Abiomed: Correction Offers Good Buying Opportunity
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Summary:
- Abiomed’s Impella range of micro heart pumps enjoy rising demand in the marketplace.
- The company’s OXY-1 System cardiopulmonary support device has strong growth prospect.
- The company’s revenue will grow at a CAGR of high-single digits in the long term, which will drive the company’s share price significantly higher in the next five years.
Ake Ngiamsanguan/iStock via Getty Images
Abiomed’s (NASDAQ:ABMD) micro heart pumps enjoy rising demand in the cardiovascular marketplace. I expect the company’s Impella range of micro heart pumps will drive the company’s long-term revenue growth significantly, and its Impella product pipeline will support long-term revenue growth as well. Long-term growth-oriented investors can buy the company’s shares around the current price to maximize their profit.
Abiomed develops heart pump products and oxygenation products for patients who are suffering from severe heart disease and in need of hemodynamic support. Its products are used in cath lab by interventional cardiologists and in the heart surgery suite by cardiac surgeons. The company’s heart pump products work by improving blood flow and/or performing the pumping function of the heart. Its oxygenation products work by providing sufficient oxygenation to respiratory failure patients.
Growth Drivers
Impella Heart Pumps
Abiomed’s Impella micro heart pump product line is its main growth driver. Impella is a percutaneous heart pump that is used to treat CHD (coronary heart disease), and high-risk PCI (percutaneous coronary intervention). Impella has variants which are Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5 and Impella RP. These pumps beat competitive products, such as intra-aortic balloon pumps (IABPs) and the TandemHeart device, due to the following reasons:
- Impella helps CHD and PCI patients maintain proper blood circulation in a better way.
- Impella offers continued function irrespective of timing or trigger.
- These pumps offer stability to patients despite the presence of arrhythmias.
- These pumps can pump up to 2.5 to 6 liters of blood per minute, which provides better cardiac output.
According to a report:
The heart pump device market is projected to reach USD 5.5 billion by 2026 from USD 2.1 billion in 2021, at a CAGR of 21.6% from 2021 to 2026. Promising product pipeline, increasing number of product approvals and emerging markets are expected to offer growth opportunities in the market during the forecast period.
Due to the strong growth prospects of the heart pump market, Abiomed’s revenue will continue to grow rapidly in the next five years.
OXY-1 System
Abiomed’s OXY-1 System, which is a compact cardiopulmonary support system, is the company’s another growth driver. The system offers respiratory assistance to patients suffering from cardiogenic shock combined with respiratory failure. The machine’s oxygen concentrator and pump provide oxygenation to venous blood, and as a result, patients get significant respiratory support. The device performs well in the competitive environment and beat competitor products such as traditional ECMO (extracorporeal membrane oxygenation) machines due to its capability to provide uniform blood flow and superior respiratory support. I expect the device will support Abiomed’s long-term revenue growth which primarily comes from Impella.
Competition
The heart pump industry is characterized by tremendous competition. Abiomed’s competitors in this industry include Abbott Laboratories (ABT), Medtronic (MDT), Edwards Lifesciences (EW), Boston Scientific (BSX), LivaNova (LIVN), and Terumo Corporation (OTCPK:TRUMF). Abiomed competes with these companies on the basis of developing innovative heart pump devices, continuity in new product development, and advanced 24 x 7 hospital support.
Abiomed’s primary competitive advantage is that its current strategy of developing devices in the area of circulatory care is supported by substantial expertise in developing heart pump devices. As a result, the company’s heart pump devices enjoy significant demand in the marketplace. The company intends to continue to use its expertise in developing additional circulatory support devices and making enhancements to existing devices, which will support its future revenue growth. The company’s another competitive advantage is that its Impella micro heart pump is the only FDA approved heart pump for high-risk PCI, cardiogenic shock, and right ventricular failure. As a result, Impella and its forthcoming variants will continue to drive Abiomed’s revenue growth.
First Quarter 2023 Financial Results
Abiomed reported first quarter 2023 revenue of $277 million, an increase of 10% year-over-year, compared to $253 million in the prior fiscal year period. Non-GAAP net income per diluted share came in at $1.25, an increase of 13.6% year-over-year, compared to $1.10 in the prior fiscal year period.
The company delivered strong results for the first quarter of fiscal 2023. Top line grew driven by robust sales across the U.S., Europe and Japan. The company’s heart pump product line is witnessing growing adoption since it addresses the challenge of treating heart disease in multiple emergency patient populations in the cath lab and surgical suite. This is driving the company’s revenue growth. The company’s bottom line grew driven by strong patient utilization across the three regions mentioned above. Abiomed 2.0, the new Abiomed with unparalleled focus on innovating heart and lung repairing devices amid hindrances such as hospital labor shortages, supply chain constraints and contrast media shortages, will boost the company’s top and bottom line growth in the next five years. I expect the company’s revenue will grow at a CAGR of high single-digits in this time frame.
The company’s Impella 5.5 surgical heart pump drove its surgical revenue 49% year-over-year in the quarter. The heart pump with SmartAssist software has the ability to drive the company’s long-term revenue growth meaningfully since it provides unique advantages for the chronic heart failure patient population suffering from cardiogenic shock. Impella 5.5 has a game-changing technology which can improve patient outcomes with 75% survival rate across all indications.
Valuation
|
ABMD |
ABT |
MDT |
EW |
BSX |
LIVN |
|
|
P/E Non-GAAP (FY1) |
51.66 |
19.84 |
14.65 |
33.25 |
21.81 |
21.03 |
|
Price/Sales (TTM) |
10.45 |
3.87 |
3.50 |
9.72 |
4.44 |
2.63 |
|
Price/Cash Flow (TTM) |
36.98 |
17.07 |
15.15 |
33.85 |
46.07 |
37.02 |
(Data Source: Seeking Alpha)
Abiomed is expensive compared to its peer group companies. The company has a strong balance sheet consisting of cash and equivalents of $180.5 million, and zero debt. The company is expensively priced because its Impella product line enjoys rising demand in the marketplace, which is expected to drive its long-term revenue growth at a CAGR of high single-digits. I expect macroeconomic activities in the next five years will continue to remain strong, and this will support Impella’s long-term demand growth. Abiomed has a strong product pipeline consisting of Impella ECP, Impella XR Sheath and Impella BTR, which will support Impella’s rising demand. Driven by the company’s long-term revenue growth, its share price will see steady appreciation. I believe the company’s shares can be bought around the current price exploiting the current correction in the stock market.
Assuming Abiomed’s revenue will grow at a CAGR of 9% in the next five years, I will find out the company’s long-term (five-year) share price. In the last five years, the company’s revenue has grown at a CAGR of 12%, and I believe in the next five years the company’s revenue will grow at a CAGR of 9% driven by Impella’s rising demand. The company’s trailing 12-month revenue is $1,056.3 million, and at a CAGR of 9% the company’s end-2027 revenue will be $1,625.00 million, or $35.75 per share. In the last three years, the company’s shares have traded between the price to sales multiples of 7.5x and 20x. I expect in the next five years, the company’s price to sales multiple will touch a high of around 15.00x driven by growing demand for Impella heart pumps. Applying a price to sales multiple of 15.00x on Abiomed’s end-2027 revenue per share, I get $536.25 as the company’s end-2027 share price.
Risks
The company derives most of its revenues from sales of its Impella devices and related services. The company anticipates that Impella will continue to drive its revenue growth in the near future. This is a risky affair. If the company cannot diversify its business beyond Impella, such as OXY-1 System, its revenue growth and profitability could be negatively impacted.
The company’s business objectives will be achieved only if its products are accepted and recommended by leading cardiac surgeons and interventional cardiologists. The decisions of these surgeons and cardiologists are influenced by the fact that Abiomed’s products are safe and effective. If the company fails to develop new relationships with leading surgeons and cardiologists, its revenue growth and results of operations could be negatively impacted.
Conclusion
Abiomed’s innovative technology and 24/7 hospital support addresses the growing epidemic of heart disease in a better way compared to competitors. The Impella line of heart pumps outcompetes IABPs and TandemHeart consistently and continues to grab market share from these solutions. As a result, Abiomed’s revenue continues to grow. Long-term investors can buy the company’s shares around the current price.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.