Thursday, October 27, 2016

An AIM Equity Fund Holding: LeMaitre Vascular (LMAT) by Joe Mungenast. “A Soft Buy on LeMaitre for the Time Being”

LeMaitre Vascular, Inc. (LMAT, $19.94): “Has This Vascular Company Stopped Pumping?”
By: Joe Mungenast, AIM Student at Marquette University

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.

Image result for lemaitre vascular logo

 ·         LeMaitre Vascular Inc. produces medical devices that specialize in the treatment of peripheral vascular disease. LeMaitre produces balloon catheters, carotid shunts, biologic patches, radiopaque marking tape, and vascular grafts, among other components.

·         Based in Burlington, MA, LeMaitre was founded in 1983 by George D. LeMaitre. His son, George D. LeMaitre, is the current CEO and Chairman.

·         LeMaitre just reached its all-time high on the market in September, hitting $22.50. It has since drifted down to $20, where it has floated for nearly a month. An earnings release on October 26 will generate the most movement since LeMaitre’s 52-week high.

·         LMAT remains a strong buy to analysts, while the consensus estimate is $20.25.

LeMaitre Vascular Inc. (LMAT) was originally pitched as a micro-cap to the AIM fund. Since it was added in October 2015, LeMaitre has shown strong core growth as it emerged in the small-cap area, well exceeding the target price of $15.55. The majority of this stock’s increase has from beating estimates, particularly this past quarter.

LMAT is to release its Q3 earnings report on October 26, and Wall Street is anticipating very strong YoY growth of 16.54% for revenue and 39.09% for EPS. This is nothing new to LeMaitre, as they have experienced extremely positive EPS and revenue growth in Q2 from the expansion of its product line. LeMaitre’s products cater to a growing global population of those affected by peripheral artery disease (PAD). According to the CDC, roughly 8 million people in the US suffer from this disease, with a growing emphasis on patients over the age of 60. From 2000 to 2010, researchers in the US and UK found that PAD had grown by nearly 24%. 

Currently, PAD affects every 1 in 10 people over the age of 70, and 1 in 6 over the age of 80. Beyond the US – and in global markets where LeMaitre is pursuing – areas of weaker economies such as Southeast Asia have seen rampant growth in this form of heart disease. While all LeMaitre products have nearly been approved in the UK and US, only a third are allowed to be sold in Asia, pending further approval. While the market for expansion of LMAT’s products appears to be fruitful, the company’s success depends heavily on approval of their products abroad and whether or not it can compete with larger competitors.

What has the stock done lately?

In mid-September, LeMaitre achieved its all-time high of $22.50. This greatly contrasts its 52-week low of $12.03 in February, showing a doubling of the stock price in just over two quarters’ time. The company’s strong operating performance has been the reason for such positive growth over the past few months, and the company currently holds no debt.

Past-Year Performance: LeMaitre has seen quite a bit of movement this year, with most of its growth coming from the past two months. After closing out the 2015 fiscal year around $17.75, the stock had a steady decline into February before reaching its 52-week low of $12.34. After a volatile March, LeMaitre was stagnant until it beat Street estimates for its 2Q performance, jumping from $14.63 to $17.89 in late July before peaking to $22.50 in September.

 Source: FactSet

My Takeaway
 LeMaitre is sitting on excellent growth opportunities in the future, but its PEG ratio of 2.68 is one of the primary concerns for at least the next few years. It is my belief that analysts will start to drift more towards soft buy recommendations as this company’s dollar-to-earnings growth becomes less and less undervalued to the market, especially considering recent earnings beats. From a macro perspective, this company will be considered a strong buy once its products are approved overseas and LMAT can better utilize its pricing power (70% gross margin) against difficult peer competition in this healthcare space.