Rating Update: Stock Rating C-High Neutral (3/31/20)-Repro MedSystems Inc (REPR).

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BUSINESS

Repro Med Systems, Inc. designs, manufactures, and markets proprietary portable medical devices and supplies primarily for the ambulatory infusion market and emergency medical applications worldwide. The company offers mechanical infusion product FREEDOM infusion systems, which include the FREEDOM60 syringe infusion driver, the FreedomEdge syringe infusion driver, HIgH-Flo subcutaneous safety needle sets, RMS precision flow rate tubing, and RMS precision flow rate controller, as well as medical suction product RES-Q-VAC, a portable medical suction system. The company sells its products directly to physician offices, hospitals, and other institutional customers, as well as through regional distributors specializing in the hospital respiratory care market. Repro Med Systems, Inc. was founded in 1980 and is headquartered in Chester, New York.
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INVESTMENT RATING

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REPR’s future returns on capital are forecasted to be above the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.

Repro MedSystems has a current Value Trend Rating of C (High Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Repro MedSystems has a very low Appreciation Score of 13 but a very high Power Rating of 99, producing the High Neutral Value Trend Rating.

Repro MedSystems’ stock is selling significantly above targeted value. The current stock price of $7.50 compares to targeted value 12 months forward of $4.
Repro MedSystems’ very low appreciation potential results in an appreciation score of 13 (87% of the universe has greater appreciation potential.)
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Repro MedSystems has a Power Rating of 99. (REPR’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 1% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; and the recent trend in REPR’s earnings estimates has been extremely favorable. An offsetting factor is is in a slightly weakened position current.

INVESTMENT PROFILE

REPR’s financial strength is high. Financial strength rating is 71.
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Relative to the S&P 500 Composite, Repro MedSystems Inc has moderate Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that REPR is normal risk. All factors are relative strengths. REPR’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. REPR has unusually low market capitalization.

CURRENT SIGNALS

Repro MedSystems’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.

Repro MedSystems’ current technical position is mixed. The stock price is in a 0.5 month down move. The stock has declined 26.9% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.

ALERTS

Positive development: significant quarterly sales acceleration occurred. Negative development: significant quarterly earnings deceleration occurred.
The stock is currently rated C.
Repro MedSystems Inc (NASDAQ: REPR) stock suffered a major decline of -16.4% on 3/31/20. The shares closed at $0.19. NORMAL trading volume accompanied the decline. The stock has been exceptionally strong relative to the market over the last nine months and has risen 18.9% during the last week.

CASH FLOW

In 2019, Repro MedSystems generated a significant increase in cash of +$0.61 million (+12%). Sources of cash were larger than uses. Cash generated from 2019 EBITDA totalled +$1.28 million. Non-operating uses consumed -$0.25 million (-19% of EBITDA). Cash taxes consumed -$0.13 million (-10% of EBITDA). Re-investment in the business amounted to -$2.38 million (-186% of EBITDA). On a net basis, debt investors furnished +$0.38 million (+30% of EBITDA) while equity investors furnished +$1.71 million (+133% of EBITDA).
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Repro MedSystems’ Non-operating Income, %EBITDA has suffered a strong overall downtrend over the period. This downtrend was accompanied by stability for the Repro Medsystems Inc Peer Group. In most years, Repro MedSystems was in the top quartile and lower quartile. Currently, Repro MedSystems is at the lower quartile at -19% of EBITDA (-$0.25 million).

Repro MedSystems’ Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Repro Medsystems Inc Peer Group. (Since 2016 Cash Taxes, %EBITDA has accelerated very sharply.) In most years, Repro MedSystems was in the third quartile and second quartile. Currently, Repro MedSystems is substantially above median at -10% of EBITDA (-$0.13 million).

Repro MedSystems’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Repro Medsystems Inc Peer Group. In most years, Repro MedSystems was in the top quartile and second quartile. Currently, Repro MedSystems is below median at -186% of EBITDA (-$2.38 million).

Repro MedSystems’ Debt Investors, %EBITDA has experienced a strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Repro Medsystems Inc Peer Group. In most years, Repro MedSystems was in the second quartile and third quartile. Currently, Repro MedSystems is at median at +30% of EBITDA (+$0.38 million).

Repro MedSystems’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Repro Medsystems Inc Peer Group. (Since 2016 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Repro MedSystems was in the top quartile. Currently, Repro MedSystems is upper quartile at +133% of EBITDA (+$1.71 million).

Repro MedSystems’ Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Repro Medsystems Inc Peer Group. (Since 2016 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Repro MedSystems was in the top quartile. Currently, Repro MedSystems is upper quartile at +48% of EBITDA (+$0.61 million).
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Repro MedSystems’ Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Repro Medsystems Inc Peer Group as well. In most years, Repro MedSystems was in the top quartile. Currently, Repro MedSystems is upper quartile at +25%.

PROFITABILITY

Repro MedSystems’ return on equity has eroded very significantly since 2010 sharply accelerating after the 2017 level.
This very significant erosion was due to very strong negative trend in pretax operating return and small positive trend in non-operating factors.
The productivity of Repro MedSystems’ assets rose over the full period 2010-2019: asset turnover has exhibited a minor overall uptrend.
More than offsetting this trend, however, pretax margin experienced a strong overall downtrend that accelerated very sharply from the 2017 level.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
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Repro MedSystems’ return on equity is lower quartile (5.0%) for the four quarters ended December, 2019.
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Operating performance (pretax return on assets) is lower quartile (5.0%) reflecting asset turnover that is at the upper quartile (1.67X) and lower quartile pretax margin (3.0%).
Tax “keep” rate (income tax management) is at the upper quartile (81.0%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is at the lower quartile (1.24X).

GROWTH RATES

There are no significant differences between Repro MedSystems’ longer term growth and growth in recent years.
Repro MedSystems’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.

Annual revenue growth has been 14.7% per year.

Total asset growth has been 12.4% per year.

Annual E.P.S. growth has been 4.5% per year.

Equity growth has been 13.6% per year.

Repro MedSystems’ consensus growth rate forecast (average of Wall Street analysts) is 60.0% — substantially above the average of the historical growth measures.
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Relative to the Repro Medsystems Inc Peer Group, Repro MedSystems’ historical growth measures are generally top quartile. Revenue growth (14.7%) has been upper quartile. Total asset growth (12.4%) has been upper quartile. Equity growth (13.6%) has been upper quartile. E.P.S. growth (4.5%) has been below median.

Consistent with this pattern, consensus growth forecast (60.0%) is also upper quartile.
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PRICE HISTORY

Over the full time period, Repro MedSystems’ stock price performance has been volatile and exceptional. Between May, 2009 and March, 2020, Repro MedSystems’ stock price rose +4210%; relative to the market, this was a +1433% gain. Significant price moves during the period: 1) March, 2017 – February, 2020: +1925%; 2) June, 2013 – December, 2014: +135%; and 3) November, 2010 – June, 2011: +184%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 368.8% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through March, 2020 of 368.8% is upper quartile relative to Repro MedSystems Inc Peer Group.

Current 5-year total return performance of 78.8% is upper quartile relative to the S&P 500 Composite.
Through March, 2020, with upper quartile current 5-year total return of 78.8% relative to S&P 500 Composite, Repro MedSystems’ total return performance is upper quartile relative to Repro MedSystems Inc Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, REPR’s overall valuation is exceptionally high. All five factors are lower quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/assets, then by the ratio of enterprise value/earnings before interest and taxes, then by the price/equity ratio. The lowest factor is the ratio of enterprise value/revenue.
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Repro MedSystems has a major value gap compared to the median valuation. For REPR to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 13.81X to 1.37X. If REPR’s ratio of enterprise value/revenue were to fall to 1.37X, its stock price would be lower by $-7 to $1.
For REPR to fall to lower quartile valuation relative to the Repro MedSystems Inc Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 13.81X to 1.01X. If REPR’s ratio of enterprise value/revenue were to fall to 1.01X, its stock price would decline by $-7 from the current level of $7.50.

VALUE TARGETS

REPR’s future returns on capital are forecasted to be above the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
Repro MedSystems’ current Price Target of $5 represents a -40% change from the current price of $7.50.
Repro MedSystems’ very low appreciation potential results in an appreciation score of 13 (87% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 13, the high Power Rating of 99 results in an Value Trend Rating of C.
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Repro MedSystems’ current Price Target is $5 (+206% from the 2019 Target of $1 but -40% from the 03/31/20 price of $7.50). This dramatic rise in the Target is the result of a +38% increase in the equity base and a +121% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a very large positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
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PTR’s return on equity forecast is 41.6% — substantially above our recent forecasts. Forecasted return on equity exhibited a modest, erratic decline between 2011 and 2019. The current forecast is significantly above the 2016 low of 4%.

PTR’s growth forecast is 23.0% — substantially above our recent forecasts. Forecasted growth suffered a dramatic, steady decline between 2011 and 2019. The current forecast is significantly above the 2018 low of 8%.

PTR’s cost of equity forecast is 14.2% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2011 and 2019. The current forecast is well above the 2018 low of 5.8%.
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At Repro MedSystems’ current price of $7.50, investors are placing a positive value of $5 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 11.0% per year, and a return on equity of 24.6% versus a cost of equity of 10.8%.
PTR’s 2021 Price Target of $5 is based on these forecasts and reflects an estimated value of existing assets of $2 and a value of future investments of $3.

About John Lafferty 98297 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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