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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Natus Medical (NASDAQ: BABY ) , a provider of neurodiagnostic and newborn health-care products, popped by as much as 12% after reporting its fourth-quarter results before the opening bell.
So what: According to Natus Medical's press release, the company reported a fractional decline in revenue to $90.6 million from $90.8 million in the year-ago period as net income rose 82%, and adjusted EPS expanded to $0.37. By comparison, Wall Street had been looking for Natus Medical to report an EPS profit of just $0.31 on $90.1 million in revenue. Natus reaffirmed its first-quarter guidance issued just over two weeks ago of $0.21 to $0.24 in adjusted EPS, and $82 million to $86 million in revenue, but slightly bumped up its full-year adjusted EPS forecast to a new range of $1.14 to $1.18 from prior guidance of $1.12 to $1.16. Specific to that bump, and its better-than-expected fourth-quarter results, was stronger international revenue, which has the company targeting a long-term annual non-GAAP profit margin goal of 20%.
Now what: It was another quarter of rather "blah" top-line growth, but Natus Medical did what it does best, and that's pummel Wall Street's EPS estimates. The company has now delivered five straight double-digit EPS percentage beats going back to the fourth-quarter of fiscal 2012. While I appreciate the niche that Natus Medical operates in, and feel that it can utilize that niche to its pricing advantage, I'm concerned that there are few avenues to consistent organic growth at the moment. Revenue in 2014 is expected to be flat to up very low single-digits, which makes Natus' projected P/E of 22 at the EPS midpoint a bit tough to swallow. Until we see newer products hitting the market, or a serious decline in Natus' share price, I'd suggest passing at these levels.
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