Entering text into the input field will update the search result below

Merit Medical - Recovering Procedure Counts, New Products, And Margin Expansion Support The Stock

Apr. 06, 2021 2:38 PM ETMerit Medical Systems, Inc. (MMSI)
Stephen Simpson profile picture
Stephen Simpson


  • Merit Medical is trading within sight of an all-time high as the company looks to procedure volume recovery, new product launches, and a significant margin improvement initiative.
  • Sample collection kit sales for COVID-19 testing were an invaluable offset to procedure volume declines in 2020, but will likely decline in '21, as procedures recover and new products launch.
  • Management is aiming for a near-doubling of non-GAAP operating margin in 2023 from pre-pandemic levels, driven by a richer product mix, shifting production to a lower-cost plant, and SG&A efficiency.
  • Even if Merit's margin goals are a little too ambitious, 6% to 7% revenue growth (annualized) over the next three years can support a 4x forward revenue multiple and a $67 fair value.

Merit Medical Systems (NASDAQ:MMSI) (“Merit” or “Merit Medical”) shares trade near their 52-week high and within sight of an all-time high, and not without good reason. Business held up pretty well in 2020 considering the sharp declines in elective procedures across the world, and the company is leveraged not only to recovering procedure counts in 2021 but new product introductions that were delayed by the pandemic.

Beyond that, the company is also in the early stages of a meaningful margin improvement initiative that includes deprioritizing low-margin products and relocating more production to lower-cost factories. Add in a significant new product (in trials) and the possibility of more R&D allocated to more sophisticated new products, and the growth-plus-margin-enhancement story looks pretty appealing.

Investors need to keep some sense of perspective here – this isn’t Intuitive Surgical (ISRG) or Stryker (SYK) and it never will be – but valued for what it is, I think it’s still a solid med-tech with a self-improvement story. If management can stay on target with its 5% to 7% annual top-line growth, a fair value in the mid-to-high $60s is reasonable today.

Can Management Hit Its “Foundation For Growth” Targets?

I’ve followed Merit off and on for over 20 years now, and the company’s track record of hitting its targets is mixed – revenue growth targets have been reliable more often than not, but margin targets have proven more challenging. The company’s track record on GAAP operating margins is what it is – a decline from the double-digits a decade ago to the mid-single-digits recently (though in the low double-digits on a non-GAAP basis) and low GAAP-based returns on assets and invested capital. Investors can quibble with the GAAP/non-GAAP differences if they like, but the reality is that margin leverage hasn’t been a particularly meaningful positive driver.

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).

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You


Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About MMSI

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on MMSI

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.