LeMaitre Vascular Inc. (LMAT, Financial) has been on a roll—it has generated robust financial results and metrics that produced a high GF Score. But the share price has been in a slump.
Among the recent highlights, we can include the retirement of its short- and long-term debt, growth of its business and joining the Nasdaq Dividend Achievers Index.
About LeMaitre
In its 10-K for 2021, LeMaitre calls itself “a global provider of medical devices and human tissue cryopreservation services largely used in the treatment of peripheral vascular disease, end-stage renal disease, and to a lesser extent cardiovascular disease."
It continued:
"We develop, manufacture, and market vascular devices to address the needs of vascular surgeons and, to a lesser degree, other specialties such as cardiac surgeons, general surgeons and neurosurgeons. Our diversified portfolio of devices consists of brand name products that are used in arteries and veins and are well known to vascular surgeons.”
These are the company’s leading categories:
It puts the worldwide market for peripheral vascular devices at more than $5 billion, and its addressable market at $750 million. In 2021, it generated $154.4 million, meaning it has the potential to grow 5 times over in its current configuration.
Expect changes in the configuration, though. The company is an active acquisitor, with 24 transactions in the past 25 years.
Based in Burlington, Massachusetts, the company has a market cap of $1.1 billion.
Competition
LeMaitre reports that no one company competes against all its product lines. Rather, it competes with a range of companies. The larger of these companies include Abbott/St. Jude (ABT, Financial)(STJ, Financial), Baxter International Inc. (BAX, Financial), Becton, Dickinson and Co. (BDX, Financial), Cardiovascular Systems Inc. (CSII, Financial) and Edwards Lifesciences Corp. (EW, Financial).
It also argued that it has competitive advantages. In its annual filing, the company said, “The success of our products relies on effective service support as well as superior product technology, quality, product and service availability, reliability, ease of use, cost-effectiveness, physician familiarity, and brand recognition. While we also compete on the basis of price, sometimes our more technologically advanced products are sold at higher prices.”
Financial strength
Although several lines on this table indicate debt, they really reflect long-term capital lease obligations. At the end of the first quarter of 2022, the balance sheet showed:
- Short-term debt: $0
- Long-term debt: $0
- Long-term capital lease obligations: $13.7 million
- Cash and cash equivalents: $15.6 million
- Marketable securities: $55.3 million
Note, too, the favorable relationship between the weighted average cost of capital and the return on invested capital. WACC is 8.48%, well below the ROIC of 13.22%.
Profitability
The lines on this chart all show LeMaitre is an industry leader in profitability. The net margin, for example, is 17.09%, better than 80.65% of companies in the medical devices and instruments industry.
It also has shown a profit in each of the last 10 years.
Growth
The first three lines on this table appear troubling, because both Ebitda and earnings per share without non-recurring items grew more slowly than revenue over the past three years.
However, we get a different message when we look at a chart of these three metrics over the past 10 years. Earnings per shares looks anemic over that three-year period because of one significant dip in the first year of the pandemic:
Checking the three-year free cash flow growth rate suggests something mediocre. Still, it is better than 58.10% of its peers and competitors in the industry. And if we look back over 10 years, rather than three years, the difference is startling:
Dividends and buybacks
The dividend yield is unremarkable, but reasonable for a company that must reinvest free cash flow to stay competitive. The dividend growth rate offers more encouragement—a consistent growth rate of 16.30% means the dividend will double in less than four and a half years.
As noted above, LeMaitre joined the Nasdaq U.S. Broad Dividend Achievers Index this past March. To gain entry to this exclusive club, a company must be listed on an American market and increase its annual regular dividend for at least 10 consecutive years.
Chairman and CEO George W. LeMaitre explained how the company had been able to join the club.
“We’re pleased to see NASDAQ add us to their prestigious Dividend Achievers Index, a select group of 373 companies," he said. "Our growing profitability has enabled us to consistently increase our dividends since 2011. By paying dividends we reaffirm our commitment to profitability and an improving balance sheet.”
While shareholders have been rewarded with dividends, the value of their shares has been diluted. Over the past decade, the number of shares outstanding has grown by an average of 3.47% per year.
Valuation
Judging by its price-earnings ratio, LeMaitre is not a cheap company, even by the standards of the medical devices and instruments industry (which has a median ratio of 25.72).
Further, the PEG ratio also exceeds the fairly valued range (the Buffett-Munger considers PEG ratios up to 2.0 as fairly valued).
But it does not exceed the fairly valued boundaries set by the GF Value chart:
The discounted cash flow calculator comes to a similar conclusion. Based on a forward growth rate of 20% per year, it sees a slight margin of safety:
I would consider the 20% growth rate aggressive, but the earnings per share without NRI rate has averaged 28% per year over the past decade. The five-year growth rate is 13.50% and the one-year rate is 7.80%.
All measures considered, think of LeMaitre as fairly valued.
Fundamentals summarized
Despite a weak showing on valuation, LeMaitre receives a very high GF Score of 95 out of 100:
Gurus
Just three gurus own stakes in the company, and they are:
- Jim Simons (Trades, Portfolio)' Renaissance Technologies, which reduced its holding by 9.05% to finish the first quarter of 2022 with 60,300 shares. They represent 0.27% of LeMaitre’s shares outstanding and, effectively, 0% of Renaissance’s assets under management.
- Ray Dalio (Trades, Portfolio)'s Bridgewater Associates beefed up its position by 30.83%, giving it 27,938 shares.
- Chuck Royce (Trades, Portfolio)'s Royce Investment Partners bought 8,757 shares during the quarter to establish a new holding.
Conclusion
While valuations of LeMaitre Vascular do not offer a bargain, this is still a company with excellent fundamentals and considerable room to grow.
Value investors may wish to wait and watch to see if the shares drop again and open up a reasonable margin of safety. Growth investors might wait and watch for an uptick that indicates the company will reclaim some of the share pricing lost in recent months. Income investors will appreciate the rapid growth rate of the dividend, but starting from a low base would mean waiting the better part of 20 years for a 4% yield.
