Masimo Matches Earnings Est.

Masimo Corporation (MASI), a leader in non-invasive monitoring technology for patient care, recorded first quarter 2013 earnings per share of 28 cents thereby matching the Zacks Consensus Estimate. Reported profit rose 4.1% year over year to $16.4 million (or 28 cents per share) in the first quarter.

Revenue Analysis

Revenues in the quarter increased 14% year over year to $135.9 million, beating the Zacks Consensus Estimate of $134 million.

Product revenues were up 15% to $128.6 million in the reported quarter. Masimo’s global end-user business (84% of product revenue) improved 13% year over year, while revenues from Original Equipment Manufacturer or OEM (16% of product revenue) were up 26%. Sales of rainbow products increased 24% year over year to $10.5 million.

During the quarter, Masimo shipped about 39,500 Masimo SET pulse oximetry and Masimo rainbow SET pulse co-oximetry units, excluding hand-held sets, up 19% year over year. The company’s worldwide installed base increased 11% year over year to about 1,117,000 units at the end of the first quarter.

Margins

Gross margin stood at 65.9% in the quarter, lower than 66.5% a year ago. Operating margin declined to 17% from 18.7% a year ago.

Balance Sheet

Masimo ended the quarter with cash and cash equivalents of $81.6 million, up 14% year over year.

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.

While Masimo’s patented SET offering remains its mainstay, the rainbow measurements represent another growth driver. 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. In late 2012, the company 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.

The stock carries a Zacks Rank #3 (Hold). We are more positive about Abiomed, Inc. ( ABMD - Analyst Report ) and Accuray Incorporated ( ARAY - Analyst Report ) both of which carry a Zacks Rank #2 (Buy) and are expected to do well.