ICU Medical (NASDAQ:ICUI) is one of the notable post-pandemic recovery plays that investors have been curious about of late. It is a major medical devices manufacturer that can greatly benefit as elective surgeries and therapies inch back to the pre-pandemic level.
As the name suggests, this company manufactures products that are mostly used in ICUs. It specializes in providing monitoring systems and infusion therapy products. These products comprise the vital infrastructure of a hospital.
ICUI stock has been surging higher in the past few days. The stock surged over 35% last week, as analysts reported high volatility in several sectors. I remain cautiously bullish on this stock, for various reasons.
Let’s take a look at the key catalyst that has been driving up ICUI stock price recently.
(See ICU Medical stock charts on TipRanks)
ICU Medical Announces Acquisition Plans
ICU Medical announced on September 8 that it would be acquiring the medical division of Smiths Group (OTC:SMGZY) PLC. This acquisition deal will help ICUI to transform into an IV therapy company. Moreover, it would essentially provide workflow improvements that will ultimately boost the company’s financials. The deal is also set to boost the growth trajectory of ICU Medical.
The business that ICUI would be acquiring comes with an impressive pipeline of products that are of great value. Smiths Medical manufactures several medical instruments, including syringe pumps, positive air pressure systems, and more. This deal will help ICUI become a preferred supplier of medical devices among top hospital administrations.
Usually, in the case of most acquisition deals, the share price of the acquirer tends to skyrocket. This happens since investors re-value each company on the basis of the premium that is paid by the acquiring firm.
As expected, the announcement of the acquisition acted as a strong catalyst that catapulted ICUI stock. The combined entity formed by the acquisition will have collective revenue of $2.5 billion. The total amount that will be paid through cash and equity for the deal will stand at roughly $2.35 billion.
Smith Group will get $1.85 billion in cash from ICU Medical, along with 2.5 million freshly issued shares. The deal will also include an additional $100 million. However, that will depend on whether ICU Medical stock trades at an average of $300 per share for a period of 30 days for the next 3 years.
Accordingly, a few other incentives might push the value of this deal to $2.8 billion. Investors seem to have approved of the structure of the deal.
ICU Medical CEO Vivek Jain stated that this acquisition makes sense for the medical device market and fits quite well with ICU’s business plans.
EPS Growing Rapidly
A company’s share price usually tends to follow its earnings per share (EPS). In other words, earnings per share are a crucial factor that most long-term investors consider while investing in a certain share.
Interestingly, ICU Medical has managed to grow its earnings per share by 4.9% each year, for the past 3 years. This might not be a high growth rate, but it does show that ICUI’s EPS is heading in the right direction.
One of the best ways to evaluate a company’s growth is to check how its revenue and EBIT margins are moving. ICU Medical seems to have flat revenue and EBIT margins year-over-year. Although it might not be a major concern among investors, the ultimate direction this stock could be headed remains to be seen.
Wall Street’s Take
As per TipRanks' analyst rating consensus, ICU Medical is a Moderate Buy. Out of 2 analyst ratings, there are 2 Buy recommendations.
The average ICU Medical price target is $294, implying an upside of 21.08%. Analyst price targets range from a low of $286 per share to a high of $302 per share.
Bottom Line
ICU is a post-pandemic play with significant growth potential. There's certainly reason to believe that the catalysts underpinning this growth remain robust. Indeed, the company's recent acquisition deal is likely to further improve ICU Medicals' growth prospects. Moreover, insider ownership is a highly positive aspect of this stock.
Accordingly, ICUI stock appears to be a solid one that investors should take a flyer on, right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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