Company of the Week - Masimo Corp

Masimo.com
Ticker: MASI
Share price: $25.53
12-month sales: $293 million
5-year profit growth rate: 49%

The company’s new product, called SpHb, does real time blood test, without the blood. It tracks hemoglobin levels in blood without drawing any. The results don’t reach the levels of a lab test, but they provide many crucial uses, such as telling right away if the patient who just had surgery is suffering any internal bleeding, or telling a doctor when to administer a blood transfusion and how much to transfuse. It also detects anemia. The real advantage of SpHb for doctors is the real time aspect, as opposed to drawing blood, send it to the lab, and wait for the results few hours later. The SpHb is still in beta phase with a full launch expected early next year. The potential market for the product is around $1B, quite a bump for Masimo, which sales last year were $293 million.
Masimo’s original, and still dominant, product line is a pulse oximeter, which measures oxygen levels in the blood. They are the pinching plastic clothespin the doctors put on your fingers when you’re in the hospital. The competition is much larger Covidien (Ticker: COV), but Masimo is steadily taking market share from it, and currently sits at 27%, vs. Covidien’s 60%. In the third quarter, oximetry sales grew faster than some analysts predicted, and since the market is mature, it was almost entirely due to market-share gains.
The major differentiating factor is the algorithm inside of Masimo’s unit, which allows for higher sensitivity toward patient movement, and results in lower number of false readings.
The analysts have arrived at the $1 billion figure by counting the potential U.S. hospitals market. More than 400 million hemoglobin tests are done annually, and more than half of those are outside hospitals.
The firm’s business model is the “razor-blade” model: give away the razor, sell them the blades. Masimo gives away or loans its monitors n exchange for a five-year contract to supply its disposable sensors, which only fit Masimo’s devices. This has given the firm an installed base of more than half a million, plus a steady revenue stream. The company has more add-ons in the works. Late next year, it plans to launch Acoustic Respiration Monitoring, a device which can alert hospital staff to slowdowns or seizures in a patient’s breathing. In the third quarter, profit beat analysts’ view by rising 22% over the prior year to 22 cents a share. Sales increased 21% to $78.1 million. In the fourth quarter, analysts expect profit to decrease somewhat, due to lower royalties, higher research and development costs. In 2009, though, they expect 15% profit growth to 82 cents a share, accelerating to 35% the year after that.