BUSINESS
Integer Holdings Corporation operates as a medical device outsource manufacturer in the United States, Puerto Rico, Costa Rica, and internationally. It operates through Medical and Non-Medical segments. The company offers products for interventional cardiology, structural heart, heart failure, peripheral vascular, neurovascular, interventional oncology, electrophysiology, vascular access, infusion therapy, hemodialysis, urology, and gastroenterology procedures.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, ITGR is expected to continue to be an important Value Builder.
Integer Holdings has a current Value Trend Rating of C (High Neutral).
This rating combines contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Integer Holdings has a slightly negative Appreciation Score of 36 but a good Power Rating of 83, and the High Neutral Value Trend Rating results.
Integer Holdings’ stock is selling at targeted value. The current stock price of $115.06 compares to targeted value 12 months forward of $115.
This moderately low appreciation potential results in an appreciation score of 36 (64% of the universe has greater appreciation potential.)
Integer Holdings has a Power Rating of 83. (ITGR’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 17% of companies in the universe.)
Factors contributing to this good Power Rating include: recent price action has been extremely favorable; and earnings estimate behavior for ITGR has been slightly favorable recently. An offsetting factor is the Electromedical Apparatus comparison group is currently in an unfavorable position.
INVESTMENT PROFILE
ITGR’s financial strength is below average. Financial strength rating is 38.
Relative to the S&P 500 Composite, Integer Holdings Corp has moderate Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that ITGR is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, and low historical growth. ITGR’s valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. ITGR has unusually low market capitalization.
CURRENT SIGNALS
Integer Holdings’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Integer Holdings’ current technical position is very strong. The stock price is in a 5.1 month up move. The stock has appreciated 61.2% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Marginal positive changes in Integer Holdings Corp (NYSE: ITGR) fundamentals have recently occurred: significant quarterly earnings acceleration occurred.
The stock is currently rated C.
Integer Holdings Corp (NYSE: ITGR) stock closed at $115.06 on 3/27/24 after a large increase of 3.2%. However, normal trading volume at 83% of normal accompanied the advance. The stock has risen 1.5% during the last week and has been exceptionally strong relative to the market over the last nine months.
CASH FLOW
In 2023, Integer Holdings experienced a decrease in cash of -$0.6 million (-2%). Sources of cash were very modestly less than uses. Cash generated from 2023 EBITDA totaled +$285.8 million. Non-operating uses consumed -$32.2 million (-11% of EBITDA). Cash taxes consumed -$31.7 million (-11% of EBITDA). Re-investment in the business amounted to -$229.1 million (-80% of EBITDA). On a net basis, debt investors received -$4.4 million (-2% of EBITDA) while equity investors contributed +$10.9 million (+4% of EBITDA).
Integer Holdings’ Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Integer Holdings Peer Group. In most years, Integer Holdings was in the third quartile and second quartile. Currently, Integer Holdings is at the lower quartile at -11% of EBITDA (-$32.2 million).
Integer Holdings’ Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Integer Holdings Peer Group. (Since 2020 Cash Taxes, %EBITDA has decelerated.) In most years, Integer Holdings was in the third quartile and second quartile. Currently, Integer Holdings is below median at -11% of EBITDA (-$31.7 million).
Integer Holdings’ Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Integer Holdings Peer Group. (Since 2021 Business Re-investment, %EBITDA has decelerated very sharply.) In most years, Integer Holdings was in the second quartile and lower quartile. Currently, Integer Holdings is substantially below median at -80% of EBITDA (-$229.1 million).
Integer Holdings’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Integer Holdings Peer Group. (Since 2021 Debt Investors, %EBITDA has decelerated very sharply.) In most years, Integer Holdings was in the top quartile and lower quartile. Currently, Integer Holdings is above median at -2% of EBITDA (-$4.4 million).
Integer Holdings’ Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Integer Holdings Peer Group. (Since 2021 Equity Investors, %EBITDA has experienced a sharp recovery.) In most years, Integer Holdings was in the top quartile and second quartile. Currently, Integer Holdings is slightly above median at +4% of EBITDA (+$10.9 million).
Integer Holdings’ Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Integer Holdings Peer Group. In most years, Integer Holdings was in the third quartile. Currently, Integer Holdings is below median at -0% of EBITDA (-$0.6 million).
Integer Holdings’ Cash, %Revenue has experienced a small downtrend over the period. This downtrend was accompanied by stability for the Integer Holdings Peer Group. In most years, Integer Holdings was in the lower quartile. Currently, Integer Holdings is lower quartile at +1%.
PROFITABILITY
Integer Holdings’ return on equity has improved very significantly since 2014. The current level is 6.0% versus the high of 9.0% and the low of -0.9%.
This very significant improvement was due to very strong positive trend in pretax operating return and little change in non-operating factors.
The productivity of Integer Holdings’ assets rose over the full period 2014-2023: asset turnover has exhibited a volatile overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend although it experienced a very sharp decline after the 2021 high.
Non-operating factors (income taxes and financial leverage) had little influence on return on equity.
Integer Holdings’ return on equity is lower quartile (6.0%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is at median (3.6%) reflecting asset turnover that is at the lower quartile (0.54X) and slightly above median pretax margin (6.7%).
Tax “keep” rate (income tax management) is above median (84.5%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is below median (1.94X).
GROWTH RATES
There are no significant differences between Integer Holdings’ longer term growth and growth in recent years.
Integer Holdings’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 4.1% per year.
Total asset growth has been 3.0% per year.
Annual E.P.S. growth has been 16.1% per year.
Equity growth has been 7.3% per year.
Integer Holdings’ consensus growth rate forecast (average of Wall Street analysts) is 13.5% — substantially above the average of the historical growth measures.
Relative to the Integer Holdings Peer Group, Integer Holdings’ historical growth measures are erratic. Equity growth (7.3%) has been upper quartile. E.P.S. growth (16.1%) has been at median. Revenue growth (4.1%) has been below median. Total asset growth (3.0%) has been below median.
Consensus growth forecast (13.5%) is at the lower quartile.
PRICE HISTORY
Over the full time period, Integer Holdings’ stock price performance has been variable and good. Between May, 2013 and March, 2024, Integer Holdings’ stock price rose +257%; relative to the market, this was a +11% gain. Significant price moves during the period: 1) September, 2016 – February, 2019: +319%; and 2) November, 2015 – September, 2016: -63%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 47.1% 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 February, 2024 of 47.1% is upper quartile relative to Integer Holdings Corp Peer Group.
Current 5-year total return performance of 3.9% is substantially below median relative to the S&P 500 Composite.
Through February, 2024, with substantially below median current 5-year total return of 3.9% relative to S&P 500 Composite, Integer Holdings’ total return performance is below median relative to Integer Holdings Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, ITGR’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is near the upper quartile. Ratio of enterprise value/assets is slightly above median. Ratio of enterprise value/revenue is below median. The lowest factor, the price/equity ratio, is below median.
Relative to Integer Holdings Peer Group, ITGR’s overall valuation is quite high. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is at the upper quartile. Price/equity ratio is at the upper quartile. Ratio of enterprise value/revenue is at the upper quartile. The lowest factor, the ratio of enterprise value/assets, is upper quartile.
Integer Holdings has a major value gap compared to the median valuation. For ITGR to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 3.07X to 2.08X. If ITGR’s ratio of enterprise value/revenue were to fall to 2.08X, its stock price would be lower by $-47 to $68.
For ITGR to fall to lower quartile valuation relative to the Integer Holdings Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 3.07X to 1.37X. If ITGR’s ratio of enterprise value/revenue were to fall to 1.37X, its stock price would decline by $-81 from the current level of $115.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, ITGR is expected to continue to be an important Value Builder.
Integer Holdings’ current Price Target of $119 is little changed from the current price of $115.06.
This moderately low appreciation potential results in an appreciation score of 36 (64% of the universe has greater appreciation potential.)
Notwithstanding this moderately low Appreciation Score of 36, the high Power Rating of 83 results in an Value Trend Rating of C.
Integer Holdings’ current Price Target is $119 (+11% from the 2023 Target of $107 and +4% from the 03/27/24 price of $115.06). This slight rise in the Target is the result of a +3% increase in the equity base and a +8% increase in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 12.5% — above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is above the 2015 low of 10%.
PTR’s growth forecast is 6.0% — slightly below our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is well below the 2017 peak of 11%.
PTR’s cost of equity forecast is 7.4% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, variable decline between 2015 and 2023. The current forecast is steady at the 2015 peak of 8.7%.
At Integer Holdings’ current price of $115.06, investors are placing a positive value of $14 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 9.0% per year, and a return on equity of 7.8% versus a cost of equity of 5.3%.
PTR’s 2025 Price Target of $119 is based on these forecasts and reflects an estimated value of existing assets of $92 and a value of future investments of $28.
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