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Masimo (MASI) Beats on Q3 Earnings, 2018 Guidance Impressive

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Masimo Corporation (MASI - Free Report) reported third-quarter 2018 adjusted earnings of 71 cents per share, which surpassed the Zacks Consensus Estimate by 4.4%. Earnings rose 26.8% on a year-over-year basis.

Revenues improved 8.9% year over year to $210.6 million in the quarter and surpassed the Zacks Consensus Estimate of $206.3 million.

Meanwhile, in the past year, the Zacks Rank #2 (Buy) stock has rallied 28.2% against the industry’s 16.1% rise. The current level is also higher than the S&P 500 index’s rise of 5.3%.

Segmental Analysis

Product Revenues

Product revenues came in at $202.1 million, up 12.4% from the year-ago quarter and 12.8% at constant currency (cc). Per management, the year-over-year upside can be attributed to strong customer demand in both Masimo’s direct and OEM businesses. Worldwide non-invasive technology shipments rose 16% year over year.

Masimo also continues to see strong growth in its rainbow platform.

Royalty and Other Revenues

Revenues at the segment totaled $8.5 million, down 37.7% from the prior-year quarter.

Masimo Corporation Price, Consensus and EPS Surprise

 

Masimo Corporation Price, Consensus and EPS Surprise | Masimo Corporation Quote

Margin Analysis

In the quarter under review, gross profit totaled $140.8 million, up 13.5% year over year. Gross margin was 66.8%, up 270 basis points (bps).

Adjusted operating income in the quarter totaled $48.6 million, up 13% from a year ago. Adjusted operating margin was 23.1%, which expanded 80 bps.

Research and development expenses totaled $19.4 million, up 27.1% year over year.

SG&A expenses in the quarter were $72.7 million which shot up 10.7% from the year-ago quarter.

Guidance

Buoyed by a solid third quarter, Masimo raised its 2018 guidance for revenues and earnings.

Revenues are expected at $854 million, up from the previously-issued $850 million. The Zacks Consensus Estimate is pegged at $850.2 million, below the projected figure.

Product revenues are anticipated at $826 million, up from the previously stated figure of $822 million. Per management, this reflects year-over-year growth of approximately 11.9% and 11.3% at cc. Meanwhile, expectations from Royalty and Other revenues remain unchanged at $28 million.

Full-year earnings per share are expected at $2.92, up from the earlier projection of $2.90. The Zacks Consensus Estimate is pegged at $2.92, in line with the guided figure.

Masimo’s guidance for adjusted gross margin remains unchanged at 24.4%. The same for EBITDA is also pegged at 29.9%.

For 2018, Masimo expects estimated tax rate of 24%.

Our Take

Masimo exited the third quarter on a solid note. Strong Product revenues buoy optimism. In the quarter, Masimo saw strong demand for its SET pulse oximetry products and rainbow platform. Considerable expansion in the company’s gross and operating margins is another positive. Management is optimistic about Masimo’s alliance with Philips. Increased R&D expenses imply greater focus on innovation. Management is also hopeful about receiving FDA clearance for Ori. A raised guidance for 2018 paints a bright picture.

On the flip side, Masimo’s Royalty and Other segment saw a soft third quarter. Furthermore, the company faces fierce competition from OEM distributors and medical device bigwigs that might mar the top line over the long haul.

Earnings of Other MedTech Majors at a Glance

Other top-ranked stocks in the broader medical space which also reported solid earnings this season are Intuitive Surgical (ISRG - Free Report) , Stryker Corporation (SYK - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) . Each of the stocks carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intuitive Surgical reported third-quarter 2018 adjusted earnings per share of $2.83, which beat the Zacks Consensus Estimate of $2.65. Revenues totaled $920.9 million, also surpassing the consensus estimate of $918.6 million.

Stryker posted third-quarter 2018 adjusted earnings per share of $1.69, beating the Zacks Consensus Estimate by a penny. Operating margin was 17.8%, up 30 bps.

Merit Medical reported third-quarter 2018 adjusted earnings per share of 47 cents, which trumped the Zacks Consensus Estimate of 42 cents. Revenues of $221.6 million edged past the consensus estimate of $218 million.

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