ICU Medical: High Growth Potential and an Attractive Valuation

| About: ICU Medical, (ICUI)

ICU Medical (NASDAQ:ICUI) manufactures disposable medical devices for use in vascular therapy applications. The company’s main product is CLAVE, a one-piece, needleless IV connection device that consists of a cylindrical housing which contains a compression seal. It accounts for around a third of the company’s direct sales.

The company is also a leading manufacturer of custom IV sets, which incorporate the company’s other products (critical, CLAVE and others). Sets are designed to clients’ exact specifications using proprietary software and manufacturing. The use of sets allows hospitals to manage inventory and costs while saving time. Custom IV systems account for about 1/3 of the company’s sales.

The company’s third reportable business unit is its critical care products, which generate around 20% of revenues. These products were acquired from Hospira in 2005 with a Manufacturing Commercialization Development Agreement whereby the company manufactures and sells these products (previously produced internally by Hospira) to Hospira. The company has purchased the existing Hospira inventory and now is responsible for full sales and distribution and customer contracting for the products. The facility is based in Salk Lake City and manufactures invasive hemodynamic monitoring systems that are used to monitor cardiac function and blood flow in critically ill patients. Product items include pressure monitoring devices, blood sampling systems, angiography kits and catheters.

The company also generates about 10% of its sales from other products.


The main valuation argument for ICU arises from its large cash balance (c.$100mn on a $500mn market cap company). At a trailing EV/EBITDA of 7.5x and a forward EV/EBITDA of 6x, the company trades at a 35% discount to its peers. However, this gets hidden from the EPS calculations as the company hardly gets any interest on it, putting the company in line with peers, while stripped of the effect of the cash the stock is trading at 15x 2010 multiple. The company generates around $40mn stable operating cash flow.

The market for its main product, CLAVE, is relatively mature and is a great cash cow business for the company. ICU holds 40% market share in this market (estimated $250mn) where the top 3 players account for 93% of total production (Baxter 30%, Carefusion 23%), creating a stable competitive environment. While the current customer base is well penetrated (estimated market share there is 65%), ICU his making strides into other GPOs with the Premier contract to extend its reach and to grow. The company has little market share in hospitals and care facilities that use Premier and, thus, a mere 10% market share in this base equals an additional $10mn revenue for the company.

With such a strong balance sheet, attractive valuation, potential to continue expanding market share as well as strategically acquiring products to enhance top line growth, ICUI is a great buy for any portfolio.

Disclosure: Long ICUI