ICUI - ICU Medical - Stabilization Is In Sight But The Road Back Is Difficult

2024-06-27 18:01:22 ET

Summary

• ICU Medical has continued to struggle to grow since its acquisition of Smiths Medical, with management attention and resources focused on remediation and improvement instead of growth.
• The remediation and integration process should be nearing the finish line, leaving management free to refocus around rebuilding market share in its core infusion markets and driving innovation and leverage.
• As manufacturing leverage normalizes and reaccelerates, low-to-mid single-digit revenue growth should drive EBITDA margins from the mid-teens to the high-teens, with free cash flow following.
• ICU Medical shares do look undervalued, but valuation of slow-growing small-cap medical device companies is tricky, and I'd prefer to see more evidence of stabilization and reacceleration.

ICU Medical ( ICUI ) has continued to suffer for its acquisition of Smiths Medical from Smiths Group ( OTCPK:SMGZY ) in 2022, as Smiths not only brought the company a host of issues with the FDA (recalls and a warning letter), but also a much larger burden of rehabilitation and turnaround work than ICU Medical management anticipated. As the company has worked diligently to improve manufacturing, fulfillment, IT, and overall operations, it’s been a struggle to run the business at anything close to what its natural operating levels may be....

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