Merit Medical Systems Inc. MMSI is firing on all cylinders. The company recently reported an impressive fourth-quarter 2014 with adjusted EPS of 26 cents that beat the Zacks Consensus Estimate by 6 cents (30%). Fourth-quarter sales figure of $138.2 million also easily surpassed the Zacks Consensus Estimate of $132 million.
Merit Medical’s improving gross (up 90 basis points (bps)) and operating margins (surged 160 bps), also helped in delivering a strong bottom line. The lower quarterly operating expense (down 80 bps) was encouraging.
Following its fourth-quarter results, Merit Medical hosted its first Investor Day on Mar 5, 2015. During the event, the company reiterated its previously issued 2015 guidance and also provided 2016 and 2017 targets, which has improved visibility in our view.
For 2015, Merit Medical expects revenues in the band of $535–$545 million (up 5%–7% on a year-over-year basis). Gross margin is forecasted in the range of 46.5% to 47.5% (up 10 bps to 110 bps on a year-over-year basis), while operating margin is likely to be in the range of 10.9% to 11.9% (down 20 bps to 80 bps).
For 2015, Merit Medical predicts adjusted EPS in the band of 85–89 cents. Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) are forecasted in the range of $84-$88 million, while free cash flow is expected in the band of $20-$25 million ($19 million in 2014).
For 2016, Merit Medical expects revenues in the band of $580–$590 million. Gross margin is forecasted in the range of 47% to 48% (up 50 bps on a year-over-year basis), while operating margin guidance is pegged in the range of 11.5% to 12.5% (up 60 bps). Management predicts adjusted EPS in the range of 95 cents–$1.01. EBITDA is forecasted in the range of $90-$96 million, while free cash flow is expected in the band of $30-$35 million.
For 2017, the company expects revenues in the range of $625–$635 million. Gross margin is forecasted in the range of 47.8% to 48.8% (up 80 bps on a year-over-year basis), while operating margin will likely come in between 12.4% and 13.4% (up 90 bps). Management expects adjusted EPS in the range of $1.10–$1.18. EBITDA is forecasted in the range of $98–$106 million, while free cash flow is projected in the band of $35–$40 million.
Our Take
Merit Medical is focused on making significant inroads into international markets. The company’s improving embolics sales in Europe and parts of Asia (Japan and China) is a key positive, in our opinion. Moreover, the company is looking to expand into cost-effective locations like Mexico and Ireland, which will drive margin expansion.
However, an unfavorable foreign exchange rate, which is anticipated to weigh on sales in 2015, is a major headwind. We also believe that the company faces significant competition in most of the markets it operates in. This will keep profitability under pressure going forward.
Zacks Rank & Other Stocks to Consider
Currently, Merit Medical has a Zacks Rank # 2 (Buy). Other favorably-ranked stocks include Affymetrix AFFX, Abiomed ABMD and Inogen INGN. All three sport a Zacks Rank #1 (Strong Buy).
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