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Is This Under-the-Radar Medical Device Company a Post-Earnings Buy?

By Kody Kester – Aug 6, 2021 at 6:25AM

Key Points

  • LeMaitre easily beat analyst estimates for revenue and earnings in the second quarter.
  • A recovery in elective procedures and a full quarter of contributions from recent acquisition Artegraft contributed to these solid results.
  • LeMaitre's healthy balance sheet allows it to once again be an active player in the merger and acquisition market.

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LeMaitre Vascular's operating fundamentals and balance sheet suggest it's a buy, depending on your objectives.

Medical device maker LeMaitre Vascular (LMAT 1.22%) delivered for shareholders in the second quarter, hitting analysts' revenue and earnings forecasts out of the park.

LeMaitre posted record second-quarter sales, beating analyst estimates of $38 million by 7.1%, and the company's diluted earnings per share (EPS) trounced expectations of $0.31 by 29%.  

We'll look at the factors that helped LeMaitre to deliver strong financial results in the second quarter, whether the company's operating momentum can continue as the year unfolds, and LeMaitre's financial positioning to determine whether the company is an ideal post-earnings buy.

A doctor and patient sit at a desk.

Image source: Getty Images.

The business is as strong as ever

LeMaitre reported $40.7 million in net revenue during Q2 2021, a 63.7% year-over-year rise from $24.9 million in Q2 2020.

LeMaitre's year-over-year results benefited from a full quarter of contributions from Artegraft (only sales from the closing date of June 22, 2020, to June 30, 2020, were included in Q2 2020 results); the acquisition of the biologic vascular graft company closed last year. (Vascular grafts help to repair damaged or diseased blood vessels.)

Artegraft's Q2 2021 net revenue of $6.7 million against the $200,000 million in sales included in Q2 2020 results led to a $6.5 million increase in revenue from Q2 2020 to Q2 2021 alone.

LeMaitre was also a beneficiary of the resumption of elective procedures around the world, including lower extremity bypasses (using Artegraft's Collagen Vascular Graft) and coronary artery bypasses (via LeMaitre's Valvulotome), which also helped the overall rebound in revenue.

But the Artegraft acquisition was not responsible for the entirety of the revenue growth; non-Artegraft sales were up, too, growing from $29.5 million in Q2 2019 to $34 million in Q2 2021. This suggests a culture of innovation within the business itself.

LeMaitre's improvement in revenue offset a 2.7% decline in gross margin, from 68.5% in Q2 2020 to 65.8% in Q2 2021, helping its diluted EPS soar 135.3% year over year from $0.17 in Q2 2020 to $0.40 in Q2 2021. Even using the more reliable pre-pandemic comparison period of Q2 2019, diluted EPS advanced 73.9%, from $0.23 to $0.40 in Q2 2021.

Management guidance suggests fundamentals will remain steady

It's worth taking a look at management's guidance for 2021 to determine whether LeMaitre's momentum can continue into the second half of this year.

LeMaitre's revenue has increased by 38.2% since the first half of the year-ago period, from $55.4 million then to $76.6 million through the first half of this year. Management anticipates that its total revenue for this year will be $156.1 million at the midpoint, which would work out to 20.7% year-over-year growth compared with the $129.4 million reported in 2020. This suggests that LeMaitre's revenue is set to slightly accelerate to $79.5 million in the second half of this year.

Diluted EPS more than doubled from $0.33 in the first half of the year-ago period to $0.68 through the first half of 2021. Management expects diluted EPS of $1.35 at the midpoint this year, which would equate to a 29.8% year-over-year growth rate against the $1.04 in diluted EPS generated in 2020.

For the second half, LeMaitre's diluted EPS is positioned to remain about the same at $0.67, based on its guidance for the year.

Overall, it appears as though LeMaitre will produce results in the second half of this year that are just as strong as the ones it showed in the first half, which is encouraging.

A healthy balance sheet continues to improve

LeMaitre's interest coverage ratio declined from infinite in the first half of 2020 ($113 million in net interest income) to 17.8 in the first half of 2021 ($19 million in earnings before interest and income taxes divided by $1.1 million in interest expense). But it's worth noting that this was due to the acquisition of Artegraft last year for $72.5 million in cash and up to $17.5 million in potential payouts based on future sales of the business.

LeMaitre has done a tremendous job of improving its steady balance sheet so far this year, deleveraging from the Artegraft acquisition. In just the past two quarters, the company's net debt has been reduced from $11.2 million at the end of 2020 ($26.8 million in cash minus $38 million in total long-term debt) to just $0.9 million as of June 30 ($21.5 million in cash less $22.4 million in total long-term debt).

LeMaitre's deleveraging progress impressed analysts, prompting Stifel's Rick Wise to ask for commentary on the company's mergers and acquisitions pipeline during LeMaitre's Q2 2021 earnings call. Although LeMaitre president Dave Roberts didn't provide the names of any acquisition targets, he did indicate that the company is "looking at larger targets these days," which could mean another acquisition to move the needle in the near future.

A buy for growth-focused investors

LeMaitre's operating results have been strong to date, and barring a full-on reintroduction of COVID-19 guidelines around the world in an effort to contain the delta variant, the company's second-half results should be about as solid as the first half's.

LeMaitre's net debt has been reduced by over $10 million in the past six months to an essentially negligible $0.9 million, which leads me to believe that an acquisition may be in LeMaitre's future to complement its existing product lines.

At just over 40 times this year's midpoint EPS figure and offering a safe 0.8% yield, LeMaitre isn't exactly deeply undervalued. However, given the company's growth prospects and minimal net debt on its balance sheet, I believe investors looking for a quality growth stock should consider a position in LeMaitre.

Kody Kester has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

LeMaitre Vascular Stock Quote
LeMaitre Vascular
LMAT
$47.42 (1.22%) $0.57

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