LivaNova Valuation Multiples Likely to Increase Amid Steady Progress, Stifel Says In Bullish Initiation

The transformation medical device manufacturer LivaNova PLC LIVN has undergone over the past 18 months has left a Stifel analyst impressed. 

The Analyst

Analyst Rick Wise initiated coverage of LivaNova with a Buy rating and $115 price target.

The Thesis

LivaNova, formed following the merger of Cyberonics and Sorin in 2015, has gone through a positive metamorphosis by way of divesting its slower-growth, lower-margin cardiac rhythm management business; recruiting an efficient management team and enacting three growth-enhancing tuck-in acquisitions, Wise said in the initiation note. 

This work has has laid the foundation for strong top- and bottom-line growth and growth-enhancing pipeline investments — and it hasn't been factored into the stock price, the analyst said.

The Stifel analyst sees potential for sales accelerating beyond his estimate of mid-single digit revenue growth. LivaNova's revenue growth acceleration could come from three directions, Wise said: 

• Focused and enhanced R&D investment.
• Acquisitions.
• Geographic expansion across the portfolio.

LivaNova is an equally compelling margin expansion story, with a 70-percent-plus gross margin likely by 2022 alongside equally impressive operating margin expansion, the analyst said. 

Stifel estimates an earnings per share CAGR of about 11 percent over the 2017-2022 period, with EPS reaching $5.61. Every $50 million in incremental revenue leads to a 15-20 cent EPS accretion, Wise said. 

"Over time, we believe LivaNova's valuation multiples will likely increase, as the company continues making consistent and steady progress across key commercial, regulatory and pipeline initiatives." 

The Price Action

LivaNova shares have gained about 20 percent year-to-date.

Related Links:

Attention Biotech Investors: Mark Your Calendar For These June PDUFA Dates

Abeona Therapeutics Has First-Mover Potential In Rare Diseases, Seaport Says In Bullish Initiation