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Here's Why This Under-The-Radar Value Stock Is A Long-Term Buy

By Jonathan Waldron - Dec 22, 2020 at 10:21AM

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This medical device company is a vital part of the backbone of hospital products utilized in the U.S. and around the world.

2020 has been an unprecedented year of turmoil and challenges for so many across the world. The COVID-19 pandemic has impacted everyone's lives and investors have witnessed shocking volatility in global markets.

During times like these, many investors may be seeking dependable stocks that take a slow and steady approach, preferring performance consistency over taking risks on a growth company with lofty disruption dreams. ICU Medical ( ICUI 1.43% ) is one little-known company making slow and steady progress in its target markets. Here's why investors should take a look at this investment today.

A healthcare worker prepares to infuse medicine

Image source: Getty Images.

A stalwart in hospital equipment

ICU Medical is a pure-play intravenous (IV) therapy equipment company that is not a hyper-innovative, growth-oriented disruptor with aims to change the world, but rather an important hospital products manufacturer that enhances patient safety. It was founded in 1984 by a doctor after one of his patients died from an IV malfunction. The company was founder-led for 30 years and has reached a $4.5 billion market cap with annual revenue of $1.2 billion. 

ICU's products are ubiquitous in hospital settings, right at patient bedsides. It has four business segments: IV consumables, IV solutions, IV systems, and critical care products. The company is known for delivering high-quality products widely utilized in the U.S., where it generates 76% of its revenue.

The company's revenue in the third quarter was $319 million and its revenue growth was 4% year over year despite the challenges of the pandemic. ICU brought in profit of $113.9 million during the quarter, representing GAAP gross margin of 36%, compared to 39% in the same period last year. When the coronavirus began spreading rampantly in the U.S. during March, hospitals reduced elective surgeries to ensure bed capacity to treat COVID-19 patients -- resulting in a headwind for ICU and many other healthcare companies.

Consistent growth through acquisitions

As a growth investor who is drawn to founder-led innovator stocks, ICU hardly meets any of my rigid screening criteria. However, the only variable that gives me pause about buying its stock is its CEO's lower Glassdoor rating of 72%, suggesting that CEO Vivek Jain is liked, but not universally loved by employees. 

Yet, this is a company that will keep growing and earning consistently year over year. In 2017, it acquired Pfizer's ( PFE -4.78% ) Hospira Infusion Systems business for $1 billion in cash and stock, broadening its product portfolio by adding new IV pumps, devices, and solutions. In 2019, it acquired Pursuit Vascular which sells infection-preventing devices for hemodialysis catheters. ICU has innovated in the past with a product called the clave, a needle-free IV connector technology that prevents infections and adds safety for healthcare workers. 

^SPX Chart

^SPX data by YCharts

ICU faces stiff competition from much larger medical device makers Baxter International ( BAX 1.72% ) and Becton, Dickinson and Company ( BDX 1.07% ), but it continues to grow and its stock has outpaced its rivals year to date. ICU's stock lagged the S&P 500 by 42% over a three-year period and much of this is attributable to the large Hospira acquisition. The assets included a manufacturing facility in Costa Rica that produces IV consumables and IV systems and a factory in Texas that produces IV solutions. It's likely that the costs of integrating the two large plants had a large negative impact on expenses.

2021 could be its year

With the integration completed, the stock has rallied and is up 11% this year, still underperforming the S&P 500 which grew 14% over the same period. The good news is the company's cash position has increased to $351 million, which it will hopefully utilize for further acquisitions to fuel growth while it makes traction deeper into its primary markets.

This is not a company that will help double your money in five years but it will allow you to sleep at night without worrying about the typical market volatility. Slow and steady performance can be a welcome change, and a needed hedge, for the growth investor.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

ICU Medical, Inc. Stock Quote
ICU Medical, Inc.
$224.12 (1.43%) $3.16
Pfizer Inc. Stock Quote
Pfizer Inc.
$51.68 (-4.78%) $-2.59
Becton, Dickinson and Company Stock Quote
Becton, Dickinson and Company
$246.74 (1.07%) $2.62
Baxter International Inc. Stock Quote
Baxter International Inc.
$79.39 (1.72%) $1.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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