Masimo Corporation ( MASI - Analyst Report ) , a leader in non-invasive monitoring technology, recently announced that the University of North Carolina (UNC) Hospitals in Chapel Hill have adopted Masimo SET pulse oximetry. This marks Masimo’s second client win in December, after Ogden Regional Medical Center standardized to Masimo’s rainbow pulse CO-Oximetry and sensor technologies.

Earlier, the UNC Hospitals were using the pulse oximeter of Masimo’s competitor. The switch to Masimo’s SET pulse oximetry, the standard-of-care at leading hospitals worldwide, reflects the clinical superiority of the company’s offerings. Moreover, Masimo beat its competitor in price.

In a concerted effort to standardize its equipments to Masimo’s offerings, the UNC Hospitals also installed the Masimo Patient SafetyNet that includes Masimo SET or rainbow SET monitors. Going forward, the increasing adoption of the company’s well-regarded products across major hospitals will act as a positive catalyst.

Our Take

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company, with a global market size of more than $1 billion in 2011 for pulse oximetry and price competitive offerings, should be able to further penetrate the market. We believe that given the growing barriers to entry in the non-invasive parameters, higher-than-market growth rate for SET offerings and robust sales of the rainbow products, the company has significant revenue drivers.

While the company operates in a price-competitive business environment, we are concerned that significant price undercutting might erode profit over time. Our concern is aggravated by the decline in profit in the third quarter of 2012. Profit decreased almost 7% year over year to $13.8 million.

We currently have a long-term ‘Neutral’ recommendation on Masimo, which carries a short-term Zacks #3 Rank (Hold). Its primary competitor Covidien plc ( COV - Analyst Report ) also carries a Zacks #3 Rank.