Masimo (MASI, Financial) slipped to 2024 lows today, even though it projected Q2 revenues slightly ahead of consensus. This projection was underpinned by improved market share and a robust order backlog heading into Q3. The company operates in two segments: healthcare and non-healthcare. Recently, Masimo has been discussing separating its consumer business, which is the non-healthcare side of its operations.
Management updated shareholders about the potential separation of the consumer business, revealing that a "Potential JV Partner" was ready to offer $850-950 million for it on a cash and debt-free basis. This offer represents around 1.2x FY24 revenues. However, investors did not react strongly to the offer, keeping shares relatively stable.
The muted response to Masimo's positive Q2 outlook reflects investor unease over the company's future direction.
- Masimo's consumer business, which sells audio products, has never been well-received by investors. It doesn't complement the core healthcare unit, which focuses on hospital monitoring products. The non-healthcare revenues have consistently struggled over the past several quarters, typically declining year-over-year, offsetting the strength of the healthcare unit.
- Investors are likely eager for Masimo to divest its non-healthcare unit, even though the potential suitor's price was not overly compelling. Even at the high end, the offer didn't reach the $1.025 billion Masimo paid for the consumer unit two years ago. With discretionary spending hampered by inflation, Masimo's consumer business faces significant headwinds in the near term, explaining the relatively weak offer.
- There has also been turbulence from a major shareholder, Politan Capital, which has had disagreements with Masimo over board nominees. Masimo released a presentation highlighting the risks of ceding control to Politan Capital. Meanwhile, Masimo is in litigation with Apple (AAPL, Financial) over technology used in the Apple Watch, seeking licensing for its technology.
The main takeaway is that although Masimo's Q2 preliminary revenue is encouraging, too many uncertainties are overshadowing this positive development. However, focusing purely on Masimo's core healthcare business, the company is in good shape. It boasts strong sensor orders across the U.S. and Europe in Q1, with this momentum likely continuing into Q2 and Q3. The company also continues to gain market share, positioning it well for future growth once current uncertainties are resolved.
