On Monday, BTIG adjusted its outlook on Masimo Corp . (NASDAQ:MASI), a medical technology company, by increasing its price target to $166 from the previous $145 while maintaining a Buy rating on the stock. The revision comes in the wake of recent strategic developments within the company.
Masimo's board of directors, on Friday, gave the green light to its management team to explore the possibility of spinning off its consumer business. This move has attracted significant attention from the investment community, as it could lead to the creation of a standalone healthcare business.
The potential separation has raised questions about the future structure of the company, the timeline for these changes, and the implications for the upcoming shareholder meeting.
Furthermore, on Sunday, there were reports that an activist investor with two seats on Masimo's board is looking to increase its influence by nominating two additional director candidates for the upcoming shareholder meeting. While neither Masimo nor the investor has publicly commented on these reports, the news has stirred discussions among shareholders and analysts.
BTIG's analysis takes into account various scenarios that could unfold for Masimo, including bear, base, and bull cases, and updates its price target based on the valuation of the healthcare business alone. The firm believes that the separation of the consumer division could lead to a cleaner, more focused healthcare company that has the potential to improve its EBIT margin and generate strong, consistent free cash flow.
The valuation approach by BTIG is based on an enterprise value to adjusted EBIT (EV/adj. EBIT) multiple for the healthcare business that is expected to operate independently. Applying a 28x multiple to the forecasted adjusted EBIT for the healthcare segment, excluding litigation costs, over the next 12 to 24 months, BTIG arrived at the new $166 price target.
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