Masimo Corporation ( MASI - Analyst Report ) , a leader in non-invasive monitoring technology for patient care, recently disclosed that Maricopa Integrated Health System has set up Masimo Patient SafetyNet. This marks yet another major client win for Masimo which continues to expand its client base, as Maricopa has one of the highest footfalls compared with other hospital systems in Arizona.

Maricopa deployed Masimo’s offering in a concerted effort to standardize to Masimo SET Measure-Through Motion and Low Perfusion pulse oximetry and rainbow SET Pulse CO-Oximetry. Masimo Patient SafetyNet includes Masimo SET or rainbow SET monitors. Going forward, the increasing adoption of the company’s well-regarded products will act as a positive catalyst.

Our Take

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.

Another material upside is the rising proportion of recurring revenues on the back of growing installed base. For its SET offering, Masimo continues to surpass the market growth rate with a year-over-year improvement of 11% in its worldwide installed base in the third quarter. While Masimo’s patented SET offering remains its mainstay, the rainbow measurements represent another growth driver beyond hospital care.

However, the company’s reliance on third-party providers like OEMs for a part of its business and customer concentration raises concern. Additionally, we remain concerned about Masimo’s reliance on group purchasing organizations for the sale of its pulse oximetry products to hospitals in the domestic market.

We also note Covidien’s ( COV - Analyst Report ) effort to expand its oximetry and monitoring products portfolio. The company recently won U.S. Food and Drug Administration (FDA) 510(k) approval as well as European Economic Area (EEA) CE Mark clearance for its Nellcor Bedside Respiratory Patient Monitoring system.

We currently have a long-term ‘Neutral’ recommendation on Masimo. The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.