On Wednesday, Masimo Corp. (NASDAQ:{{16565|MAMASI) shares received an upgrade from Raymond (NS:RYMD) James, moving from a "Market Perform" to an "Outperform" rating. The firm has set a price target of $170.00 for the company's stock. The upgrade comes with a positive outlook on the company's potential for earnings growth and margin expansion.
Raymond James cited several reasons for the upgrade, including expectations that Masimo's earnings estimates will likely increase. The analyst noted that Masimo's narrative is more straightforward after divesting its Consumer segment, which adds to the difficulty in maintaining a neutral stance. Although Raymond James' core healthcare revenue assumptions remain below consensus, there is anticipation that Masimo will become a distinct story of margin expansion.
The analyst believes that Masimo's earnings power will begin to draw more attention, allowing investors to be more flexible with the company's valuation. With a new Board of Directors (BoD) motivated to enhance the business, a series of value-creating activities are expected to boost the potential core earnings power. Raymond James projects that Masimo could generate a core Healthcare EPS power of over $6 by 2026, further supporting the upgraded "Outperform" rating.
This projection includes the potential for further margin expansion, which underpins the positive sentiment from Raymond James. The firm's outlook suggests that as Masimo evolves and implements strategies to improve its business, its financial performance will likely strengthen, providing a solid basis for the raised rating and price target.
In other recent news, Masimo Corporation reported third-quarter earnings that surpassed analyst expectations, with an adjusted earnings per share of $0.98, beating the analyst consensus of $0.84. The company's revenue for the quarter was $504.6 million, slightly above the $502.87 million estimate and up 11.5% year over year.
However, Masimo's fourth-quarter revenue guidance of $581-611 million fell short of the $607.5 million analyst consensus at the midpoint. For the full year 2024, Masimo raised its earnings per share guidance to $3.95-$4.10, above the $3.88 consensus.
Despite these positive developments, the company revised its revenue outlook downward for the full year of 2024. The company's financial health showed signs of improvement, with gross margin increasing by 350 basis points year-over-year and operating margin up by 230 basis points year-over-year. These margin enhancements reflect Masimo's efforts to optimize its financial operations amid varying market conditions.
In response to these recent developments, Needham reiterated a Hold rating for Masimo's stock. This reflects the firm's view on Masimo's stock considering the updated financial guidance and the current valuation relative to its peers. The company also reported shipping 60,500 noninvasive technology boards and instruments during the quarter.
InvestingPro Insights
The recent upgrade by Raymond James aligns with several key metrics and insights from InvestingPro. Masimo Corp. (NASDAQ:MASI) has shown strong performance, with a remarkable 85.8% price total return over the past year and a 37.38% return in the last three months. This momentum is reflected in the stock trading near its 52-week high, with the current price at 98.46% of that peak.
InvestingPro Tips highlight that Masimo's net income is expected to grow this year, supporting Raymond James' optimistic outlook on earnings growth. The company's liquid assets exceeding short-term obligations and its operation with a moderate level of debt provide a solid financial foundation for potential margin expansion, as anticipated by the analysts.
However, investors should note that Masimo is trading at high earnings and EBITDA valuation multiples, with a P/E ratio of 99.67. This valuation suggests that the market has already priced in significant growth expectations, aligning with Raymond James' view that earnings power will draw more attention.
For those seeking a deeper analysis, InvestingPro offers 11 additional tips for Masimo, providing a comprehensive view of the company's financial health and market position.
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