Liberator Medical Supply (NYSEMKT:LBMH) is a leading, federally licensed, national direct-to-consumer provider of quality medical supplies to Medicare-eligible seniors. Accredited by The Joint Commission, the company's unique combination of marketing, industry expertise and customer service has demonstrated success over a broad spectrum of chronic conditions. Liberator is recognized for offering a simple, reliable way to purchase medical supplies needed on a regular, ongoing, recurring basis, with the convenience of direct billing to Medicare and private insurance. Liberator's revenue primarily comes from supplying urological, ostomy and diabetic medical supplies and mastectomy fashions. Customers may purchase by phone, mail, or the Internet; repeat orders are confirmed with the customer and shipped when needed.
According to data released by CMS for Medicare claims paid in 2011, Liberator Medical is the leading supplier of urological intermittent catheters for Medicare patients, exceeding the second leading supplier by 59%. According to this report, the global market size for urological catheters is expected to grow to $3 billion per year by 2017. In the US, an aging population, changes in the reimbursement policy and presence of a large, under-penetrated population base offer enormous growth opportunities for the intermittent catheters market.
On Friday, June 14, Liberator Medical announced its second quarterly dividend in a row, raising its amount by 50% over the last one to .03 per share, and a 1 million share buyback, its first ever buyback announcement. The stock was trading at around $1.00 even at the time of the announcement. .03 quarterly brings the annual yield to 12% at that level, which is a very large dividend yield percentage especially for a company that is also deploying cash to buyback shares. Right after the news, LBMH shares surged as high as 25% and finished the day at $1.20 per share closing up 21% on record volume.
Why LBMH is poised to run even higher
Even at $1.20, LBMH's dividend yield is still very high at 10%. Management rose the dividend level and announced the buyback rather fast, in only 1 quarter, which suggests management isn't shy about raising the dividend or buyback size again in the future. Its operating and free cash flow has been accelerating, and its balance sheet is quite healthy.
What's perhaps most compelling about LBMH's announcement is it comes with around 2 weeks left in the current quarter. It should be taken as a signal to the market as to how strong its results will be reported. Three months ago it declared its first dividend right after the quarter ended, and then it went on to report record pre-tax income. This is inline with the company's policy regarding dividends:
The Company's Board of Directors will evaluate on a quarterly basis the amount and timing of future dividends based on the Company's operating results, financial condition, capital requirements and general business conditions.
The latest announcement of a 50% increase in dividend and a stock buyback suggests a blockbuster report coming up based on solid results that the BOD anticipates are sustainable. This is consistent with comments made with the last earnings report which was halfway through the quarter:
We expect to continue to increase our operating margins and cash flows during the second half of fiscal year 2013 compared with fiscal year 2012
1. Much of its sales are the result of Medicare reimbursement. Any changes in the rules or reduction in the amount of reimbursement would have a material impact on its future results.
2. New technology or regulation could emerge at some point which makes its current products obsolete.
3. With such a large market share, there's always the potential that a competitor could take some way. Being number one means most of LBMH's growth potential comes from expanded market size as it has little room to grow by taking market share. Likewise, a reduction in the market itself would make it very difficult for LBMH to sustain its revenue and growth levels.
4. As with any medical product, there's always the risk of product liability and/or a recall.
Overall, I believe the potential rewards greatly outweigh the potential risk near, short and long term and LBMH is a buy on the news, even at the current levels. I believe its earnings, cash flow, dividends and buy back will all be increasing for the foreseeable future, and its current stock price of $1.20 represents a compelling value versus its current dividend, cash flows and outlook. Good luck to all LBMH stakeholders.
Disclosure: I am long LBMH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.