Cantel Medical (CMN) specializes in disinfection equipment for dental offices and medical centers. Its products range from face masks to complex endoscope sterilization machines. Fiscal Q3 earnings announced this morning were $0.30, up 11% sequentially from $0.27 and up 58% from $0.19 year-earlier. The stock popped up above $24 following the news. This follows on a 52-week low of $12.68 and high of $25.55.
Cantel has been growing through a strategy of making relatively small, strategic acquisitions while also introducing new products based on its own research and development. In 2011 it made three acquisitions. That added some debt, now near $100 million. The acquisitions have gone well, with cost reductions combining with higher sales levels. Gross margins rose 6% from year earlier to 43.8%.
Fiscal Q3 2012 revenue was $97.2 million, down slightly sequentially from $97.3 million, but up 18% from $82.6 million year-earlier. Net income was $8.2 million, up 12% sequentially from $7.3 million and up 64% from $5.0 million year-earlier. Clearly profits are growing faster than revenues. However, management expects margins growth to flatten out, so future earnings growth will be based on increased revenues.
Most of the revenue comes from four major components: endoscopy at $38.6 million, water purification at $26.0 million, healthcare disposables at$19.3 million, and dialysis at $8.9 million. The sterilization of endoscopes, and sales of supplies for endoscopic procedures, saw revenues rise 41% y/y. With an aging population in the U.S., endoscopic procedures tend to ramp at a pretty steady rate.
One are the company admits it can do better in is international sales. Those only account for 10% of sales at present. Cantel plans to hire more sales personnel in Europe, Asia, and South America this year, mainly to sell endoscopy products.
Another area of future expansion is the healthcare disposables segment, which mainly manufactures disposable face masks for infection control, including some with innovative designs. Originally coming out of the dental sector, these masks are beginning to penetrate medical and veterinary sectors.
Cantel Medical pays a small dividend, under 0.5% per year. Given its rapid growth plans, I believe cash flows will continue to be used to pay down debt or to make further acquisitions. The cash balance at the end of the quarter was $25 million. Cash flow in the quarter was $13 million. It would take less than two years for Cantel to pay off its debts if all cash flow went to that purpose. Given today's low interest rates, it seems like a better strategy to make acquisitions, if they turn out as good as the ones made in 2011.
As a technology and biotechnology investor, it is an obscure data point that most impresses me. Research and development expenses were only $2.2 million in the quarter. Compare that to how much it costs to take a new drug through clinical trials, or design a new semiconductor chip, and you will see why I like Cantel's profit model so much.
Disclaimer: I have owned Cantel Medical since December, 2009. I will not trade the stock for a week from today.
See also my Q3 2012 Cantel Medical notes
Showing posts with label dialysis. Show all posts
Showing posts with label dialysis. Show all posts
Thursday, June 7, 2012
Monday, December 12, 2011
Cantel Medical Record Quarter
Cantel Medical (CMN) had a record fiscal Q1 2012 ending October 31, 2011, driven by organic growth and acquisitions.
Cantel Medical has been a good stock to hold so far in 2011, closing today at $26.91, up 18% from $22.81 a year ago, with a 52 week high of $28.50 and a 52 week low of $19.02. Not a bad showing in this tough market.
Cantel Medical is a smallish company (market capitalization today ended at $483 million) specializing in infection control through sterilization and disposables. Infection control is more cost effective than treatment for infection, which has become a much larger problem because of the evolution of multiple-antibiotic resistant bacteria.
Cantel is not a well-known name, even in hospitals, partly because it operates through named divisions. Minntech makes and markets endoscope and dialysis equipment sterilizers. Crosstex is the disposables business, working mostly in the dental market, but also moving into the general medical market. It makes face masks, sterilization patches, and other single-use items. Mar Cor makes machines to purify water, often for specialized medical needs. A smaller division is Saf-T-Pak, which produces specialty packaging for transporting specimens, and related materials.
For the latest fiscal quarter, Q1, Cantel reported revenue at $93.3 million, up 8% sequentially from $86.0 million, and up 29% from $72.0 million in the year-earlier quarter. GAAP net income was $6.2 million, up 32% sequentially from $4.7 million, and up 24% from $5.0 million year-earlier. GAAP EPS was $0.35, up 30% sequentially from $0.27 and up 21% from $0.29 year-earlier.
The latest acquisition was of Byrne Medical, announced August 2, 2011. Byrne manufactures products that act as replacements in gastrointestinal endoscopy procedures, eliminating the need for sterilization before reuse. The price of $100 million for a company with trailing annual revenues of $38.6 million seemed high on a revenue basis, but trailing annual pre-tax profits were $8.6 million. Cantel expects to increase gross margins in the business, which had a historical growth rate of over 20%. Byrne Medical had a 30% y/y increase in sales to $11.5 million in Q1 and is already accretive to earnings and cash flow.
Cantel has been fueling its growth with acquisitions. As a result, it ended the quarter with $116.5 million in debt, as against a cash balance of $19.6 million. If you, like me, have been burned occasionally by the poor acquisition strategies of other companies, you might not take this as a recommendation. However, for the few years I have followed Cantel they have done very well with acquisitions. They don't pay too much and sometimes acquire a division of a company they want, rather than the whole company. Then they cross-sell the new products with their established sales force. They have made it work well so far.
Meanwhile, the water purification business also keeps growing. The disposables business should ramp up when (or if) the unemployment rate tweaks down. People have been avoiding doctor and dental visits for economic reasons. When they have the dough to head back in for a checkup, the run rate will pick up again, meaning more use of infection prevention disposables.
So, in summary, the overall anti-infection story is a good one. Cantel is a pure infection play, and it has top-notch management. Should you be cautious because the stock is up 18% y/y? My guess is that the stock is currently priced about right for the short term, although the stock could make another run for its 52 week highs, if the overall market firms up. The trailing P/E ratio at the end of today was 22 (per NASDAQ), which is reasonable for a company with a strong track record of growth. In the longer run I expect continuing profit growth will compell a higher stock price. Cantel Medical should be attractive to long-term investors looking for diversification in the healthcare space.
As a kicker, the dividend was recently raised to $0.14 per year, paid semi-annually.
For more details on quarter results, see my Cantel Medical Q4 fiscal 2011 analyst call summary.
Disclosure: I am long Cantel and will not change my position in the next 2 weeks.
Keep Diversified!
Cantel Medical has been a good stock to hold so far in 2011, closing today at $26.91, up 18% from $22.81 a year ago, with a 52 week high of $28.50 and a 52 week low of $19.02. Not a bad showing in this tough market.
Cantel Medical is a smallish company (market capitalization today ended at $483 million) specializing in infection control through sterilization and disposables. Infection control is more cost effective than treatment for infection, which has become a much larger problem because of the evolution of multiple-antibiotic resistant bacteria.
Cantel is not a well-known name, even in hospitals, partly because it operates through named divisions. Minntech makes and markets endoscope and dialysis equipment sterilizers. Crosstex is the disposables business, working mostly in the dental market, but also moving into the general medical market. It makes face masks, sterilization patches, and other single-use items. Mar Cor makes machines to purify water, often for specialized medical needs. A smaller division is Saf-T-Pak, which produces specialty packaging for transporting specimens, and related materials.
For the latest fiscal quarter, Q1, Cantel reported revenue at $93.3 million, up 8% sequentially from $86.0 million, and up 29% from $72.0 million in the year-earlier quarter. GAAP net income was $6.2 million, up 32% sequentially from $4.7 million, and up 24% from $5.0 million year-earlier. GAAP EPS was $0.35, up 30% sequentially from $0.27 and up 21% from $0.29 year-earlier.
The latest acquisition was of Byrne Medical, announced August 2, 2011. Byrne manufactures products that act as replacements in gastrointestinal endoscopy procedures, eliminating the need for sterilization before reuse. The price of $100 million for a company with trailing annual revenues of $38.6 million seemed high on a revenue basis, but trailing annual pre-tax profits were $8.6 million. Cantel expects to increase gross margins in the business, which had a historical growth rate of over 20%. Byrne Medical had a 30% y/y increase in sales to $11.5 million in Q1 and is already accretive to earnings and cash flow.
Cantel has been fueling its growth with acquisitions. As a result, it ended the quarter with $116.5 million in debt, as against a cash balance of $19.6 million. If you, like me, have been burned occasionally by the poor acquisition strategies of other companies, you might not take this as a recommendation. However, for the few years I have followed Cantel they have done very well with acquisitions. They don't pay too much and sometimes acquire a division of a company they want, rather than the whole company. Then they cross-sell the new products with their established sales force. They have made it work well so far.
Meanwhile, the water purification business also keeps growing. The disposables business should ramp up when (or if) the unemployment rate tweaks down. People have been avoiding doctor and dental visits for economic reasons. When they have the dough to head back in for a checkup, the run rate will pick up again, meaning more use of infection prevention disposables.
So, in summary, the overall anti-infection story is a good one. Cantel is a pure infection play, and it has top-notch management. Should you be cautious because the stock is up 18% y/y? My guess is that the stock is currently priced about right for the short term, although the stock could make another run for its 52 week highs, if the overall market firms up. The trailing P/E ratio at the end of today was 22 (per NASDAQ), which is reasonable for a company with a strong track record of growth. In the longer run I expect continuing profit growth will compell a higher stock price. Cantel Medical should be attractive to long-term investors looking for diversification in the healthcare space.
As a kicker, the dividend was recently raised to $0.14 per year, paid semi-annually.
For more details on quarter results, see my Cantel Medical Q4 fiscal 2011 analyst call summary.
Disclosure: I am long Cantel and will not change my position in the next 2 weeks.
Keep Diversified!
Thursday, October 14, 2010
Cantel Medical (CMN) Growth Plans
Cantel Medical is one of the few companies with a focus exclusively on infection control. Last year it had a banner fiscal Q4, ending July 31, 2009, because the H1N1 flu scare created a run on its line of disposable face masks. Despite that, Cantel management reported revenue and earnings growth for its latest Q4 ending July 31, 2010 at its analyst conference call yesterday.
Revenue was $69.8 million, up 5% sequentially from $66.6 million in Q3, and up 4.5% from $66.8 million year-earlier. Net income was $4.6 million, up 7% sequentially from $4.3 million in Q3, and up 7% from $4.3 million year-earlier. EPS (earnings per share) were $0.27, up 8% sequentially from $0.25 in Q3, and up 4% from $0.26 year-earlier.
Gains in its endoscopy sterilization business and in water purification led to the record revenue. Disposables and services were off y/y because of the mask issue. The dialysis segment was also down, but this was due to purposefully dropping certain low margin items, resulting in a better profit margin.
In good news for American workers, the recently announced acquisition of the American water sterilization business of Gambro means that jobs will be moved to the U.S. from Sweden and be integrated with Cantel's manufacturing operations in the United States. The year prior to the acquisition this business generated revenues of $14 million. It will be added to Cantel's Mar Cor Purification subsidiary.
Disinfection and sterilization are major trends in the U.S. healthcare market. The increasing number of seniors, the problem of disease transmitted in hospitals, and the globalization of infections are all pushing volume and the need for quality improvement in these markets.
Cantel has increased its mask manufacturing capacity to be better able to cope with the next airborne infection epidemic.
Following the Gambro deal, Cantel has about $23 million in cash but $33 million in debt. Cash generation in Q4 was $11.6 million. Cantel has arranged for credit for further acquisitions. As long as they don't overpay for the acquisitions, with interest rates low this is a good expansion strategy.
Internal development is also robust. R&D expense in the quarter was $1.4 million, but the plan is to increase R&D. Revenues from new products could begin in 2011 and ramp in 2012. Compared to biotechnology companies, where R&D spend is much heavier and the risk of failure is high, this is a great model.
I see Cantel Medical as a company with excellent management and, at today's prices anyway, a good value for buyers. If you can buy now with a long term (minimum 1 year) investment view, you have a fairly safe outlook with likely healthy gains in revenues and profits. Of course there are the usual risks: failure of the FDA to approve an innovation and competition from other companies.
My own strategy is to accumulate Cantel over time, depending on its value relative to other opportunities. I have watched Cantel Medical (CMN) since 2008 and first bought stock in December of 2009. I have listened to a couple of prior analyst conference calls, and posted a summary for the Cantel Medical Q4 2010 call.
More data:
Cantel Medical Corporation
Revenue was $69.8 million, up 5% sequentially from $66.6 million in Q3, and up 4.5% from $66.8 million year-earlier. Net income was $4.6 million, up 7% sequentially from $4.3 million in Q3, and up 7% from $4.3 million year-earlier. EPS (earnings per share) were $0.27, up 8% sequentially from $0.25 in Q3, and up 4% from $0.26 year-earlier.
Gains in its endoscopy sterilization business and in water purification led to the record revenue. Disposables and services were off y/y because of the mask issue. The dialysis segment was also down, but this was due to purposefully dropping certain low margin items, resulting in a better profit margin.
In good news for American workers, the recently announced acquisition of the American water sterilization business of Gambro means that jobs will be moved to the U.S. from Sweden and be integrated with Cantel's manufacturing operations in the United States. The year prior to the acquisition this business generated revenues of $14 million. It will be added to Cantel's Mar Cor Purification subsidiary.
Disinfection and sterilization are major trends in the U.S. healthcare market. The increasing number of seniors, the problem of disease transmitted in hospitals, and the globalization of infections are all pushing volume and the need for quality improvement in these markets.
Cantel has increased its mask manufacturing capacity to be better able to cope with the next airborne infection epidemic.
Following the Gambro deal, Cantel has about $23 million in cash but $33 million in debt. Cash generation in Q4 was $11.6 million. Cantel has arranged for credit for further acquisitions. As long as they don't overpay for the acquisitions, with interest rates low this is a good expansion strategy.
Internal development is also robust. R&D expense in the quarter was $1.4 million, but the plan is to increase R&D. Revenues from new products could begin in 2011 and ramp in 2012. Compared to biotechnology companies, where R&D spend is much heavier and the risk of failure is high, this is a great model.
I see Cantel Medical as a company with excellent management and, at today's prices anyway, a good value for buyers. If you can buy now with a long term (minimum 1 year) investment view, you have a fairly safe outlook with likely healthy gains in revenues and profits. Of course there are the usual risks: failure of the FDA to approve an innovation and competition from other companies.
My own strategy is to accumulate Cantel over time, depending on its value relative to other opportunities. I have watched Cantel Medical (CMN) since 2008 and first bought stock in December of 2009. I have listened to a couple of prior analyst conference calls, and posted a summary for the Cantel Medical Q4 2010 call.
More data:
Cantel Medical Corporation
Subscribe to:
Posts (Atom)
