2023-06-20 17:06:52 ET
Summary
- Today, we take our first look at medical device concern Harvard Bioscience, Inc.
- The shares have doubled over the past few months on better-than-expected results and improving cash flow.
- Can the rally continue? An investment analysis follows in the paragraphs below.
A foolish faith in authority is the worst enemy of truth ."? Albert Einstein.
Today, we put small cap medical device company Harvard Bioscience, Inc. (HBIO) in the spotlight for the first time. As can be seen in the graph below, the shares have doubled so far here in 2023. Can the good times continue for shareholders? An analysis follows below.
Company Overview:
This medical device company is based just outside of Boston, MA. The company develops, manufactures, and markets various products to the life sciences industry. These include but are not limited to syringe and peristaltic infusion pump products; electroporation and electrofusion instruments, amino acid analyzers and spectrophotometers. Harvard Bioscience also supplies preclinical products for the research, drug discovery and drug development industries such as wearable or implantable telemetry systems that collect numerous biometric readings. Over 80% of revenue comes from products the company manufacturers, the rest from products it distributed for other medical device makers. The stock after its recent rally trades just below $5.50 a share and sports an approximate market capitalization of $225 million.
First Quarter Results:
The company posted first quarter numbers on April 25th. Harvard Bioscience had non-GAAP profits of six cents a share, two cents a share above the consensus. Revenues rose just over four percent on a year-over-year basis to nearly $30 million, also nicely above expectations. Management noted sales would have been $500,000 in constant currency and revenues took a $1.1 million hit from discontinued products compared to the first quarter of 2022.
One of items that sticks out from first quarter results is that adjusting operating profit improved to $4.4 million or 15% of sales compared with just eight percent of revenues in the same period a year ago. In addition, on a GAAP basis Harvard Bioscience squeezed out a penny per share profit in the quarter compared with a 17 cent a share loss in 1Q2022. A good portion of this improvement is attributable to leadership's effort to slowly discontinue sales of low-margin products primarily sold through distribution as well as some of its own products that have low margins. The company has also launched higher margin new products such as its high-capacity behavior monitoring system and SmartUssing Epithelial System recently. The latter is a vertical, multi-chamber Ussing system that supports measurements from native tissue, including from the stomach, large or small intestine and other human organs.
Analyst Commentary & Balance Sheet:
The CEO and a company director bought nearly $200,000 worth of shares collectively in mid-March, just before the big rise in the share price. That has been the only insider activity in the shares so far in 2023. Only just over one percent of the stock outstanding is currently held short. Since first quarter results posted, both Benchmark & Co. and Keybanc have reissued Buy ratings with identical $7 price targets.
The company produced $1.8 million in operating cash flow in the first quarter. The third straight quarter of positive cash flow for the Harvard Bioscience. In contrast, cash flow was a negative $2 million in 1Q2022. The company also paid down debt by $2.2 million during the quarter and brought net leverage down to 3.2x. Management has stated that its goal is to get leverage down to approximately 2x by the end of FY2023. The company has just over $40 million in long-term debt.
March Company Presentation
Verdict:
The current analyst firm consensus has Harvard Bioscience making 28 cents a share in FY2023 as revenues rise six to seven percent to just over $120 million. They seen sales growth accelerating to approximately nine percent in FY2024 and have profits pegged at 38 cents a share.
The stock began the year at under three bucks a share and an easy case can be made it was undervalued to start the year in hindsight. The shares began 2023, going for approximately 10 times this year's projected earnings and just over seven times FY2024's profit projections. The company has done a good job of paring debt, improving cash flow and launching new products in recent quarters as well.
However, with Harvard Bioscience stock doubling in the first six months of this year, it is hard to make the case the equity is currently undervalued at just under 20 times this year's expected profits. Especially for a firm growing revenues at a mid to high single digit clip. If the stock pulled back to $4.00 a share, I would start to accumulate some shares. At nearly $5.50, I am not a buyer as 2023's rally have brought the shares into fully valued territory. The shares also seem to be topping out since the start of May.
Wonder is the seed of knowledge "? Francis Bacon.
For further details see:
Harvard Bioscience: Rally In Shares Losing Steam