Haemonetics (HAE) is a healthcare company that develops and sells products and solutions for hematology through three business segments: Plasma, Blood Center, and Hospital.
The main value for HAE comes from its positioning as the leading producer of blood plasma collection devices. It owns 75% of the U.S. market share in this space, which it has built through a series of strategic acquisitions. It also recently acquired Cardiva, giving it the distinction of owning the only FDA-approved post-cardiac ablations vascular closure device.
The company’s competitive positioning is also exhibited by its attractive profit margins and returns on equity. Meanwhile, its balance sheet is also on firm footing as the current ratio is very conservative at 2.74x, its EBITDA/interest ratio is a very strong 20.55x, and its net debt to EBITDA ratio is a reasonable 2.7x. (See Haemonetics stock chart on TipRanks)
Despite these strengths, the company just went through a tough 2020, thanks to COVID-19, which reduced plasma donations and plasma demand. Even worse, the company is facing negative sentiment around its competitive positioning. Haemonetics just lost a large plasma customer (CSL Plasma) which constituted 12% of expected fiscal 2021 revenue.
Since then, the stock has lost half of its market cap, which seems a bit excessive given that it was just 12% of its expected total revenue. In fact, the forward price to earnings ratio is 20.4x, which is well below its long-term average of 25x.
Given the company's massive market share and solid balance sheet, it is hard to imagine it losing much more business. Furthermore, Raymond James analyst Lawrence Keusch reiterated his outperform rating on the stock. Keusch cited HAE’s innovative initiatives that he believes will sustain its competitive standing and drive future growth.
Wall Street’s Take
From Wall Street analysts, HAE earns a Strong Buy analyst consensus based on 7 Buy ratings, 1 Hold rating, and 0 Sell ratings in the past 3 months. Additionally, the average Haemonetics price target of $80.33 puts the upside potential at a sizable 28.02%.
Summary and Conclusions
HAE is coming out of a tough year, plagued by COVID-19 headwinds. Furthermore, its stock has taken a beating due to the loss of a large customer.
That said, the business remains on strong footing thanks to its innovative capabilities and strong market share. Additionally, the company's balance sheet liquidity gives it the flexibility to invest strategically. Those investments will protect its existing business and grow revenue and profitability moving forward.
Furthermore, its recently terminated agreement does not actually end until next year, giving Haemonetics plenty of time to find new sources of revenue and recover fully from COVID-19 before those revenues roll off the cash flow statement.
Last, but not least, demand for plasma is expected to grow at a strong clip for the foreseeable future and outstrip supply as well. As a result, HAE is highly unlikely to lose business moving forward, and in fact should have numerous opportunities for further growth.
Overall, this stock might make for an attractive buy given its discounted valuation, numerous strengths, and the strong analyst sentiment behind it.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.