My Takeaway
LeMaitre Vascular is doing a lot of things correctly, and further execution is key from this point going forward. The debt-free balance sheet coupled with plenty of dry powder equals an opportunity for LMAT to target larger acquisitions, which is beneficial as long as the company does not overpay nor dilute margins. The expansion of the sales force into new regions should allow LMAT to expand on its 10% market share.

Source: FactSet

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