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Utah Medical (NDQ:UTMD) April 15, 2009 close: $21.11

52-week range: $20.04 (Dec. 26, 2008) - $30.01 (Sep. 19, 2008)

Dividend = $0.23 quarterly = 4.36% current yield

*Utah Medical Products, Inc. is engaged in the production of medical devices that are predominantly disposable and for hospital use. UTMD's success in providing reliable solutions comes from its ability to integrate a number of engineering and technical disciplines in electronics, software, mechanical packaging, instrumentation, plastics processing and materials. UTMD markets a range of medical devices used in critical care areas, especially the neonatal intensive care unit (NICU), the labor and delivery (L&D) department and the women’s health center in hospitals, as well as products sold to outpatient clinics and physician's offices.

Company description from MSN MoneyCentral.com

Utah Medical is a small-cap that has managed to thrive by concentrating on a niche market centered around labor and delivery/obstetric products. They also offer gynecological/urology and electro surgery products and blood pressure monitoring equipment.

The company has been solidly profitable while maintaining conservative financing with total debt at just 5.7% of capital. They initiated dividend payments in 2004 and have increased their payout each year since including an increase in Q1 this year.

The current yield of 4.36% is better than now available on CDs and treasuries and is well covered.

The company has been gradually retiring shares since 2001 out of internal cash flow. Shares outstanding have dropped from 5.03 million to about 3.61 million over the past 6 years.

While the past two years saw slight dips in year-over-year earnings their overall revenues are still close to record levels. Here are their per share numbers as reported by Value Line:

52-week

Year ….. Sales ….. C/F ….. EPS ….. Div .. Avg. P/E ...Range
2003 ….. 5.97 ….. 1.83 ….. 1.50 .….. Nil …..14.1x ….17.41-26.30
2004 ….. 6.45 ….. 2.69 ….. 2.19 ….. 0.45 .. 10.5x ....16.02-27.19
2005 ….. 7.18 ….. 2.13 ….. 1.80 ….. 0.63 .. 13.2x ….20.06-32.80
2006 ….. 7.29 ….. 2.23 ….. 2.02 ….. 0.78 .. 15.7x ….28.25-34.96
2007 ….. 7.30 ….. 2.18 ….. 1.98 ….. 0.89 .. 16.0x ….29.27-34.88
2008 ….. 7.70 ….. 2.14 ….. 1.86 ….. 1.13 .. 14.0x ….20.04-32.35

At Wednesday’s close of $21.11 UTMD shares are < 11.4x trailing EPS their lowest valuation since 2004. Buyers of Utah Medical near the 2004 low of $16.02 saw their shares more than double (to $32.80) by the end of 2005.

While you can never predict a takeover will occur, UTMD’s small market cap and pristine balance sheet make this a clear possibility should a larger health care outfit decide to swallow it up. A buyout at just three times book value would lead to about a 50% premium from the current quote.

Is that a crazy target price? I don’t think so. UTMD shares peaked at over $32 per share in each calendar year from 2005 through 2008 even without that catalyst. In the better days of 2006 and 2007 the absolute low share prices were $28.25 and $29.27 respectively.

This appears to be a low-risk stock. Value Line rates them ‘above average’ for safety and the high yield should provide support in our low interest environment. Utah Medical has a Beta of just 0.45 making it very stable.

A bounce back to even $25 would bring a capital gain of 18.4% and the shares have been as high as $24.90 already this year. Each full year since 2003 would have provided a trading opportunity to exit at $26 or better.

Add in the 4.36% dividend and you’ve got yourself a solid double digit potential on a small-cap gem that does not figure to be too economically sensitive.

Disclosure: Author is long UTMD shares.

Source: Utah Medical: A Small Cap Gem