Ten fingers, ten toes, and a better than 130% rise in stock price over the last year? Congrats, Ma and Pa Shareholder, your young medical device maker Natus Medical (NASDAQ:BABY) is looking quite healthy. Just to be safe, though, let's take a look at its latest earnings report. We should have the results back in the office before market-open tomorrow.
What analysts say:
- Buy, sell, or waffle? Three analysts follow Natus, splitting their votes 2-to-1, buy-to-hold.
- Revenues. Sales are expected to hit $18.1 million in tomorrow's report, an 87% increase over last year. The reason for the jump: new acquisition Bio-Logic officially became part of Natus on January 5, 2006.
- Earnings. Profits are predicted to jump 60% to $0.08 per share.
What management says:
At Natus' last checkup, CEO Jim Hawkins pronounced himself "pleased" with the company's progress to date, and also with the progress of Natus' absorption of new acquisition Bio-Logic. He noted that medical device sales in the U.S. had been "strong" in the fourth quarter, and that penetration of international markets was also progressing. Hawkins also provided a couple of details that might be of interest to numbers-watchers (details you won't find mentioned on the company's Yahoo! Finance page). Specifically, the $0.08 per share in profits that the analysts are projecting -- taken straight from the company's earnings report, by the way -- do not include "any one-time charges associated with the acquisition of Bio-logic Systems or the impact of expensing employee stock options." That means the estimates we have been getting are of the "pro forma" variety. Expect something less than $0.08 to result under GAAP, unless Natus beats estimates altogether (as it has done in three of the last four quarters).
What management does:
Natus' margins have just been getting better and better. Over the last 18 months, the rolling gross margin is up a full 600 basis points, helped by sales that rose nearly twice as fast as cost of goods sold. Operating costs are only keeping pace with sales gains, allowing operating and net margins to expand as well.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
56.6 |
58.9 |
59.8 |
61.2 |
63.2 |
62.6 |
|
Op. |
(1.2) |
2.1 |
5.5 |
11.5 |
11.9 |
12.6 |
|
Net |
(10.1) |
(6.6) |
(2.8) |
9.7 |
12.7 |
14.3 |
One Fool says:
As good as Natus' income statement looks, its balance sheet is even prettier. Against the 19% rise in sales over the last six months, Natus' accounts receivable have only grown 9%, and its inventories have actually declined by 15% -- suggesting that demand for Natus' products is very strong indeed. This excellent management of working capital helped Natus to more than quintuple its generation of free cash flow during this period, from $0.5 million to $2.8 million.
All in all, the company generated $6.9 million in free cash flow over the last four quarters. In the wake of the company's stunning run-up in share price over the past year, shareholders should perhaps pause for a moment and ask themselves: Is this fast-growing little company worth its price tag of 52 times trailing free cash flow? It might be, if the company keeps posting the kind of growth it's expected to show tomorrow. Just be aware: every baby matures and stops growing eventually, and Natus shall, too.
Competitors:
Natus has few, if any, direct competitors in its niche. The most likely threats to its business probably come from medical device makers like:
- Viasys (NYSE:VAS)
- GE (NYSE:GE)
- Siemens (NYSE:SI)
- Philips (NYSE:PHG)
- Tyco (NYSE:TYC)
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Fool contributor Rich Smith does not own shares of any company named above.
