Today we have a moderately speculative idea.: take shares of the manufacturer of medical devices Integer (NYSE: ITGR), to capitalize on the speculative demand for the company's shares.
Growth potential and validity: 11,5% behind 13 Months; 20% behind 2 of the year; 8% per year for 15 years.
Why stocks can go up: investors consider this a promising sector, and the company can be bought.
How do we act: we take shares now by 82,34 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
Integer manufactures medical devices. According to the annual report, The company's revenue is divided into the following segments.
Medical Devices — 96,69% proceeds. According to the types of problems solved by the company's products, revenue is divided as follows::
- Cardiovascular system — 53,09% proceeds. Here, the company's products mainly solve problems in the field of the heart., but also solutions in urology and gastroenterology.
- Heart and neuromodulation — 32,25% proceeds. These are implantable cardioverter defibrillators., pulse generators.
- Complex surgery, orthopedics and portable medical instruments — 11,35% proceeds. These are services and goods in the relevant areas, for example, in the portable segment, the company makes batteries.
Segment operating margin — 16,31% from its proceeds.
Non-medical devices — 3,31% proceeds. These are solutions in the field of charging and power management.
Segment operating margin — 13,67% from its proceeds.
Revenue by country and region:
- USA - 56%.
- Puerto Rico - 8,94%.
- Costa Rica - 5,48%.
- Other regions — 29,58%.
Arguments in favor of the company
Fell down. This year, Integer shares have fallen in price from historical highs in 99,66 $ in July until 82,5 $. This gives us the opportunity to take these stocks cheaper in anticipation of a rebound..
Demographics. For the company's business, no matter how cynical it may sound, favorable demographic situation in the countries of the first world: the population there lives quite a long time, even after adjusting for the corona crisis, and for the most part aging. And with old age, Unfortunately, various diseases come, which automatically increases the demand for Integer products.
The negative effects of the coronacrisis should be taken into account here.: the disruption of many operations and visits to the doctor due to constant quarantines and general uncertainty will significantly slow down the growth of Integer's financial performance. You have to be mentally prepared for, that the pandemic will continue for decades to come. But, probably, the mass investor does not care about such subtleties and will still invest in medical equipment manufacturers for a long time "because, what is promising".
"From Ilyich to Ilyich without a heart attack and paralysis". The company's business has shown itself to be quite stable, what can attract an additional audience of people to this issuer, who want to "park money in a secure business". Considering Integer's small cap of $2.72 billion, - the effect of the influx can be very significant.
Can buy. Larger competitors like Medtronic may buy Integer just because of the coronacrisis.: limiting business growth encourages sector consolidation through the acquisition of smaller companies like Integer by larger ones like Medtronic.
In absolute numbers, Integer is worth a little - less than $ 3 billion. P / Her S is very small — 2,33, a P / E within the bounds of decency — 31. So I'd seriously expect that., that Integer will buy someone bigger.
What can get in the way
Concentration. According to the annual report, three largest clients - Abbott Laboratories, Medtronic and Boston Scientific - give a disproportionate share of the company's revenue: 18, 16 And 14%. But unknown, exactly how much each company gives. Reconsideration of relations with one of the large clients may negatively affect Integer's finances.
Growth diseases. The industrial boom in the US and the world has led to a sharp rise in commodity prices, logistics and workers. So you have to be mentally prepared, that these problems will affect the reporting of the company, although the last quarter she had turned out to be very good.
No payouts. The company does not pay dividends, which will significantly limit the possible positive effect from the influx of people into shares. Investors, waiting for stability, usually prefer stocks, paying dividends. Integer without dividends is not so interesting.
Nothing to wait for. Strictly speaking, the main growth factors of the company's quotes are outside - in the range from the influx of investors to the purchase of the company by someone larger. At the same time, there are no drivers for the rapid growth of its revenue and profit.: The corona crisis will act as a strong deterrent.
Don't buy these stocks, if you hope for the rapid growth of the company's business, - otherwise you will find yourself in the position of the heroes of the novel "Tatar Desert" by Dino Buzzati, who have lived their whole lives in anticipation of an event, which may never happen.
Accounting. According to the latest report, the company has 1.015 billion dollars of debt, of which 156.41 million must be repaid during the year. Basically, enough money at her disposal to, to pay off urgent debts: 25,272 million on accounts plus 177.488 million debts of counterparties.
But still, the company has a lot of debts - this may scare away some investors, afraid to invest in companies with a high level of debt. Yet the rise in price of loans on the nose. Also, this debt will limit the size of the premium to the current share price., if someone buys the company.
Well, finally, this reduces the likelihood of the company introducing dividend payments in a sufficient amount - about 2 $ per share per year.
What's the bottom line?
We take shares now by 82,34 $. Then there are three options:
- wait for the stock to rise to 92 $. Think, taking into account all the positive aspects, we will reach this level in the next 13 Months;
- wait for stocks to return to level 99 $. It is better to focus here on a period of about two years.: during this time, several more "openings of the economy" may occur, which will lead to higher expectations of investors regarding the frequency of hospital visits;
- keep shares next 15 years in sorrow and joy.
The likelihood of buying a company seems to me to be equally high in all three cases.. Large manufacturers of medical equipment quickly assess the situation and are already planning their future in the context of an eternal pandemic - and are eyeing small companies like Integer.
