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Bull of the Day: BioTelemetry (BEAT)

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BioTelemetry (BEAT - Free Report) is a $2 billion provider of mobile cardiac telemetry (MCT) heart monitoring devices and services. BEAT sets such a leading technology standard in MCT that they were chosen as Apple's (AAPL - Free Report) research partner in what is likely to become the largest heart data study ever. 
 
Since the Apple Watch is not a medical diagnostic tool, the genius device maker needed the little guy to help collect and process data that could be analyzed by cardiologists. So the Apple Watch remains just a screening tool that will help expand FDA-approved cardiac monitoring and increase the awareness and value of continuous data and detection that alert for further diagnostics and treatment.
 
In this way, BioTelemetry remains the leading medical arm of a growing trend that could reach tens of millions globally as Apple raises awareness and adoption.
 
What's the Growth Beat?
 
BEAT closed 2018 with record revenues of $399.5 million, representing 24% compound annual growth for the past 5 years. The company projects 10% sales growth this year to nearly $440 million.
 
After a solid set of top and bottom line beats in their Q4 report on February 21, analysts raised EPS estimates about 10% for this year and next on a clearer outlook. This moved the Zacks Rank back to a #1 Strong Buy.
 
But because of the 14-cent earnings beat in Q4, the full-year 2018 finishes the year at $1.94 in EPS, which is the current consensus for 2019. This means flat growth, right What's not factored in yet are more earnings beats that BEAT is aptly known for.
 
In 2018, BEAT put together 4 consecutive positive earnings surprises averaging over 50%. If they can surprise half as much this year, investors will keep lifting the stock.
 
Lake Street analyst Brooks O'Neil told investors in a post-earnings research note that BioTelemetry "executed beautifully on all fronts" in Q4 and during 2018 and its outlook for 2019 is strong. The analyst believes remote patient monitoring is in its infancy and that BioTelemetry is the leader in this "exciting space." He reiterated his Buy rating on BEAT shares with a $90 price target.
 
BioTelemetry also made a key acquisition that closed last month with Geneva Healthcare, a platform for health data monitoring that serves hospitals, physicians, and other medical technology companies. Geneva has developed a proprietary cloud-based platform that aggregates data from the leading device manufacturer systems, enabling the company to remotely monitor all of a physician’s patients with implantable cardiac devices such as pacemakers, defibrillators and loop recorders.
 
Geneva’s platform provides physicians a single portal to order patient monitoring, view monitoring results and request routine device checks, helping drive significant in-office efficiencies and patient compliance while allowing physicians to focus on patient care. 
 
But Why the Drop from $78?
 
I recently bought BEAT shares for the Zacks Healthcare Innovators portfolio and here's what I told my members in the rationale on a company we've known and traded before...
 
After a 25% decline from all-time highs in February, I really like the risk/reward here for this innovator and leader in mobile cardiac telemetry (MCT), i.e., remote heart monitoring. Shares are forming something of a minor bear flag formation and could easily test $58-60 before the bottom is in.
 
Overall, I think the pullback to $60 is a solid opportunity for long-term investors in this unique $2 billion device/services provider trading at under 5X sales, 30X EPS, and growing the top line at 10% in the MCT market. While they have a research collaboration with Apple, they could still be on several Med-Tech M&A watch lists.
 
What drove the pullback and 2 days of heavy selling on March 27 and April 1?
 
Competitor iRhythm (IRTC) fell under the target scope of two short-selling firms that issued reports describing the potential of a sharp drop in reimbursement for the technical service on extended wear holters after 2021.
 
Holter monitors are typically used for only 24 to 48 hours, while an event monitor may be used for a month or more.
 
According to Benchmark analyst Bill Sutherland, unlike iRhythm, BEAT has just introduced its extended wear holter and that product only makes up about 1% of BioTelemetry's total revenue by his estimates. Obviously, insurance reimbursement is one of the bigger factor affecting the sales and profitability of drug and medical device makers.
 
But Sutherland doesn't see a reimbursement change materially impacting BioTelemetry's long-term revenue growth, especially since its diverse and proprietary portfolio of products and services in MCT and MCOT (mobile cardiac outpatient telemetry) are driving record sales and growth. The analyst maintains a Buy rating and $82 price target on BEAT shares, calling the late March/early April selloff a buying opportunity.
 
SunTrust analysts also addressed the pricing and reimbursement issues after meeting with BEAT management. They reiterated their bullish investment case and $80 PT, derived by applying a 6.2X enterprise value/sales metric against their 2020 revenue estimate of $485 million. And this was slightly below the mean of 7.8X EV/Sales for peer comparables.
 
(end of excerpt from my recent BEAT buy alert)
 
Since that recommendation, healthcare stocks took a drubbing the week of April 15 as "single-payer panic" engulfed the entire sector, with the XLV down 4.3% and Biotech down nearly 6%. Every healthcare industry had double-digit loss leaders, including many medical device makers, while BEAT held the line at -6.8% for the week since it had already fallen over 20% since earnings. 
 
Now, at a $1.85 billion market cap, the stock trades at just 4X sales, well below the attractive valuation metrics described by SunTrust.
 
Of course, I think it's a great long-term buy, regardless of political wrangling that will affect other healthcare industries and larger companies much more.
 
If you can buy BioTelemetry near $50, don't miss a beat in doing so as you may not get another chance.
 
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