LivaNova (LIVN, Financial) is the result of a merger between Italian Sorin (MIL:SRN, Financial) and Houston-based Cyberonics (CYBX, Financial). The medical device manufacturer specializes in pacemakers and other devices. The company is number one or two in most of its product lines. The company has 49 million shares and trades at a market cap of $3 billion. There is no dividend and the company lost $2.02 last year.
The company specializes in cardiac machines (oxygenators and heart and lung machines), neuromodulation (devices for epilepsy and depression), and cardiac rythmic machines know as CRM. A link to an article on GuruFocus will tell you of Third Avenue's views on the company. Third Avenue Management was able to buy shares for less than $50 during Brexit. Shares are now $61, not a bad profit. At $50, Third Avenue thought there was 50% upside to its NAV target.
Sales for the first half of 2016 came in at $608 million and earnings were at a $31.4 million loss (-64 cents EPS). The balance sheet is very strong with $70.8 million in cash and $300 million in accounts receivables. The liability side shows $68 million in current debt, $121 million in payables and $83 million in long-term debt. Free cash flow as a $3.2 million loss. Targeted cost savings for the merger are $80 million over three years. My guess is that the company chose England as its home base to cut taxes.
The company had a goal of decreasing costs by $19 million of synergies after the merger. Thus far, half of that savings has been realized in 2016. First half sales were up 2% from last year. Management projects a 3% to 5% increase in sales due to seasonal strength in December and sales from KORA 250 in Japan and Perceval in the U.S. Full year guidance of adjusted earnings per share is $2.95 to $3.15. If LivaNova made $3 in EPS, the stock would trade at a forward PE of 20.
The KORA 250 pacemaker is designed to withstand the magnetic fields of MRIs. The average customer is over the age of 65 and has other medical issues. Yesterday, LivaNova launched a new line of implantable cardiac defibrillators (ICDs) and cardiac resynchronization therapy devices (CRT-Ds). In August, favorable results came in for the RESPOND-CRT CRM.
The Perceval sutureless valve is a new generation in aortic valve replacement. The benefit is that it reduces surgery time over competing valves. Part of the valves are made from bovine pericardium--the heart of a cow. Management has a goal of $80 million to $100 million in sales for Perceval.
A nice article was written on Foxsnews.com about AspireSR. This device can detect changes in heart rythyms and prevent patients from going into an epileptic seizure. The article is about a girl in Minnesota who has had great success with the device. The device is implanted in the chest under the collar bone.
Third Avenue notes that its New Ventures unit is what will drive future results. This division is working on percutaneous mitral valve reparation, neuromodulation technologies for treatment sleep apnea, and the treatment of heart failure through vagusnerve stimulation.
So is the stock a buy? I don't know. All of this health care stuff is way outside of my wheelhouse. I can see why Third Ave bought shares. It does seem like the company is on a role. I don't buy this type of stuff because then I have to become an expert and I don't want to do that. Still, there is very little coverage on the stock in the U.S. and it's worth knowing about.
Disclosure: We own shares in Third Avenue.
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