Masimo Remains Neutral - Analyst Blog


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We maintain our recommendation on Masimo Corporation ( MASI ) at Neutral. The company reported second quarter 2012 adjusted earnings per share of 27 cents, missing both the Zacks Consensus Estimate and the year-ago earnings of 28 cents per share.

Adjusted earnings exclude an income tax benefit of 3 cents from the prior year. Reported profit moved up 3.9% year over year to $17.7 million (or 30 cents per share).  

Sales for the quarter rose 12% year over year to $122.8 million, beating the Zacks Consensus Estimate of $120 million. Product revenues were up 12% to $115.3 million in the reported quarter.

Masimo's global end-user business (85% of product revenue) increased 16% year over year, but revenues from Original Equipment Manufacturer (OEM) (15% of product revenue) were down 5%. Sales of Rainbow products increased 7% year over year to $9.7 million and included a 48% hike in total hemoglobin (SpHb) revenues.  

During the quarter, Masimo shipped about 37,300 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, excluding hand-held sets, flat year-over-year. The company's worldwide installed base grew 12% year over year to about 1,033,000 units at the end of the second quarter.

Masimo completed the strategic acquisition of PHASEIN AB of Sweden in the second quarter. The purchase price was $30 million. PHASEIN is a provider of sidestream and mainstream capnography offerings. It had sales of about $10 million.

This acquisition provides the company with another set of measurable variables using its know-how. It is expected that earnings per share will be neutral in 2013 and subsequently turn accretive.

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company's prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.

Shipments have been growing at a steady rate fueled by new contracts. However, the renewal of the royalty agreement with Covidien ( COV ) provides little or no benefit due to lower rates. Further, competition is intense and Masimo partly depends upon its OEM partners for sales. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).

COVIDIEN PLC (COV): Free Stock Analysis Report
MASIMO CORP (MASI): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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