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A Recall-Driven Slowdown Only A Minor Setback For Penumbra

Mar. 02, 2021 9:56 AM ETPenumbra, Inc. (PEN)MDT, SYK5 Comments
Stephen Simpson profile picture
Stephen Simpson


  • Penumbra has been impacted by the pandemic and the recall of its leading-edge neurovascular aspiration catheter, but those only look like bumps in the growth story.
  • With the JET 7 Flex Xtra off the market, management is seeing robust demand for older models and is currently capacity-constrained; a new neuro catheter may appear in 2021.
  • Peripheral thrombectomy remains a very strong growth opportunity for Penumbra.
  • Penumbra remains a premier med-tech growth story, but at over 12x '22 revenue, the valuation is not low.

Mechanical thrombectomy continues to take share in both neurovascular and peripheral vascular procedures, and Penumbra (NYSE:PEN) is continuing to leverage that strong physician interest to build this franchise. The recall of the JET 7 Xtra Flex catheter was definitely a setback for the company, but given the specifics of the product failure, I do not believe it will damage the franchise on a long-term basis.

I'm far more concerned today with Penumbra's valuation than any potential long-term overhang from the recall or competition from the likes of Medtronic (MDT) and Stryker (SYK). Growth med-tech, particularly growth med-tech with fast-growing underlying markets, can often sport double-digit multiples to forward revenue, but at around 12.5x my 2022 revenue estimate (which is a bit above the highest published sell-side estimate), it's hard to say that Penumbra isn't getting appreciated for its well above-average potential.

Stronger Than Expected Results

Penumbra had given investors an early look at its revenue performance back in January, but the final results were still quite strong relative to the expectations before that early look. The company's growth in peripheral thrombectomy remains excellent, and I think it's well worth noting that many doctors have chosen to continue on with Penumbra products for neuro cases - switching back to older catheters.

Revenue rose 14% in the quarter to $167M, beating expectations by around 20%. Neuro revenue was down about 7% in constant currency (down 1% on a recall-adjusted basis) to $80M, and the company reported that physicians are switching back to older ACE 68 and JET 7 catheters at a pace that has the company capacity-constrained for the time being. Vascular revenue was up 45% to $87M, with 73% growth in the peripheral thrombectomy business driven by the Lightning 12 product.

Recall costs pushed GAAP gross margin down about 11 points

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

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

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