Masimo Trades Near Fair Levels

Masimo Corporation's (MASI - Analyst Report) Q109 results were strong, with solid revenue and EPS growth. In our recent report on the company, we note the current price trades at a P/E/G multiple of 1.3x for 2009, greater than both the industry mean and the comparables' mean P/E/G multiple of 1.2x.

The company's stock deserves to trade at a 15% premium to the comparables' mean P/E/G multiple. This equates to a P/E of 28.7x and a target price of approximately $25.55. We reiterated our 'Hold' rating for this stock.

MASI develops, manufactures and markets a family of non-invasive blood monitoring systems that consist of a monitor, circuit board and sensors. The systems are primarily used to monitor blood oxygen saturation levels and protect against hypoxemia and hyperoxemia. (Hypoxemia, low blood-oxygen levels, can result in brain damage and death. Hyperoxemia, high-blood oxygen levels, can result in permanent eye-damage and blindness.)

The company's patented Signal Extraction Technology (SET) provides the ability to measure various components of blood through motion and low perfusion pulse oximetry. This addresses the primary limitations of conventional pulse oximetry. "Pulse oximetry" is the non-invasive measurement of the oxygen saturation level of arterial blood, or the blood that delivers oxygen to the body's tissues.

The primary limitation in conventional pulse oximetry is called "motion artifact" -- an inability to measure through motion. Patient movements often result in false alarms related to the change in oxygen saturation levels. Additionally, conventional pulse oximetry is unable to distinguish between oxygenated hemoglobins and dyshemoglobins.

MASI is a market leader in the pulse oximetry monitoring equipment market industry. During fiscal 2008, the company captured five additional points of market share, bringing their total to 43.5%.

The company has successfully defended its intellectual property and continues forging new relationships with OEMs. Masimo gives a lot of importance to its research and development activities, resulting in continued new product launches and advancements.

With its razor/razor blade model, strong expansion in its installed unit base will continue translating into future sales growth. As a result, margin growth should continue to follow.