Merit Medical: A Strong Buy - Analyst Blog

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Rising earnings estimates on the back of solid second quarter results have helped Merit Medical Systems, Inc. ( MMSI ) achieve a Zacks #1 Rank (Strong Buy) on September 27, 2012. Moreover, this medical devices company has delivered positive earnings surprises in two of the last three quarters with an average beat of 8.25%.

With a six month return of 21.4% and a track record of posting in-line or higher quarterly earnings, this stock offers an attractive investment opportunity.

The Rank Driver

Record second quarter performance, better-than-expected earnings, expanding portfolio and international operations - are the primary rank drivers for this stock.

Merit reported its second quarter results on July 26 with earnings per share of 21 cents, beating the Zacks Consensus Estimate of 18 cents by 16.67%. The second quarter earnings were in-line with the year-ago earnings due to the 13% increase in the outstanding shares resulting from the company's public offering in June 2011.

Total revenues increased 10% year over year to $100.5 million from $91.2 million in the year-ago quarter and surpassed the Zacks Consensus Estimate by 0.95%. Growth was led by higher sales across all the operating platforms especially in the international market.

On a year-over-year basis, Merit's BioSphere sales surged 21%, Merit Endotek sales climbed 20%, catheter sales increased 20%, revenues from stand-alone device edged up 10%, custom kit and tray sales were up 4%, while inflation device sales rose 5%.

The top-line was backed by a 53.4% surge in Merit's operations in China and contributions from international dealers, notably from Central/South America. The company's growth was aided by its international business and China emerged as a significant catalyst.  

The company recorded a 40 basis point year-over-year expansion in adjusted gross margin to 47.8% of sales in the quarter.

Recently, Merit obtained the FDA 510(k) clearance for its Resolve Biliary Drainage Catheter, Concierge Guiding Catheter and Merit Laureate(R) hydrophilic guide wire. There are expectations that these new offerings will bolster the top-line.

Earnings Estimate Revision

The Zacks Consensus Estimate for 2012 increased 2.8% to 74 cents over the last 90 days. For 2013, Zacks Consensus Estimate is 83 cents, reflecting a 12.01% increase over the year-ago earnings per share.

Valuation

Merit currently trades at a forward P/E of 20.05x, a 7.16% premium to the peer group average of 18.71x. Moreover, the price-to-book ratio of 1.69x is at a 11.18% premium to the peer group average of 1.52x. The company's strong fundamentals justify the premium valuation of the stock.

Merit has a trailing 12-month ROE of 8.7% compared with the peer group average of 5.2%

About the Company

South Jordan, Utah based-Merit Medical Sytem is a provider of disposable medical devices for cardiology, radiology, endoscopy and other interventional and diagnostic procedures. Founded in 1987, the company offers employment to about 2,300 people worldwide. With a market capitalization of roughly $628.56 million, Merit owns manufacturing facilities across U.S., Europe and China. The company expects to report its third quarter earnings result on October 22, 2012.

Other Zacks #1 Rank (Strong Buy) medical devices stocks include Cooper Companies ( COO ) and CareFusion Corp ( CFN ).


 
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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 The NASDAQ OMX Group, Inc.



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