Reaffirming Masimo at Neutral - Analyst Blog


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We retain our Neutral rating on Masimo ( MASI ). Its fourth quarter earnings matched the Zacks Consensus Estimate while sales beat the forecast. The company recorded solid new hospital contract booking in the quarter. Masimo's SET offering may help it to become a dominant global player in the pulse oximetry market.

Rapid product development continues to be a key area of focus. Masimo's SpHb was among the first non-invasive and continuous hemoglobin monitoring technology to receive the U.S. Food and Drug Administration ("FDA") clearance. It has changed the way hemoglobin testing is performed at several hospitals throughout the world. 

Masimo's products enjoy large potential market size. The Masimo SET targets a critical care and general floor market each estimated at about $1 billion. The Rainbow SET is aimed at a sizeable market. The international arena is another burgeoning opportunity for the company.

The addition of non-invasive parameters is expected to act as a long-term barrier to entry and drive substantial growth. The expanded pulse oximetry utilization into non-critical care areas of hospital represents another growth driver.

Masimo is well positioned to deliver healthy growth over the next few years with an increasing proportion of recurring revenue (coming from sale of consumables). Recurring revenue is driven by steady growth in the installed base of the company. 

Masimo's agreement with GE, in February 2012, under which the latter will include Rainbow parameters in some of its patient monitoring offerings is a positive development.

On the negative side, a somewhat tepid macro environment raises concern and competition remains intense. The company continues to rely on OEMs for a portion of its sales.

While Masimo will benefit from the extension of the royalty agreement with Covidien ( COV ), decline in royalty rate (from 13% to 7.75%) represents a drag on the company's royalty revenues and margins. Royalty revenues fell roughly 35% in the most recent quarter on account of the rate reduction.

We currently have a Neutral recommendation on Masimo. The stock currently retains a Zacks #3 Rank, which translates into a short-term "Hold" recommendation.

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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