Masimo Corporation (MASI - Free Report) is gaining prominence in the MedTech space, courtesy of its flagship platform — the Signal Extraction Technology (SET) Pulse Oximeter. Moreover, it has a market capitalization of approximately $5.58 billion.
In a year’s time, this Zacks Rank #3 (Hold) stock has gained 23.2% compared with the industry’s 9% growth.
However, intensifying competition from peers, over-dependence on third-party providers and customer concentration risks are the major headwinds at the moment.
Here we take a quick look at Masimo’s major headwinds and discuss the factors that ensure near-term recovery.
What’s Deterring the Stock?
Masimo faces strong competition from key players of the Medical Devices space namely Waters Corporation, Surmodics, NanoCellect Biomedical and Atlas Genetics. OEM distributors and other big medical devices companies also pose challenges to Masimo.
Furthermore, Masimo looks a little expensive at the moment. A comparative analysis of the company’s forward P/E (F12M basis) multiple reflects a relatively gloomy picture that might be a concern for investors. The ratio is currently pegged at 34.99, a bit stretched when compared with the broader industry’s P/E (F12M basis) multiple of 28.84. The current ratio is also higher than the S&P 500 index’s ratio of 15.73.
Why Should You Retain the Stock?
Masimo’s SET pulse oximetry or SET pulse oximeter solution successfully eliminates the limitations of conventional pulse oximeters. Additionally, the device has been clinically proven to detect critical congenital heart disease (CCHD) in newborns.
Earlier this year, the company announced that it is realizing solid sales growth from its SET pulse oximetry product because of its unique features like Measure-through Motion and Low Perfusion SET pulse oximetry. Also, the advantages of Masimo’s Measure-through Motion and Low Perfusion technology are complemented by the highly differentiated technology embedded in its rainbow products such as SpHb, PVi, and ORi.
For its RD SET sensors, Masimo recently received FDA approval, which is an added positive. Management confirmed that SET pulse oximetry products’ sales growth continued to surpass expectations in third-quarter 2018.
The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 72 cents, flat year over year. For revenues, the consensus mark stands at $218.9 million, reflecting a 2.8% decrease year over year.
For 2018, the Zacks Consensus Estimate for revenues is pegged at $854.1 million, mirroring an increase of 7%. For adjusted earnings, the same is pinned at $2.92, up 19.2% year over year.
Stocks to Consider
A few better-ranked stocks in the broader medical space are Quidel Corporation (QDEL - Free Report) , STAAR Surgical Company (STAA - Free Report) and Illumina, Inc. (ILMN - Free Report) .
Quidel Corporation has a long-term expected earnings growth rate of 25% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
With a Zacks Rank #1, STAAR Surgical delivered average four-quarter positive earnings surprise of 400%.
Illumina’s long-term earnings growth rate is projected at 23.4%. The stock carries a Zacks Rank #2 (Buy).
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