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Masimo (MASI) Gains Nearly 18% YTD: What's Driving the Rally?

Masimo MASI is witnessing strong momentum, with its shares having rallied 17.9% year to date compared with 3.4% growth of the industry. The S&P 500 Composite has risen 6.3% during the same time frame.

With healthy fundamentals and strong growth opportunities, this Zacks Rank #3 (Hold) company appears to be a solid wealth creator for its investors at the moment.

Headquartered in Irvine, CA, Masimo develops, manufactures and markets a family of non-invasive monitoring systems. The company derives the majority of its revenues from its Healthcare segment, which primarily comprises non-invasive monitoring equipment for hospitals, along with supplying integrated circuit boards to original equipment manufacturers. Notable products include Masimo’s flagship Signal Extraction Technology (SET) Pulse Oximetry, which monitors blood oxygen saturation levels and protects against hypoxemia and hyperoxemia. Non-healthcare revenues are related to hardware and embedded software integrated into final products that are manufactured and sold by the company.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Catalysts Driving Growth

The rally in the company’s share price can be attributed to the strength in its diversified product portfolio. Masimo’s fourth-quarter 2023 results buoy optimism. Per management, its healthcare business is transitioning from COVID-era conditions. Management is also beginning to see a reversion of customer behavior and sensor purchasing patterns to the pre-pandemic growth trend.

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According to management, MASI gained from record contract wins in its healthcare business, important FDA clearances for innovative new products and strong growth in its hearables business, which is encouraging. On the fourth-quarter earnings call, Masimo confirmed that its hospital-at-home initiatives continued to gain traction with healthcare systems.

For 2024, total revenues are estimated to be in the range of $2,045-$2,165 million, implying flat to 5.7% growth year over year.

We are upbeat about Masimo’s ongoing R&D efforts, which it believes are essential to its success. Its R&D efforts focus on continuing to enhance its technical expertise toward its existing product portfolios and expanding its technological leadership in each of the markets. In December 2023, MASI received FDA’s clearance for Stork for prescription use with healthy and sick infants aged 0-18 months of age. The company gained FDA clearance of its Masimo SET-powered MightySat Medical Pulse Oximeter, available Over-The-Counter (OTC) to consumers without a prescription in February.

MASI has three product launches planned for 2024 — Freedom, H1 and the next-generation version of its Root Connectivity platform.

Meanwhile, a favorable court ruling in Masimo’s intellectual property dispute with Apple AAPL in January was a big boost. The company sued Apple in 2020 when the latter added a blood oxygen sensor to its watches, starting with Series 6. Per the latest ruling in the ongoing patent dispute litigation, Apple has to stop selling the watches with the oxygen measurement feature while an appeal of the ban plays out.

Last month, Masimo announced its plan to separate the consumer business and focus on professional healthcare and telehealth products. The company expects the spin-off of its consumer business to help improve the profitability of the healthcare business, which includes noninvasive monitoring products for patients in hospitals. The proposed separation will help MASI focus on its growing business with better margins that will likely accelerate shareholders’ wealth growth.

Risk Factors

The declining top and bottom-line performances during the fourth quarter, led by a dip in both its segmental revenues, were disappointing. Rising operating costs leading to the contraction of both margins in the quarter do not bode well. Masimo continued to navigate through challenging macroeconomic conditions, including high-interest rates, which weighed on consumer spending. This also raises our apprehension.

Masimo currently derives the majority of its revenues from its primary product offerings like the Masimo SET platform, the Masimo rainbow SET platform and related products. Thus, the company’s business is highly dependent on the continued success and market acceptance of its primary product offerings.

Masimo Corporation Price

Masimo Corporation Price
Masimo Corporation Price

Masimo Corporation price | Masimo Corporation Quote

A Look at Estimates

Masimo’s earnings per share is envisioned to decline 7.4% in 2024 to $3.51, followed by an improvement of 9% in 2025 to $3.82, on a year-over-year basis.  The Zacks Consensus Estimate for earnings has improved 0.9% for 2024 and 0.5% for 2025 in the past 30 days.

Revenues for 2024 and 2025 are anticipated to rise 2.6% and 6%, respectively, to $2.1 billion and $2.23 billion, on a year-over-year basis.

Stocks to Consider

Some better-ranked stocks in the broader medical space are DaVita Inc. DVA and Biodesix BDSX.

DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 12.1%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 35.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita’s shares have risen 23.8% compared with the industry’s 2.8% growth year to date.

Biodesix, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 29% in 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 13.96%.

BDSX’s shares have declined 32.1% year to date against the industry’s 1.4% growth.

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DaVita Inc. (DVA) : Free Stock Analysis Report

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Biodesix, Inc. (BDSX) : Free Stock Analysis Report

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