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We turned our attention on the medical equipment industry to see if we can find any potentially attractive investments based on company fundamentals. We looked at seven companies specializing in medical equipment, devices and diagnostic tools: CR Bard, Inc. (NYSE:BCR), Beckton Dickinson and Company (NYSE:BDX), Beckman Coulter, Inc (NYSE:BEC), Immucor, Inc. (NASDAQ:BLUD), Intuitive Surgical, Inc. (NASDAQ:ISRG), Medtronic, Inc. (NYSE:MDT) and Thermo Fisher Scientific, Inc. (NYSE:TMO).

We first looked at the intrinsic value of the target companies based on analysts' projected 5-year growth rates and got the following:


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For reference, the past 5-years' growth rates in EPS and FCF/share are shown below:


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BLUD is the only company currently selling at a discount to our calculated intrinsic value, while BEC, ISRG, and BCR are selling at 20%-50% premium to their intrinsic value.

Turning to the other valuation measures, we get the following:


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All companies seem to be trading at a PEG of well over our target of 1.0. BLUD and BEC, while not below our target threshold of 7.0 for a value stock, are fairly close. Based on the ratios in this analysis, none of the stocks sticks out as a pure value play.

The analysis on returns of investment gives us the following:


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We look for returns on invested capital of greater than 15%, which shows a company is efficiently using the capital they have to generate profits. Four of our companies have ROIC greater than 15%, and they have done a good job over the past 5 years keeping their returns above this threshold.


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Of the other three companies, only MDT has been able to achieve 15% or greater ROIC in the past.


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Finally we look at the companies' debt and liquidity. Our analysis gives us the following:


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Only ISRG and BLUD have no debt. We like to see companies we invest in have total debt to equity levels less than 50%. However, since all companies' current ratios are greater than 1.5, and the quick ratios greater than 1.0, it appears that those companies like BDX and BEC that are financing with debt have enough cash to pay their current liabilities.

In summary, while none of the stocks in our analysis appear to be a true value play, we think that BLUD has the best combination of growth (looking at past 5-year growth rates), high returns on equity (>15%), no debt, and selling at a discount to intrinsic value. Before considering investing in this company, we would look further into the BLUD business case to see if the 10% future growth estimate is justified.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Growth and Value in the Medical Devices Industry