Natus Hears the Call of Expansion

There's nothing like a little share dilution to dampen earnings-per-share expectations. Still, it looks to me like Natus Medical's (Nasdaq: BABY) most recent acquisition is going to fit right in.

The medical device maker upped its revenue guidance for the year by $2 million yesterday, thanks to its acquisition last month of Sonamed, which makes newborn hearing tests. Unfortunately, Natus has issued 4.6 million shares since its guidance at the end of the first quarter, so it had to lower its earnings-per-share guidance by $0.02. The new guidance is for $0.68 to $0.70 -- still at least 58% higher than last year.

It looks like a lot of the $2 million that Sonamed will add to revenue will trickle down to the bottom line. By my calculations, after factoring in the extra shares, Natus' guidance for net income went up by around $1.6 million. I guess that's the advantage of buying complementary companies, not to mention having all that extra cash on the books generating interest.

The multimillion-dollar question is what company will the Motley Fool Hidden Gems pick buy with the $100 million it's raised from its two stock offerings in as many months? It seems to me that if the company continues to buy up small companies for $9 million a pop, it's going to take Natus a long time to become the next Boston Scientific (NYSE: BSX) or Medtronic (NYSE: MDT). We may see a larger acquisition from Natus in the coming months. Then again, it's clear that CEO Jim Hawkins has some pretty rigid investment criteria, so don't count on an acquisition just because the cash is in the account.

One thing is for certain, investors have clearly come to their senses and figured out that giving Natus' management money to invest is not a bad idea. Natus' stock is now trading above the price of each of the offerings. Considering how good the last transaction looks, I'd say they're right on the money.