Saturday, May 4, 2013

Masimo Delivers Strong First Quarter Results; Upgraded by Citi

Masimo Corporation reported 1Q13 earnings on May 2nd, 2013 after market close. On a year over year basis, total revenue for the quarter increased 14.0% from $119.2MM to $135.9MM, beating my estimates of $134.3MM and street consensus of $134.5MM. Product revenues for Masimo increased 15.0% from $112.2MM to $128.6MM, beating my estimates of $127.3MM. Worldwide direct product revenue, which accounts for 84.0% of total product revenue grew 13.0%, while OEM sales, which accounts for the other 16.0% of product revenue, grew 26.0%. Rainbow products, which is the main driver of my thesis, increased 24.0% in revenue with a 19.0% increase in unit shipments. Net Income increased 3.8% to $16.4MM, slightly above my estimate of $16.1MM. EPS on a non-GAAP basis increased 3.7% on a year over year basis and was in line with street consensus of $0.28, but missed my estimate by $0.01. 

Joe Kiani, CEO of Masimo Corporation, was very pleased with their first quarter performance. A strong increase in demand for their products coupled with growth in all of their divisions lead management to believe they have a strong strategy. Masimo repurchased 778,000 shares for the quarter largely due to strong cash flow and a belief that they are going to keep growing. 

On May 3rd 2013, the first trading day after releasing earnings, Masimo quickly shot up 11.0% to $22.27, compared to the previous day close of $20.06. This strong jump was largely attributed to two things: a positive Masimo earnings release and an upgrade from Citi, switching their SELL rating to a NEUTRAL. Masimo ended the day up 6.4% to $21.34. My outlook for Masimo remains positive as they begin to progress with their rainbow products and continue to improve their Cash Flow. Their strategy of share repurchasing and effective implementation into new hospitals lead me to believe that there is much more foreseeable growth. I reiterate a BUY rating for Masimo Corporation.

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